Germany’s healthcare system: Funding, resource

allocation, provider payment, efficiency, and access

Short title: Germany’s healthcare system

Daniel Tobias Michaeli1,2,3,4,*; Hasan Basri Yagmur4; Thomas Michaeli1,2,5

1
Fifth Department of Medicine, University Hospital Mannheim, Heidelberg University,
Mannheim, Germany. 2Department of Personalized Oncology, University Hospital Mannheim,
Heidelberg University, Mannheim, Germany. 3Department of Health Policy, London School
of Economics and Political Science, London, UK. 4TUM School of Management, Technical
University of Munich, Munich, Germany. 5Division of Personalized Medical Oncology,
German Cancer Research Center (DKFZ), Heidelberg, Germany. *Correspondence to Daniel
Tobias Michaeli at Heidelberg University, University Hospital Mannheim, Germany. Email:
danielmichaeli@yahoo.com.

Article Information
Abstract word count: 123
Text word count: 1,633
Number of figures: 2
Number of tables: 1

Declarations
Funding: Not applicable.
Disclosure statement: Not applicable.
Code availability: Not applicable.
Ethical standards: Not applicable.
Conflict of interest: The authors declare no conflict of interest.
Acknowledgement: Not applicable.

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Germany’s healthcare system Michaeli et al. (2022)

ABSTRACT

Germany’s healthcare system is praised as one of the best in the world. In this article, we

review Germany’s health system by critically analysing its structure, funding, resource

allocation, provider payments, efficiency, health outcomes, and access. Whilst health

provision and access are comparably high, signs of technical inefficiencies exist. Although

health expenditures are rising, outcomes remain average. The co-existence of social and

private health insurance leads to inequality in access (preferential treatment) and outcomes.

This parallel structure and numerous federal agencies further increase administrative burdens

and unavoidably costs. Autonomous self-governing bodies within the well-designed legal

framework ensure a balanced competitive healthcare system. Recent regulations reformed

long-term care, increased retirement age, promote prevention and eHealth, besides aiming to

introduce pay-for-performance in hospitals.

Keywords: healthcare system; healthcare financing; private health insurance; patient access;

efficiency; resource allocation; equity; public health insurance; health policy; health

economics; Germany

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Germany’s healthcare system Michaeli et al. (2022)

Introduction

Germany’s healthcare system is based on the German constitution (§20 GG): The state is

required “(…) to provide social services to its citizens. Specifically, the state must ensure

sufficient, needs-based ambulatory and inpatient medical treatment, in qualitative and

quantitative terms, as well as guarantee the provision of medicine.” 1 However, the

government delegates healthcare provision to several independent self-governing bodies

within a well-defined legal framework. Citizens must either join the contribution based social

health insurance (SHI) or the risk-related, premium-based, private health insurance (PHI).

With a population of 83 million, Germany spends 11.2% of its GDP (€355 billion) on

healthcare (2017).2–4 Further socioeconomic characteristics are summarized in Table 1. In the

1990s policies focused on cost-containment, but shifted to quality improvements in the

2000s.5

[Table 1]

Funding

Germans are mandatorily covered by either public SHI (87%), PHI (11%), or specialized

schemes (2%).6 Public sources (74% of revenues) are effectively cross-subsidized by private

sources (26% of revenues) (Figure 1).7 Regressive (OOP, PHI) slightly outweighs progressive

(SHI, taxes) funding (Kakwani-Index: -0.04) as ceilings in SHI and taxes set a limit to the

proportional contribution rate. Consequently, there is no evidence for horizontal inequity.

Public funds (74%):

 Social Insurance (70%): Social insurance funding consists of insurances for health

(57%), retirement (10%), long-term care (2%), and occupational accident (1%). It is

mandatory to join the SHI scheme below a yearly adjusted annual income of €62.550

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Germany’s healthcare system Michaeli et al. (2022)

EU (2020).7 Above this threshold individuals may choose to be privately insured (opt-

out).8 Since 1996, numerous sickness funds (2018: 109) 2 compete for members, but

are “(..) contractually obliged to accept any applicant, regardless of health risk

profile.”1 SHI contributions are levied on wages (2019: 14.6%; 1992: 12%) up to an

annual income threshold of €56.250 and paid in parity by employer and employee. a

Therefore, contributions essentially function as earmarked taxes used for health

purposes only.

 Taxes (4%):b Tax revenues are mainly allocated to the healthcare system through

ministries of health (investments in hospital assets) and science (medical and dental

education).9

Private funds (26%)

 Out-of-pocket (14%): Out-of-pocket (OOP) payments can be attributed to

expenditures for services that are not covered by SHI. 2 Spending is largely driven by

long-term care expenditure (33%),c pharmaceuticals (18%),d dental care (mainly due

to co-payments) (14%), outpatient medical care (16%) and medical devices (20%).

 PHI (8%): Coverage through PHI companies (2018: 41) is based on risk-rated

premiums paid by the individual.2 A variety of fragmented benefit packages exists.

Benefits are reimbursed in cash (not in kind). 8 Premiums rise steeply with age and

therefore may lead to financial hardship during retirement. To avoid “cherry picking” e,

switching back to SHI is prohibited after the age of 55.f

a
Occupational accident insurance is paid for by the employer alone.
b
Note: Tax revenue is actually much higher than the stated 4% due to tax subsidise included in SHI expenses.
c
Recent long-term care reforms (2016 and 2018) aim to expand the benefit package and reduce co-payments.
d
Co-payments for pharmaceutical is structured as followed: A 100% coinsurance rate for drugs priced up to €5
and 10% co-insurance for drugs prices from €5 up to a limit of €10.
e
Cherry picking: Low risk-related premiums in young age (PHI) and low standardized contribution rates in old
age (SHI).
f
However, it is conversely always possible to switch to the PHI base tariff which is comparable to the SHI benefit
package.

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Germany’s healthcare system Michaeli et al. (2022)

[Figure 1]

Resource allocation

Social health insurance

SHI contributions are directly collected from employers and employees in the central

reallocation pool.7 Money is then reallocated to sickness funds according to the following risk

equalization scheme (Figure 2): First, a “basic flat rate per insured person of the amount of the

average per capita expenditure” (2011: 210 EUR per month) and additionally a “age-, sex- and

morbidity-based premium or discount on the flat rate to adjust payments according to healthcare

needs”.7 Reallocated revenues must cover all insured members’ expenses or an extra

contribution has to be raised.

The objective of the first risk-equalization scheme in 1994 was to balance “(…) differences in

expenditure among sickness fund-insured people (..)” related to age, sex, disability, income and

number of dependents.7 It sought to balance competition and mandatory enrollment in the SHI

system to allow for fair and equal competition between funds. Further reforms addressed cream

skimming, unified contribution rates, and incentivized disease management programs (DMP).5

The 2009 reform “aimed for a more efficient resource allocation” by including direct morbidity

measures.7

Private health insurance

Private insurers are self-administered firms which operate independently from public schemes.

The coexistence of SHI and PHI results in considerable inequalities with PHI individuals

earning higher incomes and having better health outcomes.7 PHI predominantly select healthy,

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Germany’s healthcare system Michaeli et al. (2022)

young, educated, and high earning individuals (“adverse selection”) and thereby do not

contribute to the solidarity of the healthcare system and endanger its long-term sustainability.

[Figure 2]

Provider payment

General healthcare provision and payment guidelines are defined on a federal level between

payers and providers in a federal framework contract. 1 Both parties prospectively negotiate

collective (or rarely selective) contracts (Figure 2).7

Ambulant care payment

Fee-for-service (FFS) payments are used to pay SHI-physicians (GPs, specialists or outpatient

hospitals) indirectly in a two-step process. First, sickness funds pay a prospectively negotiated

lump sum to the 17 regional association SHI-physicians who act as financial intermediaries. 1

Each association of SHI-physicians is in turn obliged to ensure sufficient outpatient treatment

(§75 SGB V). Second, regional association reimburse SHI-accredited physicians based on a

uniform FFS schedule negotiated with sickness funds.8

The payment occurs in two instalments: First, prospective payment of a monthly instalment

based on 75% of the previous year’s remuneration and then retrospective payment of the

actual earned remuneration after quarterly submitted accounting data. 7 Services that can be

charged are determined by a subgroup of the Federal Joint Committee. Since 2009, a

morbidity-based, instead of a capitation ceiling, is utilized to limit doctor’s office payments.

This shifts the “morbidity risk from (…) physicians to the sickness funds.”7 Beyond 10% of

this ceiling, additional services incur a penalty, a reduced FFS factor. g Additionally,

g
The ceiling doesn’t apply to special services negotiated through selective contracts.

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Germany’s healthcare system Michaeli et al. (2022)

physicians are reimbursed directly by patients, which are then reimbursed by their PHI, based

on a more exhaustive, complex and expensive, fee schedule (up to 3.5x the SHI schedule).7

Case-based hospital payment

According to the hospital financing act of 1972, a dual financing system outlines hospital

payments.1,7 Hospital capital investments are financed by federal and state taxes based on the

state’s requirement plan irrespective of their corporate form.9 In contrast, ongoing costs are

reimbursed by SHI or PHI. Since 2004 this reimbursement is structured by diagnosis related

groups (DRGs). Costs are calculated every two years from a bottom up perspective based on

a retrospective sample of 6% of hospitals. Further, high costs services (e.g. radiotherapy,

dialysis) are subject to supplementary payments.

Efficiency

The health system is highly effective, but costly compared to EU and OECD averages (Table

1). Recent cost containment measures reduced the growth in healthcare expenditure.

 Allocative Efficiency: The dual financing of hospitals results in dual planning.

Ultimately, this leads to conflicting goals and a structural oversupply of hospital beds.

To control pharmaceutical expenditures, reference pricing regulation and cost-

effectiveness evaluations were introduced in 2011.7

 Technical Efficiency: The introduction of DRG-based financing improved efficiency

by decreasing the comparatively long average length of stay and increasing

discharges.7 New regulations aim to reduce the comparative oversupply of hospitals

and hospital beds.

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Germany’s healthcare system Michaeli et al. (2022)

Access

Population

Universal mandatory health coverage covers 99% of the population as dependents are

included in SHI coverage. 2 However, 0.1% of the population remain uninsured due to

complex coverage mechanisms (e.g. low-earning self-employed, widows).2

Services

German residents report almost no unmet medical need in 2017.2 Overall, there is no disparity

in access between income groups. Disparities only exist for access to dental care, which is

only partly covered by the SHI. While the SHI coverage extends beyond crucial healthcare

services, some services are excluded (e.g. dental care), require user charges (e.g. OTC drugs)

or expanded consumer choice / faster access. Therefore, 25% of the population purchases

(supplementary and complementary) voluntary health insurance (VHI) mainly to cover dental

care expenses (80%). However, “(..) its contribution to both total and private spending on

health is very small.”10

Financial protection

Low levels of OOP spending (Germany: 12.5% vs. EU 15.8% in 2017) reflect the

comprehensive SHI benefit package. 2 Therefore, only 2.4% of the population experienced

catastrophic financial hardship because of illness (EU: 5.5%). Safety nets provide financial

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Germany’s healthcare system Michaeli et al. (2022)

protection in times of ill health, including a general co-payment limit (2% of annual income)

and cap (€10 on prescription drugs) and exemptions (e.g. minors). 10

Patient access

Rural physician densities vary, causing discrepancies in healthcare access. Nevertheless,

access to hospitals is among EU’s best with 8 beds per 1,000 inhabitants. The different

remuneration structures of SHI and PHI patients in the ambulatory and inpatient setting

promote unequal access. Doctors are incentivized to provide better access and higher quality

care to PHI patients.7 New reforms (2015) decreased average waiting times for physician and

specialist appointments to the minimum level of the EU. Further reforms (2019) aim to

increase the availability for out-of-hour services and improved emergency care.2

Conclusion

Germany’s mandatory health system provides universal coverage with a comprehensive

benefit package and robust financial protection. Whilst health provision and access are

comparably high, signs of technical inefficiencies exist.7 Even though health expenditures are

high, outcomes are only average.2 The co-existence of SHI and PHI leads to inequality in

access (preferential treatment) and outcomes. This parallel structure and numerous federal

bodies further increase administrative burdens and consequently costs.9 Autonomous self-

governing bodies within the well-designed legal framework ensure a balanced competitive

healthcare system.h Recent regulations reformed LTC, increased retirement age, promote

prevention and eHealth, and aim to introduce pay-for-performance in hospitals.5

h
Decrease in the number of sickness funds from 18.776 (1885) to 109 (2018).

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References

1. Döring A, Paul F. The German healthcare system. EPMA J 2010; 1: 535–547.

2. OECD/European Observatory on Health Systems and Policies. Germany: Country

Health Profile 2019, State of Health in the EU.

3. The World Bank. Germany | Data, https://data.worldbank.org/country/germany (2019,

accessed 10 November 2021).

4. European Commission. Database - Eurostat, https://ec.europa.eu/eurostat/data/database

(2020, accessed 10 November 2021).

5. Bundesministerium für Gesundheit (BMG). Bundesgesundheitsministerium,

https://www.bundesgesundheitsministerium.de/ (2020, accessed 10 November 2021).

6. Statistisches Bundesamt. Statistisches Jahrbuch 2019 - Kapital 4 Gesundheit,

https://www.destatis.de/DE/Home/_inhalt.html (2019, accessed 10 November 2021).

7. Busse, Reinhard, Blümel, Miriam. Germany. Health system review.

8. Busse R, Blümel M, Knieps F, et al. Statutory health insurance in Germany: a health

system shaped by 135 years of solidarity, self-governance, and competition. The Lancet
2017; 390: 882–897.

9. Obermann K, Müller P, Müller H-H, et al. The German Health Care System - A concise
Overview. Mannheim, 2013.

10. Siegel M, Busse R. Can people afford to pay for health care? - New evidence on
financial protection in Germany,
http://www.euro.who.int/__data/assets/pdf_file/0004/373585/Can-people-afford-to-
payGermany-WHO-FP-008-4.pdf (2018, accessed 10 November 2021).

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Tables and Figures

Table 1 Demographic, socioeconomic, and healthcare indicators in Germany and the

EU

Figure 1 Enrollment and funding sources for Germany’s healthcare system in 2017 as a
percentage of total healthcare expenditure

Figure 2 Resource allocation and provider payment flow diagram in Germany

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Germany’s healthcare system Michaeli et al. (2022)

Germany EU
Demographic indicators
Population 82,657,000 511,876,000
Life expectancy at birth (m/f) 81.1 (78.7/83.4) years 80.9 (78.3/83.5) years
Fertility rate 1.6 1.6
Poverty rate 16.1% 16.9%
Unemployment rate 3.8% 7.6%
Share of population over age 65 21.2% 19.4%
Population living in urban areas 75% 72%
Human capital index 0.8 -
Gini coefficient 31.1 30.9

Economic indicators
GDP 37,100 € 30,000 €
Healthcare expenditure 355 billion € 1,476 billion €
Healthcare expenditure per capita 4,300 € 2,884 €
Healthcare expenditure per GDP 11.2% 9.8%

Funding sources
Government and compulsory insurance 84.4% 79.3%
Out-of-pocket 12.5% 15.8%
Other (e.g. voluntary health insurance) 3.1% 4.9%

Healthcare spending
Inpatient care 27% 29%
Outpatient care 27% 30%
Pharmaceuticals and medical devices 19% 18%
Long-term care 18% 16%
Prevention 3% 3%
Administration 5% 4%

Risk factors
Self-reported in good health 65% 70%
Dietary risk 19% 18%
Tobacco 15% 16%
Alcohol 5% 6%
Low physical activity 3% 3%
Table 1 Demographic, socioeconomic, and healthcare indicators in Germany and the EU 2–7
GDP: gross domestic product; PPP: purchasing price parity; SHI: social health insurance; PHI: private health
insurance.

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A Enrollment B Funding

Others 2%

Taxes 4%
OO
PH
I 11

P1
%

4%
Em
plo
ye
r4
%
PHI 8
%
Public Public
Private Private

SH
I7
0%
SH
I8
7%

Figure 1 Enrollment and funding sources for Germany’s healthcare system in 2017 as a
percentage of total healthcare expenditure

Graph A portrays the percentage of German citizens enrolled in SHI, PHI, or other insurance schemes. Graph B
illustrates funding sources classified as public (taxes and SHI) and private (PHI, employer, and OOP) as a
percentage of total healthcare expenditure.6,7 SHI: social health insurance; PHI: private health insurance; OOP:
out-of-pocket.

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Germany’s healthcare system Michaeli et al. (2022)

Figure 2 Resource allocation and provider payment flow diagram in Germany

SHI: social health insurance; GP: general practitioners.

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