Spa treatments maybe the preserve of the rich in this country, but in Germany a regular visit forms part of the state’s healthcare system. And with emphasis on prevention, healthcare clubs and sports facilities can also form part of the package.
A healthy 90% of Germans are covered by the state’s system which provides benefits, sometimes capped, across all areas of healthcare. The companies which administer the schemes are similar to mutuals, and have built schemes around a range of affinity groups including companies, guilds and regions.
Chris Moore, business development manager at Mondial Assistance, has experienced virtually no problems with the healthcare provided to clients visiting Germany. “It is a very good system; it takes over and provides clients with whatever is required. It’s certainly a few years behind the problems we’ve been experiencing in the UK.”
To fund the system, everyone earning less than a pre-determined amount – roughly £32,000 a year in 1998 – makes a compulsory contribution of between 12% and 16%. This is matched by the employer. People earning more can remain in the scheme but have the option to take private healthcare. However, once someone has opted out, they cannot re-enter the state system.
Private Medical Insurance
The 10% of the market not covered by the state scheme is serviced by some 50 insurance companies and these are well-regulated by the government: cover must be at least as comprehensive as the state scheme and premiums are capped.
These companies have concentrated on the young, well-paid and healthy end of the market. This group is being wooed with premiums which can be as low as 25% of those under the state system, but with the option to increase them.
Another growth area for the private companies is in supplementary benefit cover. Already Germans have to pay for some of their healthcare, so top-up insurance can soften this blow.
Long Term Care
As an add-on to the state system, long tern care was introduced in 1995. By levying an additional contribution of 1.7%, the government was able to provide cover to approximately 98% of the population. And, to alleviate the burden on the employer, the government cancelled a bank holiday, Repentance Day.
Care needs are assessed according to three levels; needing help once a day; at least three times a day; and round the clock.
Unfortunately the benefits provided under the state system are often insufficient. Klaus Mattar, marketing at Swiss Re’s Cologne office, believes this shortfall could be as much as 50% of the cost. As with the medical insurance side, this shortfall has made top-up products popular.
Insurance for critical illness is regarded as a niche product. One insurance company, which Mattar describes as “one of the larger players”, has sold only 500 policies in the last six years. The main reason cover is not popular is the generous support provided by the state. Mattar explains: “The public does not have a favourable view of life insurance generally. Why take out insurance when the state provides so well?”
This is possibly the one insured product which has translated well to the German market with sales growing rapidly as the state implements cutbacks. Further sales are likely as a result of the on-going reform of disability benefits. One prediction is a move from the generous “own” occupation to the almost worthless “any” occupation definition. This, Mattar believes, would leave a lot of people without any cover, giving huge potential for sales.
The main problem for the German system is caused by demographics. While most of the western world is facing difficulties as populations age, Germany’s problems are particularly acute. Figures from the World Bank estimate that in 2025 there will be 14 workers in Germany for every 10 dependents. In 1989 social security spending was more sustainable with 23 workers supporting every 10 dependents.
This will put immense pressure on Germany’s pay-as-you-go schemes. There are three possible solutions. The first two concern adjusting the existing system; either reduce the benefits provided or increase the contributions. However as salary deductions can mean people take home less than 50% of their gross salary, increasing this, or reducing the benefits, could force more people into the black economy.
The third solution, and the most viable, is to place more onus on self-provision. Economically this would be preferable as Germany’s high spend on social security is already a burden on its ability to compete with other countries.
Germany’s healthcare system may make those reliant on the NHS very jealous. However, it clearly cannot be sustained. The reform process will need to be tackled quickly and is likely to face strong resistance from a population already making a large contribution towards healthcare – perhaps not such an enviable position.