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March 2019 A Universal European Health System for California: The German Model BY MICAH WEINBERG, PHD AND ALICE BISHOP As the Affordable Care Act’s future continues to hang Achieving Universal Coverage in the balance, the idea of implementing some form of universal healthcare system in California or nationwide and Health Equity has become increasingly popular. Much of this discus- A System That Preserves Choice and sion has focused on the desirability and feasibility of Controls Costs adopting a Canadian-style single-payer or “Medicare for All” system. While Canada is a worthwhile case study to Adopting a Universal European Health System model examine, there are other models for a universal health- would allow California to strike a successful balance be- care system that may make more sense for California tween the competing goals of securing access, control- and the U.S., achieve better outcomes, and have a more ling cost, and improving quality. The elements of such a feasible path to implementation. system include: One such example is a “Universal European Health • Not-for-Profit Health: If enacted, such a system System,” inspired by the Bismarck model, most clearly would have one single insurance market for most exemplified by Germany. This report lays out what such people. As in the German system, residents would a model could look like if implemented in California. obtain coverage from competing wellness funds. While this report focuses specifically on the German Unlike in California’s current marketplace, however, system, several other countries use elements of the all insurers would be nonprofit, though an external Bismarck model, including France, Belgium, the Nether- market with for-profit plans may persist. lands, Japan, and Switzerland.1 1 A Universal European Health System for California: The German Model • Public Oversight to Ensure Equity and Value: a variety of products aimed at seniors, low-income As in the state’s Affordable Care Act (ACA) mar- people, and employees, but it would consist of ketplace, Covered California, a public governing one single risk pool and one set of options for body would decide which plans are allowed to all participants. This would spread the risk more participate, based on quality and the range of op- evenly throughout the market, so the premiums of tions available to consumers. All plans would be younger, healthier people would help subsidize the required to cover a standardized set of essential cost of care for people who need to utilize more health benefits. As a result, insurers would engage health services. in managed competition, operating in partnership • Consumer Choice: There would be no mandate with systems and networks of care providers in for employers to provide insurance to their em- order to improve quality. ployees. The employer tax advantage, if preserved, • Universal Equitable Coverage: Plans offered by would only be usable in the common marketplace the wellness funds would be means-tested for all and could not be paired with subsidies. However, residents, regardless of their citizenship or im- employers would still be able to offer add-on migration status. The amount that people pay for services not covered by the insurance package in coverage would depend only on their income (and the general market and could offer complementary not their age); those who earn less would receive insurance without tax advantage.2 more generous subsidies. The market would offer Current System New German Style System Entirely Private Market Individual and Other Private Insurance 3.2 million Employer-Spnsored Managed Market 18.1 million –Comprehensive health plan Medicaid –Nonprofit sickness funds 9.9 million –Standard benefits Medicare 4.4 million Other Public Insurance 0.56 million Special Public Programs (Tricare, V.A.) 2 A Universal European Health System for California: The German Model • Lower Healthcare Costs: The new system would also include Types of Health Insurance in the German System a board similar to the Indepen- dent Payment Advisory Board – Privately paid for – Premiums depend Special Programs, 2% – Public programs in the Affordable Care Act that on age and medical – Cover soldiers and history police officers would implement cost-control – Often covers more measures if medical costs rose benefits than SHI Fully Private significantly above the rate of Insurance, 11% inflation. If market competition alone does not keep health care costs below this target, this independent, non-govern- mental consumer commission Statutory Health Insurance, 87% would be established to recom- – Nonprofit sickness funds mend maximum prices for the – Costs shared equally between highest-growth components of employers and employees – Premiums depend on income the health industry. Implementing the Plan It would make sense for California to exchanges. Its system of managed competition among have a six-year transitional period to implement the new nonprofit health plans would help drive down costs, as single market. Over this time period, Medicaid man- would its other cost-containment measures. The result aged care, employer-sponsored insurance, and Medi- would be a more streamlined system with a more stable care Advantage would slowly be rolled into the market insurance market, a greater number of Californians cov- with appropriate waivers and protections. Due to means ered, and a higher level of quality among plans offered. testing, it would be possible to ensure that neither Medicaid nor Medicare recipients would pay more in the new system than they do under the current system. The Bismarck System in (In spite of beliefs to the contrary, the average combina- Germany tion of premiums and out of pocket costs for seniors on Since this proposal is modeled on the system in Germa- Medicare is over $5,000/year3). ny, it is worth spending some time reviewing the aspects Adoption in California of a health insurance model simi- of this system more closely and examining how it stacks lar to that of Germany represents a politically feasible up against other international systems including those compromise that allows for a high level of individual of the United States and Canada. choice while at the same time guaranteeing universal This paper laid out in the previous section at a very high affordable coverage. It should help close the insurance level what the contours of such a system could be in our gap for vulnerable populations such as undocumented country. The details below would have to be adapted or residents and those who earn too much to qualify for replaced here. Medicaid but too little to realistically afford plans on the 3 A Universal European Health System for California: The German Model Universal Coverage Through Competing Multi-Payer Financing Nonprofit Payers Germany, like almost all systems in the world, is a The German healthcare model combines guaranteed “multi-payer” system. Truly “single-payer” systems are access to healthcare with market competition between vanishingly rare. In Germany, people and employers pay private insurers, while also containing costs and main- yearly premiums to health funds, which distribute money taining a high quality of care.4 It provides healthcare for to sickness funds. Premiums consist of 14.6% of the all, while still allowing individuals the freedom to pur- wages of every employed person they cover, up to earn- chase private insurance if they wish to do so. Coverage ings of about $58,000. Income above that is exempt does not depend on employment, nor does it depend from contribution. This cost is shared equally between on age or medical history. Although nearly all German the employee and the employer, meaning that each residents have to pay for health insurance in some form contributes 7.3% of the employee’s wages. Short-term or another, 100% of the population is insured.5 unemployed people pay a portion of their unemploy- Germany has a semi-private system of universal health ment benefits to the health funds, and the government coverage. This means that the government ensures that covers the cost for the long-term unemployed. Each in- everyone has health insurance, but the insurance provid- dividual sickness fund also charges an extra contribution ers themselves are private organizations. Most Germans fee to its members, usually around 1% of wages, but this 8 – about 87% – get their health insurance through non- varies by plan. Through a “dual-financing” system, Ger- profit organizations called sickness funds, which are part man hospitals’ operating costs are financed by sickness of the statutory health insurance system (SHI).6 Sickness funds, while their investment costs are financed by the funds are not governmental organizations; they have an states. independent organizational and financial structure un- Under the German system, people’s insurance premiums der public law. Consumers can choose from among over depend only on their income. Age and the existence 100 of these funds, which compete with one another. of pre-existing conditions do not influence whether Everyone who makes less than a certain income thresh- people can obtain insurance or how much they pay for old is required by law to be insured by a sickness fund. it. Health funds distribute money to sickness funds, with Not everyone chooses to be a part of the SHI. People the amount depending on the composition of the group who make more than $67,000 a year or who are self-em- insured in each sickness fund to avoid risk selection. If ployed, retired, or unemployed have the option to buy a sickness fund covers more high-risk individuals, it will private insurance outside of the SHI system. About 11% receive more money. of Germans take this route, including civil servants that In the non-SHI private insurance system, premiums are are required to be covered by private insurance. The determined by age and medical history. People who remaining approximately 2% of Germans get insurance purchase private insurance in Germany do not have to through special programs, such as those for soldiers and pay into sickness funds, but if they have a pre-existing police officers.

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