Restructuring the German Welfare State. Health Care Policy and Reform in Germany

Seminar Paper, 2005

16 Pages, Grade: A


Table of Contents


1. Actors within the Health Care System

2. The Restructuring Process: The Politics of Health Care Reform
2.1 Reforms During the Past Decade
2.2 The Politics of the New Government
2.3 Evaluation

3. Concluding Remarks



As health care is among the most personal issues, this is one reason why it is also among the most politically discussed as cost containment has become a priority of health care policy. Health care has consumed a large and growing portion of social spending in all advanced industrialised societies, particularly in the last decade. This cost explosion coincided with the global economic slowdown and worries about the fiscal viability of the welfare state (Giaimo 2001). Reasons for escalating health care costs are, although to varying degrees, common to Western countries. The health care sector provides fertile ground for technological innovations that may prolong life but at considerable expense. Moreover, once these discoveries are made, it is extremely difficult for insurers or governments to limit their provision, as patients demand access to these treatments (ibid.). Furthermore, the aging population of Western countries has direct consequences for health care because older persons are more likely to be in need of cost intensive treatment and/or care due to acute illness or chronic conditions. At the same time, birth rates are no longer balanced with increasing longevity, so that there will be fewer working age persons in the future to bear the financial requirements for elderly care (Evers/Klein 2001).

Governments and employers claimed that health care costs posed immediate and long-term problems and began to search for ways to address them. The ‘new politics of the welfare state’ – Pierson’s (1996) famous concept, which deals with welfare state reform in the face of changing demographic and tougher economic conditions – has also modified the position of diverse welfare state stakeholders. The actions and preferences of payers and the state are determined by the prevailing health care system as well as by the political system and whether it provides them an opportunity to influence health policies (Giaimo 2001).

The views of those who finance the welfare state have steadily gained influence in policy debates, while those who provide and receive social benefits have increasingly found themselves on the defensive. Employers and government policy makers, and their interest in cost containment, have become the driving force behind welfare state reform. (ibid: 334)

However, the aim of containing welfare state expenditure has been controversial. It not only threatens the privileges of constituencies who benefit from social programmes (Pierson 1995, 2001), but also raise fundamental distributional concerns as welfare states have sought to protect the most vulnerable from market forces (Esping-Andersen 1990). In the context of the new politics of the welfare state, the decisive questions are then, whether payers’ and policy makers’ cost containment agendas have succeeded and if so, whether the renunciation of equity has been the price of success by shifting the burdens of welfare state reform disproportionately to the weakest members of society (Giaimo 2001)?

This actor-centred question will be analysed with regard to health care reform in Germany since the 1990s, where the health care sector has become a major source of problems, reflecting the aim of controlling expenditure. The system mirrors strong features of equality institutionalised as social rights of citizens and preserves more than ever, but it does so on a basis of financing that does not develop in line with overall growth (Evers/Klein 2001). It has contributed to a complex system of social security, with a guaranteed system of professional health care at its peak. Nevertheless, the aspect of economic competitiveness – as opposed to a generous welfare state system – has crucially influenced the agenda of policy makers and employers.

My work comprises an analysis of opportunities and constraints for German actors, who are the payers (employers and employees) and parties, within the health care system to follow one-sided cost containment strategies. I will also focus on the structure of the system as such as it influences the forming of reform solutions. Which type of restructuring has occurred: have political and market actors altered the major institutions of the prevailing health care state or do we rather deal with small-scale reforms? Which consequences imply the carried out reforms? An evaluation will be given if the carried out reform measures have been successful or failed with regard to the restructuring process of the welfare state, which aims at cost containment and is at the same time characterised by a strong adherence to equity.

1. Actors within the Health Care System

Germany has a universal, statutory health care system, which legally guarantees a universal right to health services. Employers and employees equally share the responsibility for financing the health insurance and both actors are deeply embedded in the prevailing system. By attributing employers and employees equal roles in financing and administration, the German health insurance system has institutionalised the idea of countervailing power in its design (Giaimo 2001). With regard to the employees’ role in financing health care, their function has also granted them authority in health care reform debates together with policy makers and employers. This structure implies severe constraints on one-sided cost containment measures by either the state or employers (ibid.). Broad constituencies and unions evaluate employers’ and the government’s attempts if the latter fulfil the argument of being just and their endeavours are directed towards preserving the quality and comprehensiveness of benefits. In contrast to pensions or unemployment insurance programmes, in which benefits are calculated on the basis of past contributions and earnings, the universal health care programmes in Germany integrate significant redistribution and approach the ideal of Marshall’s (1948/1992) ideal of social citizenship, which implies that each person has a right to an adequate social minimum. In the case of Germany, definitions of social citizenship and an adequate social minimum mean that every person has a right to the same level of high quality care, based on one’s medical need.

Germany’s multi-payer system is based on insurance funds (Kassen) that pay for care within a public regulatory framework. Although the state does not finance health care, corporatist governance ascribes it a vital role in regulating the behaviour of sectoral actors and setting the general objectives by broad policy goals and rules for the health care system. However, the implementation is the task of the sickness funds and physicians at the provincial level. Moreover, the state also formulates cost containment policies that health care system actors are required to follow (Hacker 2004).

2. The Restructuring Process: the Politics of Health Care Reform

Because health insurance is employment-based, rising health care costs have always had a direct effect on labour costs (Giaimo 2001). Especially Germany’s austere economic situation during the last decade, a consequence of the worldwide recession of the early 1990s along with the costs of German unification, has burdened the welfare state, which is financed by payroll taxes. Unemployment and early retirement resulted in a smaller base of wages and salaries from which to finance growing demands of social insurance. As a result, employers urged the government to stabilize the rising social insurance expenditures and health care costs were, besides pensions, one target of cost containment.

2.1 Reforms during the Past Decade

Structural reform[1] has emerged on the decision-making agenda of the German government but a relatively cautious course has been projected, which has been determined by less comprehensive and less radical structural reforms.

Two major health care reforms in 1993 and 1996/1997 took place during the Christian-Democrat/Liberal government. They are part of a long series of smaller and bigger reform programmes, which have been initiated by such governments since the mid-1970s. The Kohl government’s health care cost containment strategy involved a mixed menu of delegating new policy tasks to corporatist actors, a careful experiment with market competition and limited cost sharing by patients. Initially aiming at limiting costs for the social insurance system, the targets have since changed to:

- securing the system as a factor for growth, technological progress and employment, but
- limiting those parts of costs which have to be contributed by employers (and employees) as non-wage labour costs (Busse/Howorth 1999);
- implementing market elements in order to create more efficiency.[2]

The Health Care Structure Reform Act of 1993 (‘Gesundheisstrukturgesetz ’) acknowledged that higher co-payments and reduced benefits alone, as introduced four years earlier, are not appropriate means of reducing health care expenditure. Consequently, a number of new structural elements have been introduced.

Since the beginning of the 20th century, all legislation became basically aimed at strengthening standardisation and uniformity. This general trend was acknowledged and reinforced by measures which were part of a health reform law in 1993 and implemented in 1997: from then on, every citizen could choose between any social insurance on the market – whereas before only white-collar workers (and a limited number of blue-collar workers) had been entitled to choose a substitute insurance; all others obliged to take a statutory insurance had been liable to their insurer or the one provided for them as primary insurer by their employer or professional group. The reform aimed at bringing to an end any kind of specific local or social embeddedness of a social insurance organisation by turning it into a competitor on a national market.

The reform of 1993 also implemented a risk compensation, which allows compensating transfer payments from ‘richer’ insurance institutions with a good risk-structure along with an economic surplus to ‘poorer’ institutions with a bad-risk structure[3] - according to income, age, gender and number of insured persons. In 1996, 2.3 billion DM of compensation payments had to be transferred; 96.3% came from substitute insurers and 80.6% went to local insurers (Evers/Klein 2001: 168). So the redistributive system between the statutory insurance institutions has been reinforced. Obviously, such an equalising framework, which, however, implies a detailed regulation about what every insurer has to provide, means that competition for quality is an issue hard to achieve.


[1] Structural reforms imply the restructuring of the system by changing its structures. They are substantial reforms, which cannot be cancelled and therefore have a sustainable effect on the development of the welfare state. Structural reforms are opposed to programmatic reforms, which only imply cuts of single programmes. (Pierson 1995, 1996)

[2] Other possible measures, like empowering of citizens and clients by emphasizing self-help, health promotion or a more discursive medicine, did not play a role at that time (Evers/Klein 2001: 170).

[3] That is age and income structure of the insured persons (Evers/Klein 2001).

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Restructuring the German Welfare State. Health Care Policy and Reform in Germany
University of Dalarna  (Political Sociology)
Restructuring the Welfare State
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ISBN (Book)
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Grading System: 'A' is 'very good'
Restructuring, German, Welfare, State, Health, Care, Policy, Reform, Germany
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Christiane Landsiedel (Author), 2005, Restructuring the German Welfare State. Health Care Policy and Reform in Germany, Munich, GRIN Verlag,


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