Interlinkages between Healthcare Financing and Allocation in German Healthcare System

Term Paper, 2019

19 Pages, Grade: 1.7



Finance and Resource Allocation is one of the most important components of a healthcare system. They have direct implication on the quantity and quality of care. Therefore, how the funds are collected, how the resources are pooled and how they are allocated in health and social care is a matter of immense importance. Based on its importance on people’s life, this sector is also heavily regulated and is debated about how to make it efficient and how to generate the best outcome by being cost-effective. Resource allocation in Healthcare is an evolving process by itself because healthcare goods experience price rises, such as the medical technologies like drugs, devices, processes etc coupled with other socio-economic problems like Ageing, Climate Change etc which have direct or indirect impact on health and healthcare. Decision makers face challenge on how to spend the limited resources in the most efficient ways. Furthermore, how a healthcare system is financed will impact the decision of patients and providers by the incentives it creates. For example, in the Beveridge Model of healthcare system, present in the United Kingdom where there is no requirement to pay fee for GP visit, it can lead to over-utilisation of services whereas in the Irish system where a fee is to be paid, it can lead to under-utilisation at the first moment to save cost. From the provider’ s side, it can influence gatekeeping by the GPs. Hence, healthcare financing, resource allocation and health outcomes are interlinked.

In this Essay, I will take the German Health Care System as a case study to analyse and evaluate the finance and resource allocation. In the first part, I will give a brief introduction about the German Healthcare systems and recent developments and changes. Secondly, I evaluate the financing and resource allocation mechanisms and finally critically acclaim them to conclude the essay.

German Healthcare System

German Healthcare System, also called the ‘Bismarck Model’ has its origin in the end of 19th century when the then Chancellor Otto von Bismarck announced the launch of a ‘Social Security System’ package where Healthcare is an important segment. In the consequent years, statutory health funds (Krankenversicherung), accident funds (Unfallversicherung) and pension funds (Rentenversicherung) were established. Since then, it was constantly reformed, given political and economic changes like World War I and II, Oil Crisis of 1973, German Re­unification etc. The German Healthcare system today works based on five principles:

i) Solidarity ( well-off people paying more than less well-off)
ii) Benefits in Kind (no upfront payment necessary)
iii) Employers and Employee Burden Sharing ( Employer paying 7.3% whereas Employee 8.2% of gross income)
iv) Autonomy ( Providers are self-governing and self-sufficient) and
v) Plurality ( patient’s free choice of providers and hospitals)

(Source: Obermann et al, 2008)

There are two types of system present, Statutory Health Insurance (SHI) and Private Health Insurance (PHI) among which patients can choose based on their gross income.

Figure 1 shows the income threshold .

Abbildung in dieser Leseprobe nicht enthalten

(Source: Obermann et al, 2008)

German Health Systems and its Finances

Broadly speaking, there are three types of healthcare finances. In the Beveridge Model, present in the UK for example, it is financed through general taxation. In a Free Market Model, present in the US and many developing countries, it is mostly financed by out of pocket payments. The third system, SHI, which is financed by employer and employee contributions is present in Germany (Marmor & Wendt, 2012). With slight variations, the same model also exists in other European countries like Austria, Netherlands etc.

German healthcare system is divided into two broad categories, Statutory Health Insurance (SHI) and Private Health Insurance (PHI). The major difference between SHI and PHI is shown in Figure 2. The SHI covers roughly 90% of the population whereas the PHI covers about 10% (Figure 3). Although there are two system present, which function differently than the other in terms of financing, there is less differences between them in terms of quality. SHI, covering 90% of the population, it has been the subject of more importance than the PHI.

In the SHI model, 15.5% of the income of an individual will be paid for Health Insurance in monthly basis. With ‘Sharing the Burden’ principle, employer is liable for 7.3% whereas the share of employee is 8.2% in 2018. (Olsen, 2007) Because it is the percentage of income, those with higher income automatically pays more than those with lower income based on solidarity principle. The 2009 healthcare reform made it compulsory for every citizen to possess a health insurance, either the SHI or the Private Health Insurance (PHI). According to the department of Health, those with an income threshold of Euro 50,850 (Gross) can choose to move to PHI. Similarly, Self-employed people can choose as well whereas civil servants will be offered PHI. Choice of provider is upon the individual who can choose one from the pool of about 450 funds. The contribution to the healthcare system is determined according to the situation in the economy and job market and is subjected to annual review (Busse & Blumel, 2014)) Apart from the employee and employer contribution, the federal government also adds the fund to the pool of payments received from individual’s income in order to support the health insurance fund and maintain stability which is then proportionally distributed to the providers based on services they provide. Still, if the fund is in surplus, the providers can pay back the members or demand members extra fee if expenditure is higher (Obermann et al, 2008) This gives incentives for provider to become competitive. In the PHI, the premium is based upon the risks of individual and benefit depends on the agreement. Here too, the individual can choose from the number of providers available.

The total number of members in SHI and PHI are as follows:

Abbildung in dieser Leseprobe nicht enthalten

(Source: Busse & Blumen, 2014)

Figure 2:

Abbildung in dieser Leseprobe nicht enthalten

(Source: Obermann et al, 2008)


Excerpt out of 19 pages


Interlinkages between Healthcare Financing and Allocation in German Healthcare System
University College Cork  (School of Business)
Health Economic Practice
Catalog Number
ISBN (eBook)
ISBN (Book)
German Healthcare, Resource Allocation in Healthcare, Healthcare Financing, Healthsystem in Germany
Quote paper
Bikal Dhungel (Author), 2019, Interlinkages between Healthcare Financing and Allocation in German Healthcare System, Munich, GRIN Verlag,


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