Sick Around the World

Karl Lauterbach

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Lauterbach, one of Germany's foremost experts on health policy, is a professor of health economics and epidemiology at the University of Cologne and a member of the German parliament. Here he discusses the German system of social insurance, developed by Chancellor Otto von Bismarck in the 19th century, and what lessons America could learn from it. This is an edited transcript of an interview conducted Oct. 25, 2007.

It would help if you could give us a general overview of the German health care system. ...

The German health care system is unique in its attempt to combine competition among sickness funds on the one hand and a universal coverage plan on the other hand. Most health care systems are either one or the other, so you either have private insurance and competition but not everyone is covered for everything, or you have a single-payer system. So the ideal types are like the American system on the one hand or the Scandinavian or U.K. systems on the other end.

Germany tries to combine the advantages. Everyone is covered; all sickness funds have to provide a comprehensive benefit package; ... and there is nevertheless competition for price and quality between the sickness funds. ...

See, we're confused by that because, to an American, the reason companies compete is to make more profit, but these sickness funds aren't making a profit, are they?

No, they're not permitted to make a profit. Sickness funds do not want to perish. They want to survive and grow, and the management is better paid if the sickness fund is growing. The management is basically losing its job and its prestige if the sickness fund is becoming smaller.

So the idea is that there is enough of an incentive for competition, even if it is nonprofit competition. Not every form of competition that works is for profit, and the nonprofit competition in health care, in my view, is actually a good solution.

Are there then rankings ... by size or number of members and stuff like that?

Yes, there is ranking for contribution rate, so the cheaper sickness funds [with] good quality can both advertise their better quality plus their lower contribution rates and therefore [be] gaining members. We had about 240 sickness funds a couple of months ago; we are now down to 213, I think. In two or three years, only 50 or so will survive.

That's a good thing?

I think so. I think we have too many sickness funds. We started with more than 1,000 sickness funds. But the fewer sickness funds there are, the less bureaucracy and the easier the system is to operate. But it is important that the best sickness funds survive. ...

And so if I'm the chairman of one of these sickness funds, if I can lure more members, my pay goes up?

Definitely. Your prestige and your pay goes up.

Well, those are grounds for competition, I can see that.

I think so. And if you are in business and your fund is successful in comparison to others', then you basically can swallow other funds. So for the management, there is enough opportunity to excel.

Yes, without profit.

Right. Ten percent of the population is in the private system. The private system works like the U.S. private systems, where there is no risk adjustment and there is cherry-picking [of healthy patients]; there is no mandatory enrollment and so forth. And interestingly, the private market ... has a much steeper cost increase than the public system. ...

So this is a kind of a natural experiment. Despite the fact that the private system insures the most influential and the best paid and ... most independent people -- the bureaucrats, the people who are business owners and those who are well-to-do -- the private system is not more efficient, at least, than the public system. ...

... Can you tell me, why did they start this system of private insurance? ...

Well, in the '50s and in the '60s, the private system originally was a benefit for the bureaucrats in Germany. ... And this system became ever bigger because the private insurance industry lobbied successfully for making this system bigger. In the '70s and in the '80s, they managed to find a system where they could take everyone beyond 40,000 euros income per year but didn't have to take everyone. So they only took those that had both high income and a secure job and who was not ill at that time. ...

If I'm making ... $65,000 a year and I have to buy health insurance, why would I want to buy from a private company where it costs more?

Well, two-thirds of those ... actually choose the public system. ... And secondly, the private system does have one advantage: The physicians get more money for the same procedure, so many of the specialists prefer to work for the private patients, because for the same procedure they get double the honorarium. ...

If you do that, the doctor is first going to schedule the private guy. ...

Exactly. Currently, since private patients are so much more lucrative for the physician, the private patients get an appointment immediately, more or less, while the public patients often have to wait for a couple of weeks. ...

Is the insurance company selling the private plan making a profit?

Right. They are making a profit or a loss.

I can see why the insurance company wants to be in that business, why the insurer wants to have that policy, but why would the system allow the richest 10 percent to opt out of the overall plan?

I think, unfortunately, many opinion leaders in Germany -- including government officials, politicians, social service bureaucrats and so forth -- they are in the private system, and they get paid the private insurance by their employer. So for them this is the best of two worlds: They have some more expensive and privileged access, but they do not have to pay for it themselves. ... This is a system which is both inefficient and unfair at the same time, but it is defended by those who profit from this system, and this includes many opinion leaders and many politicians. ...

I'm surprised to hear that you have a system that sounds unfair, because we hear that the German health care is that it's fair, it's equitable; everybody has access.

No, the German system is way less fair than it is expected to be, and the difference is [be]coming bigger. ... The private system, with its privilege to pay doctors and hospitals better, is basically putting the whole system at jeopardy, because many first-class hospitals and first-class physicians are wasting their time [on] trivial cases of privately insured and are no longer accessible for the difficult cases from the public system, despite [the fact] that the hospitals and also the education of those professionals is paid for by public money. ...

Let's look at the 90 percent of people in the health care system. Would you say Germany still has a Bismarck model of health insurance coverage?

For the 90 percent this is the case. For the 90 percent of the population, it is a Bismarck type of model because everyone is insured, every service which is medically useful is insured, and it is a system where the rich pay for the poor ... and where the ill are covered by the healthy. So it is a nice social support system which is highly accepted by the population.

... If you asked the German people if every human was entitled to a basic level of health care, what would they say?

I would think that about 95 percent of the population think that there is a basic entitlement to health care for everyone, regardless of age and income.

And the German system is meeting that need?

The German system is meeting the Bismarckian requirement because everyone is insured, and if everyone is insured and the quality is reasonable for everyone, I think this is a strength of the system.

Well, let's talk about quality. How is the quality of health care in Germany?

The quality is average. The quality is not as good as people sometimes believe it to be. We have problems with chronic diseases. The German system allows too many hospitals and specialists to treat chronic diseases. We do not have enough volume in many institutions to deliver good quality, and we do have fairly strict separations ... between primary physicians, office specialists and hospital specialists. But I think the quality problems can be solved in the next couple of years, and we have made major progress in diabetes, coronary artery disease and pulmonary disease care.

How do you do it? By setting standards at the national level?

Exactly. What happened is the government in 2003 started with so-called disease management programs. The disease management programs for chronic conditions are based on recommendations from evidence-based medicine, and primary care physicians enroll patients with these diseases for the programs, and within a program then the physician and the patient is given a financial incentive to participate. Patient education is strengthened in these programs, and it is documented whether the treatment ... is roughly in agreement with the evidence-based medicine recommendation.

Which diseases are covered by this?

Diabetes, coronary heart disease, heart failure, asthma, COPDs -- or chronic obstructive pulmonary disease -- and breast cancer. These are the conditions that are currently covered, and we are considering to cover depression and rheumatory arthritis in the future as well.

Mental health service is covered by the basic plan here?

Definitely. All mental health care is covered [by] the basic plan.

Dental?

Also dental, including repair and procedures.

Optical?

Optical care, hearing aids, basic hearing aids. Roughly everything which is medically necessary is covered.

Childbirth is covered?

Childbirth is covered, and the rehabilitation is covered. Nursing home care is covered. So it's basically from prenatal care to the very end of even hospice care is now covered, which was not covered until very recently.

Are there controls so at a certain age you can no longer have a costly procedure?

No, there is no age rationing for any procedure. ...

Does that make sense economically?

I do think it makes sense. First of all, our health care system is not the most expensive; it is, [in] comparison to the U.S., about a third cheaper. And secondly, you should never underestimate the cost of having someone with a disease who is not treated, because people that are chronically ill and have no treatment, they cost in other social systems. Or they ultimately end up in the emergency room and then have inferior-quality treatment which is even more expensive. ...

... How many Germans go bankrupt in a year because of medical bills?

In Germany it's impossible to go bankrupt for medical bills, because even if you are bankrupt, ... the social solidarity system pays for your medical bills. The idea is, if you do have financial problems and a lot of worries for other reasons, you do not need to have another burden in not being able to pay medical bills.

... If you lose your job, what happens to your health insurance?

Health insurance continues with no change if you lose a job. We do know very well that people who become unemployed are at an increased risk of becoming ill, and therefore becoming unemployed is about the worst time to lose health insurance. So therefore, everyone who loses a job remains in exactly the [same] insurance system he is in.

... In America, when you lose your job, we take it away.

Right. ... And this is absurd. This is exactly the time when you need the support of the health care system, not additional problems by the health care system. ...

Since you cover people from birth until they're 100 years old, there must be value in preventive medicine, just economic value.

Well, the preventive medicine is underdeveloped in Germany. ... This is partly due to the fact that our medical system is very much developed by physicians, not by ... government agencies or public health officials. So physicians focus on, coming from their training, focus on providing care, not avoiding disease, and I think this is a problem. We must improve preventative education in medical school and in the training of physicians, but currently we are not really excellent when it comes to preventative care.

What system do you think is good at preventive care?

I think the Scandinavian systems are better when it comes to preventative care than the German system, because in the Scandinavian systems, the government is really more active in defining treatment, goals and defining health priorities.

All systems do have advantages and disadvantages. The German system is a competitive system with little government intervention. The price for this is that the government cannot set a health agenda. And the Scandinavian systems, they do have little competition, so therefore you often do have waiting lists. But on the other hand, you then have the government which can push for prevention.

No waiting lists in Germany? You can go see a specialist without waiting?

The waiting lists, even in comparison to the U.S., are not really long waiting lists. The privately insured never wait at all, and the publicly insured, they wait for specialists, but they do not wait for the service in general.

To give an example, if you do need a knee replacement in Germany, you can have a knee replacement within a couple of weeks at the very latest. But if you want to have a special knee replacement -- a knee replacement by a specialist who is well-known for the knee replacement in complicated places -- and [you are] coming from a public insurance, this is difficult to get.

Is it right that Germany last year introduced what we would call a co-pay?

We introduced co-payments in 2003, and those co-payments are limited to a maximum of about 10 percent of the price of the procedure, at the very most, and 1 percent of total income. So if someone is very ill and needs a lot of procedures, the biggest co-payment which is currently to be expected is 1 percent of the income of that person.

So if you make $60,000 a year, $600 is the most you're going to pay?

For someone with $60,000 of income a year, $600 would be the maximum co-payment in a year for this person.

And that person is also paying some amount for health insurance?

Right. ... A person who earns, say, $60,000 a year pays about $600 for health insurance a month; this is the maximum public premium which is paid. ... And someone who earns only $20,000 a year typically would pay about $250 a month.

And that covers the family, too?

Complete family coverage, yes.

In America, $250 a month, that's a good deal. $600 a month is expensive, but these are the richest people paying that?

These are[the]richest people, and ... they pay more than they would need for themselves because we need money in order to support those that are unemployed or have only little wage.

... The 10 percent who are privately insured, where is their contribution to help the poor get insurance?

Those who are privately insured pay only for themselves. There's no contribution by them for the poor. ... I think that is highly unfair, because if someone who is better off stays in the public system, a lot of his money actually goes for the care of the poor. But if that very person changes into the private system, then the money's gone for profit, and there is no co-payment of the poor whatsoever. ...

I spent some time with a general practitioner ... and she told me that her patients now have a co-pay of 10 euros a quarter? Now what's that system?

This is part of the co-payment system. The co-payment system is, roughly speaking, 10 euro every three months for the office physicians, then 10 euro per day for inpatient care in hospital. Then additionally there is 10 percent of the drug payments. But all co-payments together are never permitted to be more than 1 percent of yearly income.

How much is a prescription?

Ten percent of the price of the prescription, but there is a maximum. ... [The] cap is also 10 euro.

To an American, that's a bargain. I can go to the doctor's office 30 times in a quarter and pay $14.

That's true.

And I can go to the hospital and stay five nights and pay $70.

Right.

This is a good deal.

Nevertheless, the co-payments are important because they remind people that health care is not for free. And I think that the co-payments are just about right in order to make sure that everyone understands that solidarity needs the support by everyone. On the other hand, this is not the kind of co-payment where you ask, why am I insured if I have to pay for such a co-payment?

... The British have a different mind-set, that you should never have to pay a medical bill.

I think that in the U.K., the impression is that you are entitled for care, whatever the costs are, and [it's] sometimes not seen that many people have to work for your health care for a long period of time. For if you do have surgery and have a complication, ... then another person has to work for a whole year in order to pay for your surgery. And in order to make that clear, I think co-payments from an ethical point of view are OK.

... Once you pay the hospital the 10 euros a day, the $14 a day, when you go home, do you get another bill?

That's it. It's only the co-payment. The rest is picked up by the insurance company, by the sickness fund.

Because in America, you go in the hospital, and you leave, and then you get a bill from the hospital, you get a bill from the radiologist, you get a bill from the surgeon, you get a bill from the nurse. It goes on for months.

You never see these bills, no. If you go to the hospital and you are in the public system, the sickness fund, you never see these bills. ... And I think that this is good, because if you are sick, you should not have to worry about the bills. It definitely doesn't support the process of becoming healthy again when you have to fight with bills and bureaucracy. ...

Another problem with the American health care system is that American insurance companies can a, turn you down and not cover you at all and, b, they deny claims.

Well, denying people and denying claims is both unfair and a waste of money and time for everyone. It is major bureaucracy, very frustrating, and ultimately someone has to pick up the bill. So this is only, let's say, repairing failures in financing the system. If the system is well-financed, and if there is a risk adjustment among competing sickness funds, you do not have to deny people or claims.

Very important is that there's a pool of money from which sickness funds do get money if they have poorer or sicker patients, because if that is working then you do not have deny anyone, you do not have to deny claims, and it is of interest to you to take everyone. Risk adjustment and the risk pool for the sickness funds, I think that is the most important single piece of the German health care system which might be of interest to you. …

Who sets the prices for German health care?

The prices are negotiated by the sickness funds and the physician, so there is no government intervention. And the price negotiation is then binding for all sickness funds. So that makes it possible to have one price for procedures in the public system. ...

That sounds to me like it's clearly a multipayer system, but the pricing seems to work like a single-payer system.

Right. ...

Is this also true for drug prices?

It is also true for drug prices. For example, the same drug is the same price for all sickness funds. There is a possibility for sickness funds to negotiate a bargain with the drug companies, but roughly speaking, the price is the same for one drug for all sickness funds.

Has anybody compared drug prices for the same drug in America and Germany?

The same drugs are way cheaper in Germany than in America because, obviously, if all sickness funds negotiate with the drug companies for a single price, then the market power of the sickness funds is fully used. So therefore you would expect the prices to be lower for the drugs in Germany, and this is exactly what you see, at least for non-generic drugs. ...

One argument for [higher prices] is that the drug companies need to get these high prices in America to finance innovation. Do you buy that?

I think we have seen little innovation by the drug companies that charge the highest prices recently. ... All markets typically manage innovation without having to charge subsidized prices. ...

So the argument that you should pay higher prices to drug companies to promote innovation, that's wrong?

I don't know a single economist who would buy into that argument. I think this is a lobbyist argument. A market works best if there are no inefficiencies, and higher-than-necessary prices are inefficiencies. And the drug companies now spend more for marketing the drugs than for innovating the drugs. This clearly is an artifact which comes across with this system of subsidized and too-high prices.

Who decides what drugs are covered by the insurance plan?

Well, we have a panel of physicians and scientists that determines whether the drugs, given the studies, work or not. And drugs which do not work ... [or whose effects] are negative are not covered. ...

But there are other concerns, too. Viagra works, but does the system pay for Viagra?

Well, Viagra is considered to be a lifestyle drug. So the question is, if the system doesn't have to pay for a good red wine, why should it have to pay for Viagra?

And the answer is, it doesn't.

It doesn't. The system will lose its acceptance and credibility as a system that supports those who need care if it pays for lifestyle drugs like Viagra.

How about these drugs that are incredibly expensive, like these end-of-life cancer drugs?

They are covered. I mean, there isn't a single drug that is not covered because it is too expensive. It is a different question whether those drugs should be prescribed as they currently are. Often, these very expensive end-of-life cancer drugs are shown to work for a small group of patients and then are prescribed for a much larger group, and this is a big problem in Germany. But for those who belong to a group of patients that definitely profits from the drug, there are no exclusions, whatever the prices are.

A lot of people we've spoken to are worried about the cost of health care in Germany -- about 10.7 percent of GDP [gross domestic product]. But I get the sense from talking to you that you're not worried about that number.

I think from an economics point of view, it is important that the money that is spent for health care is well spent -- what is the cost-effectiveness of the money that is used? -- because if the money is well spent, many people benefit from the system, and it is also a good market for finding employment. I do not see a reason why we should limit ourselves when it comes to very qualified and humane employment opportunities if there is no waste and if there is medical need. ...

... As you say, Germany has pretty good results, it has fairly good costs, it's equitable, and yet they're constantly talking about reforming it. Does that mean people are not satisfied?

Well, people are by and large satisfied. Physicians are not always satisfied because they would like to earn more money. We have actually now decided that we [will] increase physician income, in particular for office physicians; we have already increased the income for hospital physicians by about 10 percent. But I don't know a single European system where physicians do not all the time ask for more money. This is basically part of the description of their job.

That's, I think, in every country we've been to.

I think if the physicians are not asking for more money at a given time, then you should worry about them. ... But on average, physicians are doing fairly well. ... For example, an office physician on average has about $10,000 per month after cost of the office, and this is not that bad in the German setting. ...

... So this is a general practitioner ... netting $120,000 a year.

Per year on average, before taxes.

It's not bad money, but it's one-half or one-third of what you'd make in America.

Exactly, but we have more physicians per capita. So if we have fewer physicians in the future, because less physicians are in training currently, then there will be higher income per physician. ... In most European countries, the payment is roughly comparable.

... Would you say that Germany has socialized medical care?

No, it's not a socialized system, because you can pick your insurance, public or private. Many people can even opt [out], and the sickness funds compete for members. You have free hospital or physician choice; there are very few limits on choice in the system. ... In a socialized system, everything is planned; in Germany, basically everything is open for nonprofit competition.

For me, another definition would be, who owns the facilities? Are the hospitals private?

Roughly 10 percent of the hospitals are private and for-profit, 90 percent are nonprofit hospitals, and about 100 percent of all office physicians are for a profit. ...

As you know, in America we have [separate] health care systems for people under 60, over 65, children under 16 who are sick, we have a system for poor people, we have a system for veterans and military. How does Germany do this? Is everybody in the same system?

Everyone is in the same system, with the exception of the 10 percent who are in the private system. ... This limits bureaucracy, this limits transfer costs and makes the system also reasonably transparent.

Can you give us a rough percentage of how much German health care spending goes for administrative costs?

Yes. In the public systems, the total of administrative costs is about 6 percent, and in the private system it is about 17 percent.

Do you have a number for the U.S. system?

I think the best numbers for the U.S. system is that about a fifth -- up to 25 percent -- is for administrative cost. So the U.S. system is comparable to the German private system, but is about three or four times [more] expensive, administrative-cost-wise, than the public German system. [The] German public system is roughly comparable to the administrative costs of the single-payer systems in the Scandinavian countries or the U.K. ...

... Did you live in America?

I lived in the United States for nine years, so one year in Arizona, one year in Texas, San Antonio, and seven years in Boston.

Did you ever have to go to the doctor?

Yeah, I did from time to time. ... For example, injured my knee in a sports injury, and I had to wait for an orthopedic surgeon for a couple of months. So I ultimately called him up and said, "Well, I'm doing research on your system," and I was immediately seen. ...

If you hurt your knee in Germany, how long would you wait?

I would immediately be seen. On the other hand, I should say I was then seen by a very good orthopedic surgeon; this was a true specialist. So I think that the U.S. system does have very good physicians, but it is very difficult to find out who the good physicians are and to basically get access. ...

... You have been somewhat critical of the German system; you see some problems in it. Give an assessment of the U.S. health care system.

Well, in comparison to the U.S. health care system, the German system is clearly better, because the German health care system works for everyone who needs care, ... [costs] little money, and it's not a system about which you have to worry all the time. So in case you need health care, the health care is there. That you can rely on.

I think that for us the risk is that the private system undermines the solidarity principle. ... If that is fixed and we concentrate a little bit on better competition and more research, I think the German health care system is a nice third way between a for-profit system on the one hand and, let's say, a single-payer system on the other hand.

How do you feel about our system? How would you assess the U.S. health care system?

The U.S. has a system [that] does have a poor cost-benefit ratio. I mean, 40 million people lack insurance; another 30 [million] or so are underinsured. The people who are insured do have to worry whether they are able to pay the bills. People become bankrupt because they cannot pay the medical bills, and there are vast differences in the quality of care depending on how much you are prepared and able to pay. I think the system is not working well.

You watch American politics; you're in German politics now. Do you think we're going to change?

I think the Democrats will win the election and they will then not change the system, is my personal view. Then they will lose a lot of credibility. ... This is my view.

... What would you say to Americans? What could we learn from looking at the German health care system?

... One can learn that competition is good. You need competition in the health care system and transparency, but you do not need for-profit competition. So limit profit and maximize competition and have everyone covered, and limit bureaucracy wherever possible. ...

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