AIM-AP. Accurate Income Measurement for the Assessment of Public Policies. Citizens and Governance in a Knowledge-based Society

Transcription

1 Project no: AIM-AP Accurate Income Measurement for the Assessment of Public Policies Specific Targeted Research or Innovation Project Citizens and Governance in a Knowledge-based Society Deliverable 1.3d Public health in Germany Due date of deliverable: July 2007 Actual submission date: January 2008, revised March 2008 Start date of project: 1 February 2006 Duration: 3 years Lead partner: DIW Berlin Revision [revision 1]

2 AIM-AP National Report for Germany Joachim R. Frick, Markus M. Grabka*, Olaf Groh-Samberg Estimates of Publicly Provided Health Services and Analysis of their Impact on Income Inequality and Poverty (AIM-AP Deliverable D1.3d) Berlin, January 2008 * Corresponding author: c/o DIW Berlin, Dept. SOEP, Mohrenstrasse 58, Berlin, Germany. mgrabka@diw.de I

3 This report is part of the research project Accurate Income Measurement for the Assessment of Public Policies (AIM-AP), funded by European Commission, 6 th Framework Programme, (Contract Nr. CIT5-CT ). II

4 Content 1 Introduction The Health Care System in Germany Health insurance in Germany Health care financing Health care outcomes Empirical Results Data and Methods Income Advantages from Publicly provided Health Transfers Impact on Income Distribution and Poverty Conclusion Tables References III

5 List of Figures & Tables Table A: Total health expenditure as % of gross domestic product (GDP), WHO estimates in selected Western European countries, Table B: Total health expenditures by financing source in Germany, Figure 1: The German health care system and its funding, Figure 2: Health care expenditures from public sources as a percentage of total health care expenditures in selected EU countries, Figure 3: Life expectancy at birth in selected Western European countries, Table C: Performance of health care services in Western Europe, around Figure 4a: Number of physicians per 1000 inhabitants in Western Europe, 2002 or latest available year (in parentheses) Figure 4b: Number of nurses per 1000 inhabitants in Western Europe, 2002 or latest available year (in parentheses) Figure 5: Age and sex-adjusted health expenditures in Germany 2002 (social health insurance, GKV) Figure 6: Relative income position by age group, Germany Table C1: Income Advantages from Health-Related Transfers Table D: Inequality and Health-Related Transfers Table E1: Inequality Decomposition and Health-Related Transfers Table E2: Poverty and Health-Related Transfers IV

6 1 Introduction Empirical studies of inequality usually rely on distributions of disposable monetary income, thus disregarding non-cash incomes arising from private sources or from public provision of services such as education, health or housing. In this paper we will address the impact of publicly provided health care on income distribution and relative income poverty in Germany for the year The empirical analyses are carried out using representative microdata from the German Socio Economic Panel (SOEP) which provides the necessary high quality cash income information. This data is then amended by a fictitious non-cash income based on age and sex adjusted health expenditure. The German health care system is characterized by the highest share of health expenditures as a percent of the GDP among all EU member states and ranks third among OECD countries (OECD 2005). Two-thirds of total health expenditures come from to the public sector, which in Germany includes the (federal) government as well as the social security system. Given the high level of expenditures, we can expect quite distinct changes in income inequality and poverty once adding publicly provided health benefits to the underlying measure of disposable income. The paper is organized into four sections. Following this introduction, Section 2 gives a description of the health care system in Germany, including a description of the financing scheme and health care resources. Given that the empirical analysis will focus on the year 2002, the institutional information also relates to that year. In the third section, we describe the application of publicly provided health benefit from an OECD database to the microdata of the German Socio-Economic Panel (SOEP). We then show the impact of the consideration of the monetary value of publicly provided health care on income levels, income inequality and relative income poverty. Finally, Section 4 concludes. 5

7 2 The Health Care System in Germany 2.1 Health insurance in Germany The majority of the population in Germany (about 88%) is covered by the social health insurance (Gesetzliche Krankenversicherung - GKV). The GKV is in principle mandatory for the entire population, with some exceptions for high income earners, self-employed people and civil servants. About 10% of the entire population are covered by the private health insurance, of whom about 4% are civil servants who enjoy free governmental care ( Beihilfe ). Another 2% of the population are covered by sector-specific governmental schemes (so called freie Heilfürsorge for military and police; other schemes for social welfare and assistance for immigrants seeking asylum). Finally, in 2002 about 200,000 persons had no prepaid coverage for health care (Bundesministerium für Gesundheit 2005). Health care fund membership in the GKV is mandatory for employees and pensioners whose gross salary / income does not exceed a contribution assessment ceiling (in 2002, this so called Beitragsbemessungsgrenze, was set at 3,375 euros per month). If the relevant income exceeds this limit one can opt for voluntary membership, which was claimed by nearly 8% of all members of the GKV. The GKV is funded by contributions, which are split evenly between employers and employees in principle. The average contribution rate was 14.0 % in 2002, but payments have to be made only up to the aforementioned income threshold. Contributions depend only on income from dependent employment, pensions or unemployment benefits. For individuals earning less than 400 euros per month, contributions are paid only by the employer (at a rate of 11%). For artists and students, the federal government pays about half of the contributions, thus taking on the financing role of the employer. In the case of retired and unemployed people, the retirement funds and the Federal Agency for Employment respectively take on the employer s financing role. Health insurance for non-earning spouses and children (up to certain age limits conditional on being enrolled in educational institutions) is covered entirely by the GKV without any individual contributions. However, user charges and co-payments have to be paid if health care is utilized, e.g. for pharmaceuticals or medical appliances. Children and young people under the age of 18 are exempted from patients co-payments except in the case 6

8 of dental prostheses and specific travel expenses related to doctor visits, etc. The limit for total patients contributions is 2% of allowable gross disposable income; this share is reduced to 1% in case of chronic illness. 1 Members of the GKV have a free choice between various health insurance funds (Krankenkassen). Until now, these funds have had a certain level of financial autonomy and have been allowed to set their own contribution rates (in 2002 between 13% and 16%), while at the same time, the level and the quality of medical services is almost completely standardized. The population with full private health insurance coverage consists of three main groups: active and retired civil servants, self-employed people, and employees with an income above the contribution ceiling. The latter two groups can opt for a private health insurance. Civil servants are excluded from the GKV in principle given that they are reimbursed by the government for at least 50% of their private health care expenditures and thus purchase private insurance to cover the remainder. The total amount for these reimbursements was 5.7 billion euros in Fully privately insured individuals usually enjoy benefits equal to or better than those covered by the GKV, but this depends on the insurance package chosen. In contrast to the GKV, which provides all members with the same fixed insurance package, private health insurance providers allow purchasers to negotiate the terms of their insurance package. Thus contributions do not depend on income but vary by age, sex, medical history and the design of the insurance package. The premiums for private health insurance are generally much lower than those in the GKV, but separate premiums have to be paid for spouses and children. Thus, the private health insurance is especially attractive to singles and dual-earning couples without children. Private health insurance also offers supplementary insurance to members of the GKV. This encompasses dental treatment, treatment by the chief physician, private or two-bed hospital rooms, and other medical amenities. In 2002, about 7.5 million members of the GKV had supplementary private health insurance (Verband der PKV 2003). 1 For more details about cost-sharing in the German Health Care System, see Gericke et al 2004: 7. 7

9 2.2 Health care financing Following the OECD (2005: 66) total health care expenditures are defined as the final consumption of health care goods and services (i.e., current health expenditures) plus capital investment in health care infrastructure. This includes spending by both public and private sources (including households) on medical services and goods, public health and prevention programmes and administration. Excluded are health-related expenditures such as training, research and environmental health. In 2002, Germany spent about 228 billion euros on health care, accounting for 10.9% of GDP (see Table A). This represents the highest share in the European Union and the third-highest among the OECD countries, surpassed only by the U.S. and Switzerland. According to the WHO estimates presented in Table A, tax-financed public health systems like those in Finland, Ireland and the United Kingdom tend to have below-average total health care expenditures. Table A: Total health expenditure as % of gross domestic product (GDP), WHO estimates in selected Western European countries, 2002 Austria 7.5 Belgium 8.9 Denmark 8,8 EU-15 average 9.0 Finland 7.2 France 9.7 Germany 10.9 Greece 9.8 Ireland 7.0 Israel 9.3 Italy 8.4 Netherlands 9.3 Portugal 9.3 Spain 7.6 Sweden 9.2 Switzerland 11.1 United Kingdom 7.7 Source: European Health for All Database (HFA-DB). World Health Organization Regional Office for Europe. Updated: November 2007, accessed December 19 th

10 Although the statutory health insurance in Germany covers the majority of the population, its actual contribution to overall health expenditures is only 58% (Table B and Figure 1). Purely governmental sources contributed only 6.3% to overall health expenditures in An additional 11% were provided by the other three branches of the statutory insurance system: the statutory retirement insurance (Gesetzliche Rentenversicherung) which spends 1.6%, mainly on medical rehabilitation, another 1.7% by the statutory accident insurance (Gesetzliche Unfallversicherung) and an additional 7.6% by the statutory long-term care insurance (Gesetzliche Pflegeversicherung). In 2002, public sources account for about three-quarters of the funding of total health expenditures, thus leaving about one-quarter of funds coming from private sources. The funding of public health expenditures in Germany relies almost entirely on social contributions, which are evenly split between employers and employees. Table B: Total health expenditures by financing source in Germany, 2002 in bill. euros in % Public sources General Government ,3 Statutory health insurance ,3 Statutory retirement insurance ,6 Statutory accident insurance ,7 Statutory long-term care insurance ,6 Private sources Out-of-pocket payments / NGOs ,8 Private insurance ,5 Employer ,1 Total thereof: Investments ,0 Total without investments ,0 Note: NGO: Non-Governmental Organization. Source: Federal Statistical Office (2004): Gesundheitsausgaben nach Ausgabenträgern. ( Private households and non-governmental organizations finance about 12% of total expenditures on health (mainly through out-of pocket payments and co-payments) in Private insurers contribute 8.5% including expenditures for complementary insurance for members of the GKV as well as comprehensive insurance for members of the private health 9

11 insurance. Finally, employers contribute about another 4% to all health expenditures, mostly through sick pay. Figure 1: The German health care system and its funding, 2003 Total health expenditures bill. Euro (2003) Private Private Social Public Long-term Statutory Employers General house- Health Health pension care accident govern- holds insurance insurance insurance insurance insurance ment 56.8% 1.8% 6.9% 12.3% 8.6% 1.7% 4.1% 7.8% out-of-pocket payments and private consumption risik adjusted premiums Social contributions, employers and employees Social contributions (only employers) Sick pay Taxes Sources of funding Source: Authors illustration based on: Statistisches Bundesamt, Gesundheitsausgabenrechnung. ( The pure public health sector is relatively small in Germany, with a share of about 6% of total health expenditures. More than 50% of these expenditures are spent on research, education and investments. However, using a wider definition of public sources of health expenditures including funding from the social insurance system, Germany ranks above the average of EU countries (see Figure 2). According to Busse and Riesberg (2004), public sources account for 78.5% of Germany s health care expenditures. This is about three percentage points higher than the corresponding share provided by the government health care systems in Finland and Ireland. 10

12 Figure 2: Health care expenditures from public sources as a percentage of total health care expenditures in selected EU countries, ,4 85,3 85, ,4 83, , ,7 75,6 75, ,4 71,2 70,5 69, , , ,9 50 Luxembourg Norway Sweden Iceland United Kingdom Denmark Germany France Finland Italy Ireland Spain Belgium Portugal Austria Israel Netherlands (2001) Switzerland Greece Source: Busse and Riesberg (2004: 87). In 2002, nearly 92% of all expenditures by social health and long-term care insurance system (GKV, GPV) are in-kind benefits, amounting to about billion euros in total. They include the following items: prevention and early detection of certain diseases and preventive dentistry, orthodontic treatment up to age 18, preventive inoculations, health promotion at the workplace; screening for diseases; treatment of disease (ambulatory medical care, dental care, drugs, medical devices, inpatient/hospital care, nursing care at home, certain areas of rehabilitative care, sociotherapy) with free choice among panel doctors and dentists; medicines, wound dressings, therapies, and aids such as hearing aids and wheelchairs; medically necessary provision of dentures and crowns; emergency and rescue care, patient transport and certain other benefits such as patient information. 11

13 The remaining 8% of all expenditures on social health and long-term care insurance, or 10.4 billion euros, are direct cash benefits. These are paid as maternity benefits (Mutterschaftsgeld) and maternity allowances (Mutterschaftshilfe) during pregnancy and after childbirth, or as sickness pay. In principle, health care funds guarantee their employed members 70% of their last gross salary (max. 90% of net salary) from week seven up to week 78 of a certified illness, while employers continue to pay 100% of the salary during the first six weeks of sickness. 2.3 Health care outcomes A major outcome indicator to compare the effectiveness of health systems is life expectancy at birth. Figure 3 presents life expectancy at birth for selected Western European countries. This indicator varies between 77.3 years in Portugal and 80.8 years in Switzerland. Although Germany spends most on health in terms of GDP when compared to all other EU-15 countries, it ranks below the EU-15 average in life expectancy with about 78.8 years. Figure 3: Life expectancy at birth in selected Western European countries, Portugal Ireland United Kingdom Finland Netherlands Germany Greece Austria EU-15 average Israel France Spain Sweden Italy Switzerland Source: European Health for All Database (HFA-DB). World Health Organization Regional Office for Europe. Updated: November 2007, accessed December 19 th Another common outcome measure to compare health care systems is service provision. To capture availability, access, and distribution of health service provision, two standard indica- 12

14 tors are typically presented: inpatient utilization and performance of health care services in acute care facilities, and the number of employees in the health care sector. The number of hospital beds is one of the main indicators of hospital utilization. These are normally given as the annual average number of beds in use during the reporting year. This information is supplemented by the admissions, length of stay and occupancy rate. However, cross-country comparability is weak and must be treated with caution due to the different concepts of hospital and hospital beds used in the EU countries. Table C presents figures on in-patient utilization and performance in acute hospitals in selected European countries. Germany traditionally has the highest number of hospital beds per 1000 inhabitants compared to all other European countries. While the EU-15 average is about 4.1 hospital beds, Germany averages 6.3. This relatively high capacity is reached with an admission rate of about 20.5 per 100 inhabitants, which is again above the EU-15 average of about Germany is also well-known for its relatively long hospital stays. While the reduction of inpatient stays has been a key element of health system reform in almost all European countries given the high costs in acute care facilities, Germany is still characterized by the longest hospital stays. In 2002 the average length of hospital stays was about 9.3 days, while the EU-15 average was just 7.1 days. As a result of its high admission rate and the highest length of hospital stays, Germany has one of the highest occupancy rates overall, with around 80% compared to less than 78% for the other European countries. 13

15 Table C: Performance of health care services in Western Europe, around 2002 Hospital beds per 1000 population Admissions per 100 population Average length of stay in days Occupancy rate (%) Andorra c 70.0 c Austria Belgium 5.8 a 16.9 c 8.0 c 79.9 d Denmark a 3.8 a 83.5 b EU-15 average c 7.1 c 77.9 d Finland g France c 5.5 c 77.4 c Germany (2001) Greece 4.0 b 15.2 d Iceland 3.7 f 15.3 d 5.7 d Ireland Israel Italy a 6.9 a 76.0 a Luxembourg h 7.7 d 74.3 h Netherlands (2001) Norway (2001) Portugal (1998) Spain (1998) 3.0 e Sweden f Switzerland d United Kingdom f 5.0 f 80.8 d Notes: a 2001; b 2000; c 1999; d 1998; e 1997; f 1996; g 1995; h 1994; Source: Busse and Riesberg 2004: 112. Further indicators for the availability of and access to health care services are the numbers of physicians and nurses (Figure 4a and 4b). A high number of health professionals is associated with a relatively short waiting period for treatment. Here, Germany represents nearly the EU- 15 average, with about 3.4 physicians per 1000 inhabitants. Italy takes an outlier position, with more than six doctors per 1000 inhabitants. The percentage of nurses per inhabitants in Germany exceeds the EU-15 average considerably: While the overall average for the EU-15 is only about 6.8 nurses per 1000 inhabitants, Germany has close to

16 Figure 4a: Number of physicians per 1000 inhabitants in Western Europe, 2002 or latest available year (in parentheses) United Kingdom (1993) Ireland (2001) San Marino (1990) Luxembourg Andorra Sweden (2000) Netherlands (2002) Finland Portugal (2001) Spain (2000) Austria (2002) France Germany (2002) EU-15 average (2001) Denmark Iceland Norway (2002) Switzerland (2002) Israel Belgium (2002) Greece (2001) Italy (2001) Figure 4b: Number of nurses per 1000 inhabitants in Western Europe, 2002 or latest available year (in parentheses) Greece (1992) Andorra Spain (2000) Portugal (2001) San Marino (1990) Austria (2001) Israel Source: Busse and Riesberg 2004: 129. EU-15 average (2000) France Luxembourg Switzerland (2000) Iceland Germany (2001) Denmark Sweden (2000) Belgium (2001) Netherlands (2001) Ireland (2000) Norway (2001) Finland Summing up, the German health care system is characterized by a relatively high input of financial resources compared to other European countries. This is revealed by the aboveaverage percentage of physicians, nurses and hospital beds. The German health system also shows a high emphasis on free choice among providers and insurers, which also allows for 15

17 easy access to both outpatient and inpatient care. However, outcome indicators such as life expectancy and infant mortality suggest that the German health care system is not more effective than others, nor does it perform particularly well in light of the relatively high financial input required to sustain it. 3 Empirical Results 3.1 Data and Methods We apply an insurance value approach to measure the distributional impact of publicly provided health care. More explicitly, we add age and sex adjusted health expenditures to the cash measure of total disposable income. Public health care expenditures per capita are derived from the OECD Social Expenditure Database (SOCX). For Germany in the year 2002 these amount to about 176 billion euros for the total population. 2 For the total population, the average total health expenditures per capita in Germany are 2,182 euros. From a crossnational perspective, it is interesting to note that this figure is 89% higher than the corresponding figure in the United Kingdom. Figure 5 presents the age pattern of total health expenditures in the German statutory health insurance system (GKV) in 2002, separately for men and women and for East and West Germany. Right after birth, age-adjusted total health expenditures decrease to less than 1,000 euros per capita. Between the ages of 20 and 40, women show higher health expenditures due to childbirth. Starting at the age of 50, there is a pronounced increase in health expenditures which rise to more than 6,000 euros per capita for men aged 90 and more in West Germany. Across the board, total health expenditures for persons living in East Germany are slightly lower than in West Germany for all age groups, which still can be explained by a different level of health care utilization in East Germany. 2 There is a high degree of overlap between the SOCX database for year 2001 and calculations based on the SOEP (see Grabka 2007). The latter shows 175 billion euros for public health expenditures. Calculations based on the international classification used in the System of Health Accounts (SHA) show total health expenditures in Germany in 2001 four billion euros lower than based on the National German Health Accounts. However, the SHA data slightly underestimates general government expenditures because it does not include health administration expenditures. 16

18 Figure 5: Age and sex-adjusted health expenditures in Germany 2002 (social health insurance, GKV) in Euro / year Men East Men West Women East Women West Age in years Source: SOEP and RSA, own calculations. While the data from the German national statistics provided in Figure 5 are based on health expenditures for every year of age, the figures from the OECD SOCX database used in the following for the sake of cross-national comparability in the AIM-AP project are based on data for aggregated age groups. Beginning with the age group 0 to 4, each age group is comprised of five years. It should be kept in mind that this procedure reduces the variance within the respective age groups, which is most important at the margins of the age distribution. A further restriction of the SOCX database arises from the fact that existing differences in the demand for health care between men and women are not considered. The same is true for the different level of health expenditures at the regional level shown in Figure 5. East and West Germany differ significantly with respect to demand and spending on health care, especially at higher ages. The SOCX database also makes no distinction between various groups of beneficiaries. As such, individuals who are not members of the statutory health insurance (GKV) enjoy the same level of expenditures as members of the GKV; thus, individuals who have private health insurance and those without any health insurance are treated in exactly the same way. One important component of total public health expenditures is research and development (R&D). It may be argued that this component should not be considered in a fictitious non- 17

19 cash income measure derived from publicly provided health care, but the SOCX database does not deduct this component. One of the most important objections to this approach to assessing the value of insurance is that it does not consider private contributions to the public health system. While persons doing military service enjoy free access to public health services, the social insurance contributions paid by the 52 million members of the GKV are not taken into account. The same is true for user charges paid. This effect is also relevant with respect to the problem of double-counting in the final outcome measure of disposable income including the fictitious publicly provided health transfers. Any cash benefits received, such as sickness benefits, are already included in disposable income but not deducted from the SOCX database. Thus a tendency toward overestimation of the impact of publicly provided health transfers can be expected. Summing up, only the gross value of publicly provided health transfers is included in the SOCX figures of the OECD, neglecting any own (co-)payments to the public health system. For the inequality analyses, the per capita public health expenditures from the SOCX database are linked to microdata from the German Socio-Economic Panel (SOEP) for the survey year The SOEP is a wide-ranging representative longitudinal study of private households that provides yearly information on all household members, consisting of Germans living in the old (former West) and new (former East) German federal states, foreigners, and recent immigrants to Germany. The panel was started in 1984, and in 2002, there were over 12,000 households with more than 30,000 persons sampled (see Wagner et al. 2007). The principle underlying all the following analyses is to compare the situation of a baseline model using monetary annual equivalent post-government household income with the income situation after adding equivalent public health transfers. The modified OECD equivalence scale is applied (1; 0.5; 0.3) in order to capture economies of scale in larger households. Given the high levels of total health expenditures as a percentage of GDP and the relatively high share of public sources of health expenditures as well as the pronounced u-shaped age pattern of those fictitious income transfers, one can expect distinct levelling effects in the income distribution as well as decreasing relative income poverty risk rates after adding publicly provided health benefits to the cash measure of disposable income. 18

20 3.2 Income Advantages from Publicly provided Health Transfers To begin with, Table C1 shows the income advantages from publicly provided health transfers by income quintiles. Column A gives the income share for equivalent disposable income in the baseline scenario without any fictitious income advantages. Column B then shows the income shares when publicly provided health transfers are added to the measure of total disposable income. For the first three income quintiles, a distinct increase in income shares can be observed while the income shares for the 4 th and the 5 th income quintiles decrease. In particular, the 5 th quintile decreases by 2.6 percentage points to 35.5%. Adding public health transfers to the baseline income yields an overall increase in disposable income of 16.5% (see Table C1, Column F). In line with the increase in income shares, the highest relative increase is 39.4% for the first income quintile which decreases gradually to only 8.2% for the 5 th income quintile in the total population. Separating three different age groups (Columns C, D and E), the strongest increase can be found for the middle age group (15-64 year-olds) with about 9%. This result is due to the relatively high population share compared to the other two age groups. The average transfer from publicly provided health care for the total population is 2,182 euros in 2002 (Column J). This value differs only slightly over the income distribution, but is somewhat higher for low income groups with more than 2,300 euros. As expected from Figure 5, the mean transfers per capita are highest for the elderly, where the average health transfer amounts to almost 4,700 euros. The mean transfers per capita for children are the smallest with only 1,500 euros and the value for adults takes an intermediate position with just above 1,900 euros. For all age groups only a minor variation over the income distribution can be observed. 3.3 Impact on Income Distribution and Poverty As the analysis so far suggests, the overall impact of public health transfers on the distribution of incomes is a significant decrease in inequality. We examine this using a range of well- 19

21 established inequality indicators such as Gini, Atkinson, decile ratios, and poverty measures taken from the FGT family 3 (see Table D). Column B presents results for the various inequality indicators including publicly provided health care. The proportional change when considering the fictitious transfer is given in Column F. The decline in inequality is strongest for the bottom half of the income distribution with almost 10% as given by the change in the 50:10 decile ratio. This result is confirmed by a strong decrease by almost 30% for the bottom-sensitive Mean Log Deviation (MLD). When looking at the results for the three age groups (Column C, D and E), the decrease in inequality is present for all age groups but strongest for those aged 15 to 64 years. When comparing the three age groups, one notices that the decrease in inequality for the middle ages is in line with the overall picture, showing the strongest decrease at the bottom half of the distribution. However, for children and the elderly, this effect is reversed, showing a stronger decline at the upper half of the distribution. This is especially true for the elderly. Here, the 90:50 decile ratio indicates a decrease of almost 5%, while a slight increase in inequality is seen in the bottom half. One explanation could be that those very elderly people who are in a relatively good financial situation profit from the absolute highest non-monetary public health transfers, thus clearly reducing inequality at the upper half of the income distribution. For the bottom half of the distribution, somewhat younger elderly people with relatively poor financial resources tend to enjoy somewhat smaller absolute transfers, which does not produce a relevant change in inequality. In line with findings for income inequality, the risk of relative income poverty is clearly reduced by considering publicly provided health care. As measured by FGT using a poverty aversion parameter α of Zero, the poverty risk rate is about 23% lower for the total population as compared to the baseline model. Furthermore, this reduction effect giving more weight to the degree of poverty by raising the poverty aversion parameter α is even stronger for the FGT1 and FGT2 indicators. The degree of poverty reduction is again highest for the middle 3 This index as described by Foster, Greer and Thorbecke (1984) is defined as FGT( α) = P ( y, z) α 1 = n q i= 1 z yi z where n describes the number of persons observed, q represents the number of poor, y is the equivalent income of the poor individuals, z describes the poverty threshold and α is the weighting parameter for the individual poverty gap. Setting the parameter α equal to zero yields the widely used head-count ratio or poverty incidence (FGT0). FGT(1) is the average normalised poverty gap, and FGT(2) is the average squared normalised poverty gap. The larger α is, the greater the degree of α 20

22 age group of almost 9% (FGT0), while for children and the elderly, only a very minor reduction can be observed. With respect to socio-demographic structures, the social groups benefiting most from publicly provided health care are households with older people (see Table E1 and Figure 6). The elderly dominate the results in absolute and relative terms. For example, the relative income position for older singles or couples is increased by 13 percentage points, keeping in mind that the inclusion of non-cash income advantages from the health care system boosts the overall income level by about 17%. The change in the disposable income of older singles and couples is more than a 34%. For all other household types, the relative income position is stable or even reduced and the (absolute) increase in disposable income ranges on a distinctly lower level between only 11% and 18% (see also Figure 7). The self-employed experience a pronounced decrease of more than 10% in their relative income position. This is the result of a relatively small increase in disposable income of less than 9%. Self-employed people also include a high share of younger men, who have the lowest health expenditures per capita for all age groups. The change in inequality as measured by the Mean Log Deviation (MLD) (right part of Table E1) confirms the result that by and large, all findings are dominated by the results for the group of the elderly. Although income inequality among the elderly is already the smallest, there is a further strong decrease induced by consideration of publicly provided health transfers (more than 40%). When decomposing the MLD by age groups, the striking result is a distinct decrease in inequality between groups as well as within groups. The extent of inequality reduction is stronger for between-group inequality given that the elderly enjoy a significant additional portion in the extended measure of disposable income, which in absolute as well as in relative terms is the highest of all age groups. poverty aversion, i.e., the sensitivity to large poverty gaps. Note that the poverty threshold applied to the baseline distribution is recalculated after adding health related transfers. 21

23 Figure 6: Relative income position by age group, Germany Baseline in % Incl. transfer in % Income Position Source: SOEP, own calculations < Figure 7: Change in relative income position due to health transfers by age group deviation in percentage points Source: SOEP, own calculations. <

24 The overall poverty reduction effect (presented in Table D) is complemented by a breakdown of socio-demographic structures in Table E2. Again as expected, the poverty reduction (Column D) is strongest for the elderly: the value for the FGT0 is reduced by about 75%, while for the young (up to 25 years of age) this effect is much smaller at only 6%. When looking at household types, the smallest reduction can be seen for the group of single-parent households. This is the result of relatively low absolute benefits from publicly provided health care for the members of this type of household, simply reflecting that there are almost no elderly people living in these households. This corresponds to relatively small reduction poverty effects due to health transfers for the unemployed and the category of other socio-economic groups, which partially overlap with single-parent households. The alternative poverty indicators presented in Table E2 show a further reduction in the poverty gap (FGT1) as well as in poverty intensity (FGT2). 4 Conclusion The aim of this paper was to estimate income advantages arising from publicly provided health care and to analyse their impact on the income distribution and poverty in Germany. Here we apply an insurance value approach based on figures on public health expenditures per capita as provided by the OECD. The health system in Germany can be characterized as the one with the highest share of total and public health expenditures (as a percentage of GDP) of all the EU-15 countries, ranking third among the OECD countries. A narrow definition of public health care would comprise only a very minor part of total health expenditures in Germany. Following international classifications on public health care, one also has to consider the social insurance branches in Germany, namely the statutory health and long-time care insurance. Both combine about twothirds of all public health expenditures, while covering nearly 90% of the total population. When applying the insurance value approach to the microdata from the German Socio- Economic Panel (SOEP) one is faced with various restrictions. First of all, there is the problem of double-counting given that in the figures provided by the OECD, user charges paid and cash benefits received are not deducted, while both are already included in the final outcome measure of disposable income. Another problem is the application of per capita values to the total population of Germany independent of their insurance status, thus ignoring the fact that 23

25 the German health system does not provide holders of private health insurance with the full benefits provided to those subscribing to statutory health insurance. This problem is much more important with respect to mandatory contributions to the public health system in Germany. An insurance value approach should also consider the payments and contributions to the health system which are mandatory for members of the statutory health insurance but not for persons enjoying free access to any public care or those who are insured in the private health system. However, the figures provided by the OECD only give gross values for the total population. Thus, the study at hand overestimates the actual benefit from publicly provided health care in Germany. Keeping these most important objections in mind, the overall result when considering publicly provided health care in the measure of total disposable income is an increase of the latter by about 16.5% on average. This increase is as high as 30% for the elderly. A distinct decrease in income inequality and poverty can be observed. For example, the poverty risk rate drops by 23% for the entire population and by more than 70% for the elderly. All findings with respect to changes in the income distribution, income positions, and the poverty rate are clearly dominated by the exceptionally high non-cash benefits for the elderly, both in absolute as well as in relative terms. As such, this finding must be taken with caution given that in the case of Germany, gross insurance values are applied which may impede cross-country comparability. This is especially true if the results presented for Germany are compared to similar ones for countries with health care systems which are fully tax-financed and cover the total population instead of being based on a segmentation of the health system like in Germany. 24

26 5 Tables 25

27 Table C1: Income Advantages from Health-Related Transfers Quintile Income Share Percent increase in disposable income by age group Mean transfer per capita by age group A B C D E F G H I J Baseline plus transf All All 1 (bottom) (top) All N in Mil n Population: Individuals living in private households with Post-Govt.-Inc.>0 Source: SOEP

28 Table D: Inequality and Health-Related Transfers Inequality indices Value of the Index Proportional change in % by age group A B C D E F baseline plus transf All Gini Atkinson Atkinson MLD DR: 90/ DR: 90/ DR: 50/ FGT FGT FGT Population: Individuals living in private households with Post-Govt.-Inc.>0 Source: SOEP

29 Table E1: Inequality Decomposition and Health-Related Transfers Characteristic of household or household head A B- C- D- B C D E F G H I Household type Older single persons or couples (at least one 65+) Younger single persons or couples (none 65+) Couple with children up to 18 (no other HH members) Single-parent household Other household types % Within-group inequality./../../../../../../ % Between-group inequality./../../../../../../ Socioeconomic group of HH head Blue-collar worker White-collar worker Self-employed Unemployed Pensioner Other % Within-group inequality./../../../../../../ % Between-group inequality./../../../../../../ Educational level of HH head Tertiary education Upper secondary education (higher vocational) Lower secondary education (middle vocational) General elementary education or less % Within-group inequality./../../../../../../ % Between-group inequality./../../../../../../ Age of HH member Below Over % Within-group inequality./../../../../../../ % Between-group inequality./../../../../../../ ALL A: Population share D: % increase in mean equiv. Income B- and C-: mean equivalent income, distributions A and B E and F: mean log deviation (2 nd Theil-Index); distributions A and B B and C : mean equivalent income relative to the national mean; distributions A and B G: % change in inequality D-: increase in mean equiv. Income H and I: % contribution to aggregate inequality; distributions A and B Population: Individuals living in private households with Post-Govt.-Inc.>0. Source: SOEP

30 Table E2: Poverty and Health-Related Transfers Characteristic of household or household head A B C D E F G H I J K L M N O P Household type Older single persons or couples (at least one 65+) Younger single persons or couples (none 65+) Couple with children up to 18 (no other HH members) Single-parent household Other household types Socioeconomic group of HH head Blue-collar worker White-collar worker Self-employed Unemployed Pensioner Other Educational level of HH head Tertiary education Upper secondary education (higher vocational) Lower secondary education (middle vocational) General elementary education or less Age of HH member Below Over ALL A: Population share G and H: Poverty index FGT1 (norm. poverty gap); distributions A and B L and M: Poverty index FGT2; distributions A and B B and C: Poverty index FGT0 (poverty rate); I: % change in poverty index FGT1 N:% change in poverty index FGT2 distributions A and B D: % change in poverty index FGT0 J and K: % contribution to aggregate poverty (FGT1); distributions A and B E and F: % contribution to aggregate poverty (FGT0); distributions A and B O and P: % contribution to aggregate poverty (FGT2); distributions A and B Population: Individuals living in private households with Post-Govt.-Inc.>0. Source: SOEP

31 6 References Bundesministerium für Gesundheit (2005): Statistisches Taschenbuch. Gesundheit Bevölkerung nach Art des Krankenversichungsschutzes. Ergebnis des Mikrozensus im Mai ( Busse, Reinhard and Riesberg, Annette (2004): Health Care Systems in Transition. Germany WHO Regional Office for Europe on behalf of the European Observatory on Health Systems and Policies, Copenhagen. ( European Observatory on Health Systems and Policies (2004): Health Care Systems in Transition. HIT Summary Germany. ( Gericke, Christian A., Matthias Wismar, and Reinhard Busse (2004): Cost-sharing in the German Health Care System. Department of Health Care Management, TU Berlin, Discussion paper No. 4. Grabka, Markus (2007): Zwischen Bürgerversicherung und Pauschalprämie. VDM Verlag Dr. Müller: Saarbrücken. OECD (Organization for economic co-operation and development) (2005): Health at a glance. OECD INDICATORS 2005 Verband der PKV (2003): Die private Krankenversicherung. Zahlenbericht 2002/2003. Köln. Wagner, Gert G., Joachim R. Frick and Jürgen Schupp (2007): The German Socio-Economic Panel Study (SOEP) Scope, Evolution and Enhancements. In: Schmollers Jahrbuch, 127(1), p