Germany's Statutory Health Insurance:

Germany's Statutory Health Insurance: Structures, Challenges, Benefits Dr. Norbert Klusen CEO of Techniker Krankenkasse (TK), Hamburg American & German Healthcare Forum 2010, University of Minnesota Minneapolis, 27 April 2010

Agenda TK in the Market The German Statutory Health Insurance (SHI) Challenges and Benefits of SHI 2

Techniker Krankenkasse (TK) Germany's Leading Health Insurer TK headquarters in Hamburg Basic data Founded Legal state 03 Aug 1884 in Leipzig, Germany Non-profit organization under public law Insured More than 7.3 million (5.1 million paying members plus 2.2 million co-insured dependants) Region Customer contacts Employees Local Service Points 231 Operating nationwide 80 mio personal contacts per year 11.281 (of which 469 apprentices) Turnover Approx. 17,6 bn Euro (2010) 3 Source: TK 2010

The TK Achieved Continuous Organic Growth With a Market Share of 1/10, TK is a Significant Market Player Number of TK insured Merger market share: 10,4% (4/2010) (mio; January, 1) 7.3 4.6 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Free choice of sickness fund Merger with Gärtner KK Take-over insured of BKK Airbus and BKK Meyer Werft Merger with IKK direkt Before 1996, TK could only insure people with technical professions. Since this restriction was lifted in 1996 the TK grew by almost 60%. 4 Source: TK 2010

TK Awards Source: TK 2010 5

TK is One of Currently 166 Statutory Health Insurance Funds ("Sickness Funds") in Germany Number of sickness funds 23.021 1965: TK merges 2000 2028 1815 1500 1000 500 1319 1147 1996: General right to free choice of a health insurer 2000: TK merges 414 2008 und 2009: First mergers across types of health insurance funds 2009: TK merges 166 0 1900 1960 1970 1980 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 National sickness funds exist next to regional sickness funds currently 6 Data: Brockhaus (1905), Dienst für Gesellschaftspolitik (2010); cut-off date: 01.04.2010 Source: TK

Agenda TK in the Market The German Statutory Health Insurance (SHI) Challenges and Benefits of SHI 7

Elements of German Health Insurance A Multi-Payer System with Public-Private-Mix Population: 82.1 million Private supplementary health insurance 21.7 mio. insured Statutory health insurance (SHI) 69.8 mio. insured Social long term care insurance Other Insured: 3.4 mio. Private health insurance (PHI) 88mio 8.8 mio. insured Private long term care insurance From 2009: Health insurance is mandatory Employees with assessable income up to 49.950 /y (4.162,50 /m) in SHI Employees with assessable income above 49.950950 /y, self-employed and civil servants can choose SHI or PHI Uninsured: Which system (SHI or PHI) they have to take, depends on last insurance or job status Uninsured: 45.000 (0.06% 06% of population) 8 Source: TK, Federal Statistical Office 2010, Federal Ministry of Health 2010, Association of Private Health Insureance 2010

Coverage of Population 85 % are Covered by Statutory Health Insurance (SHI) SHI: Structure of the insured Basic features mandatory 43% retired 24% voluntarily 6% co insured dependants 27% SHI is based on principles of solidarity and subsidiarity contributions according to income health care provision according to medical needs people with income above a threshold can opt out of SHI Providers of SHI ("sickness funds") non-profit-organizations i ti open enrolment challenge: risk adjustment mechanisms Within SHI, 73% of the insured are paying members and 27% are co-insured family dependents. 9 Source: Eurostat 2009, TK, Federal Statistical Office 2010, Federal Ministry of Health 2010, Association of Private Health Insureance 2010 and own calculations; TK

The German System of Statutory Health Insurance (SHI) The Way It Works Regulatory framework Insurers Free choice of insurer Income-based contribution Contribution rate shared between employer and employees Free insurance for co-insured dependants Mix of collective and selective provider contracts Service guarantee Insured Free choice of provider Wide range of benefits Benefits in kind Growing co-payments Care providers 10 Source: TK

The Legal Framework for SHI is Defined on a Federal Level Main Decisions are Taken by Bodies of Self-Government Levels of decision making in SHI Govern- mental level (macro) Corporatist level (meso / self-government) Social Security Code No. V institutional structures of health care fundings mechanisms access to healh care provision quality standards Basis for health care reimbursement by SHI is the "medically necessary" Definition of the range of benefits Negotiation of prices, reimbursement contracts t Principle of subsidiarity Single player level (micro: payers, providers, patients) Within the set frame, providers and health authorities provide preventive, curative, rehabilitative and long term care The European Union still has minor significance for national health care systems. 11 Source: TK

Provision of Health Care Based on Collective Contracts Same Range of Benefits for all SHI-Insured Associations of insurers (federal / regional) Selective contracting Collective contracting Associations of Statutory Health Insurance Physicians (KV) Outpatient Inpatient Collective contracting still dominates but slow trend towards selective contracting Equal access to medical services, no mandatory gate-keeping 12 Source: TK

Financing of SHI Central Health Fund and Morbidity-Adjusted Allocations implemented in 2009 Financial i flows 2010 Uniform contribution rate: 14.9% Health insurance funds (166) 7,0% 7,9% 11.7 bn benefit costs (morbid.- adjusted) administration costs (50% morb.-adjusted and 50% per capita) others Flat loan Refund Additional premium with 1% hardship rule The Health Fund has widely abolished price competition and financial autonomy. 13 Source: TK; SHI finances 2010

Options for Competition Widened but still Unsufficient Fields of Competition within SHI 1996: free choice of insurer initiated competition within SHI Elements of competition TK Selective Contracting Elective Health Plans Suppl. Health Insurance Service Quality Low contribution rate or additional premium Integrative contracts, rebate contracts individualized elective health plans suppl. health insurance High service standards 24/7 service hotline additional services (e.g. medical hotline) High internal efficiency and low administrative costs 14 Source: TK

SHI Finances about 60% of Total Health Expenses Related to GDP, Germany Spends 10.4% for Healthcare. Payers: Employers Public house- holds PHI German Health Care Expenses 2008: 263,2 bn. Nursing care Ins. 3.1% 7.3% *) 4.3% 4.9% 9.5% Private households 13.4% 57.6% SHI % Gross Domestic Product 2007 USA 16 France 11 Switzerland 10,8 Germany 10,4 Belgium 10,2 Canada 10,1 Netherlands 9,8 Denmark 9,8 New Zealand 9,2 Sweden 9,1 Norway 8,9 OECD-30 8,9 Australia 8,7 Italy 8,7 UK 84 8,4 Spain 8,4 Finland 8,2 Japan 8,1 Ireland 7,6 Mexico 5,9 Turkey 5,7 The funding share of SHI in Germany has largely remained the same since 2000 while the share of private households and PHI has increased. 15 Source: Federal Statistical Office (Gesundheitsausgaben 2008 nach Ausgabenträgern, 17.4.2010), OECD Health Data 2009, Version: June 2009 *) Statutory Pension Scheme, Statutory Accident Insurance Funds

Agenda TK in the Market The German Statutory Health Insurance (SHI) Challenges and Benefits of SHI 16

Challenges of the German SHI-system Growing financial gap of SHI Index 140 135 130 125 120 115 110 105 expenditure on benefits assessable income of the insured Rising expenses New costly procedures Need of an ageing society Inefficiencies (fraud, waste, abuse) Decreasing SHI income Contributions income-related Ageing society with more retired persons Less payers (PHI switchers) 100 1995 '96 '97 '98 '99 2000 '01 '02 '03 '04 2005 '06 '07 '08 '09 Increasing competitive elements are contradicted by continous regulations Growing political influence, less financial autonomy for insurers (risk-orientated allocations, growing tax subsidies) 17 Source: Ministry of Health, Federal Statistical Office

Overall Satisfaction with the German Health Care System The Main Reasons Why: Benefits of SHI What is your overall satisfaction with the German health care system? totally/ t very content content 8 18,7 13 9 8 8 8 11 41 37 36 45 52 48 54 less / not content 27,3 35 49 54 54 44 40 2001 2002 2003 2004 2005 2006 2007 2008 2009 Benefits of German SHI Low number of uninsured Patient-centered health care system Good access to medical services High quality standards Cost containment has succeeded in parts 18 Source: TK-Meinungspuls Gesundheit 2001-2009 (Survey among 2.000 insured in Germany), in %; differences: "don't know"

Health Care Reforms Closely Connected to Elections Continous Need to React to Changing Health Policy 27.10.1998 Rot-grün 12.01.2001 22.10.2002 Rot-grün 22.11.2005 Schwarz-rot 28.10.2009 Schwarz-gelb 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 SHI Health Care 2004 SHI 2007 SHI Competition SHI Health Reform 2000 Modernization Act Reinforcement Act Reform 2010 19 "After the reform before the reform" Source: Images: G. Schröder: Wikipedia, U. Schmidt and A. Merkel: Wikimedia, A. Fischer: Pleon (all 24.04.2009); P. Rösler: Wikipedia (26.11.2009). Dates relate to swearing-in ceremony of chancellors and ministers.

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