German Chancellor Angela Merkel’s first visit to the United States made us realize that in 1993, when the Clintons ruled the roost, Germany’s health-care system was hailed as an model for how to remake the American way of providing insurance coverage. Health policy experts at the time claimed that Germany provided wide and comprehensive health care while avoiding the kind of “socialized medicine” found in Britain or Sweden, where centralized, government-run systems are marked by long lines and painfully slow service.” It consisted then and still consists of everyone paying into a publicly funded health system through payroll taxes.
Health care is delivered through what are known as Krankenkassen’s or (translated into Clintonese) “regional health plans” that are non-profit and heavily regulated in terms of what they charge and the care they deliver. If someone changes his job or is fired — or more often the case in Germany, if they remain unemployed — they have health insurance that is portable. Which undermines the argument that portability is critical to an efficient and productive labor force. But we digress.
Since then, the German health system has careened toward bankruptcy and worse as a result of three factors. First, an aging and eroding population base cannot support a generous package of benefits that includes a six-week spa vacation. Second, the government’s efforts to control costs have initiated a death spiral of more serious financial problems triggered by penny-wise and pound-foolish measures. By limiting access to new drugs German regulators drove up the use and total cost of hospital stays and nursing-home use. The response to this self-inflicted deficit? A broader crackdown on the use of new medications, leading to more spending and sickness.
Finally, government regulation of the health plans hinders innovation. Efforts to improve outcomes, reduce hospital stays, increase efficiency or consumer choice with electronic patient records and health savings accounts are almost non-existent. Compare this to the discussion at the recent JP Morgan Healthcare Conference, where every managed care executive said that the key to their business is providing better value and better health to consumers at the lowest cost possible. Key to these efforts is rapid uptake of new medicines and technologies that prevent disease from progressing at the earliest stage possible. Offering different products at affordable prices is the best way to cut into the ranks of the uninsured.
Mrs. Merkel has seized the health-reform portfolio from Social Democrat health minister Ulla Schmidt, whose policies have deepened the crisis. That’s a good first step. The next step would be to import some health-care innovations from America and let Germans, if they want, to pay for them with tax free dollars. Freedom is good for the body, as well as the soul.