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„Top Earners Will Not Necessarily Get to Pay Less“
A fixed premium per head: experts
discuss about the justice; © SXC
MEDICA.de: Mr. Drabinski, proponents of the per capita premium are using the words social fairness a lot. Why is that?
Thomas Drabinski: Social fairness in the realm of statutory health insurance means every person, regardless of their income or their state of health, will be able to have access to medical care. A flat-rate premium is better suited to finance this health care system for the long term.
MEDICA.de: However, people with lesser incomes will have to pay more, right? If the per capita premium will be 150 Euros, everyone who earns 1.800 Euros or less gross wages per month will pay more compared to what they are paying today. On the other hand, a statutorily insured person with a gross monthly income of 3.500 Euros will be able to save over 100 Euros monthly under the per capita premium model. Do you think this is fair?
Drabinski: Indeed, at first glance it does look like everybody is paying the exact same premium amount, regardless of their individual income amount. However, this is not the plan: The per capita premium will be offset by a financial adjustment for lower income people. This financial adjustment de facto means that the actual premium amount everybody pays in the end will depend on the individual’s income situation. If somebody cannot afford to pay 150 Euros, he or she will pay less and the high-income people will be responsible for the difference.
MEDICA: So who exactly will be eligible for this financial adjustment?
Drabinski: A percentaged maximum limit that must not be exceeded will be determined. If you presume this maximum limit to be at nine percent of household income, this meaning nobody is allowed to pay more than nine percent of their income for premiums, it will be guaranteed that the cost is equal to the amount lower to mid-income households pay for premiums today. If you think about it: We already essentially pay nine percent today. On a monthly basis, 7.9 percent of gross wages are paid to health insurance. Add to that the additional premiums that will also be introduced shortly and we are at around nine percent.
MEDICA.de: In a nutshell this means that higher income people will pay less insurance premiums, while lower income people will have to receive financial adjustments. All in all would this not actually create a loss if compared to today’s system?
Drabinski: Top earners will not necessarily get to pay significantly less than they do today and it will not create a loss compared to today’s situation. This is how it works today: Health insurance premiums are automatically deducted from gross wages. With a fixed per capita premium the source of income doesn’t matter any longer. Income from rent and leasing properties, self employment, business enterprises and investments properties, which until now have remained unconsidered, will now be factored into the premium determination. It needs further analysis to determine which groups and individuals will have to pay more or less in the end when premiums are calculated this way. This method of calculating premiums translates into a wider financing base for the health insurance companies. The premiums will not just be based on gross wages like before. This is especially true for high income spouses who thus far did not have to pay any premiums under the old calculation model.
MEDICA.de: Exactly how is the financial adjustment getting financed?
Drabinski: Many different concepts are being discussed at the moment. Right now, most think it should be funded through the tax system. In other words, the billions needed for these financial adjustments are intended to come out of the federal budget and being funded by tax payer money. Personally I believe that the financial adjustment monies could be financed through means available in the Healthfund.
MEDICA.de: Increasing taxes would not exactly fit with the FDP party’s election promise to lower taxes.
Drabinski: We need to be realistic here. After all, Germany has a significant budget deficit and enormous national debt which needs to be paid off eventually. This is why it’s highly unlikely that there will be any funds available to finance the financial adjustment through the tax system.
MEDICA. de: So how come your concept is able to accomplish this without raising additional taxes?
Drabinski: If one determines a fixed per capita premium, you will always have the two variable factors: The amount of the fixed per capita premium and the percentaged maximum limit which must not be exceeded. With those two parameters a funding for the health insurance funds is entirely possible. In my assumption, the 171 Euros per capita premium would also include all costs for the financial adjustments. That is why the per capita amount is higher than other estimates recently published by the press. However with this amount, tax payer’s money would remain untouched. At the end of the day, in the health insurance company’s eyes all insured persons are worth the same amount of money. It doesn’t matter whether the person is employed, unemployed or retired, because metaphorically speaking we all carry a backpack with 171 Euros in it.
Thomas Drabinski; © private
MEDICA.de:: The employers premium portion for the statutory health insurance is supposed to get fixed at seven percent of gross wages. This essentially means that all rising health care costs are exclusively the responsibility of the employees. This regulation is expected to decrease fringe wage costs, which in turn hopes to create more jobs. Do you think this calculation is actually realistic?
Drabinski: There is indeed empirical evidence that more jobs are created when fringe wage costs remain fairly firm. And yet I would not go so far as to fix employer paid premiums permanently at seven percent. Employers share a special responsibility to finance the social security system, especially when it comes to financing health care expenditures. Expenses for statutory health insurance are expected to increase over the next few decades and the employer’s participation in sharing those expenses is essential. If employers do not participate, we can expect to see a compensation request at the next collective bargaining negotiations. This is already evident when it comes to debates over upcoming additional premiums. One union already demands a 0.9 percent wage increase to combat a projected decrease in net wages thanks to the expected additional premiums.
MEDICA.de: The per capita premium is supposed to stimulate competition. Exactly how will a fixed premium strengthen competition though?
Drabinski: In a so-called lump-sum system with fixed premiums, health insurance companies would regain their premium autonomy. There would only be one guideline to determine a premium and in my estimation it should be 171 Euros. In the new structure, health insurance companies are free to determine the premiums they would like to charge. Insurance companies can choose to charge higher or lower premiums, depending on how well they negotiated their contracts and whether they offer additional benefits or more innovative treatments. The Netherlands has introduced a comparable per capita system years ago. As it turns out, due to strong competition, premiums differ on average no more than 20 Euros. Health insurance companies are careful not to price themselves out of the competition and loose market shares.
MEDICA.de: So this means the insured person could switch to a cheaper health insurance carrier or one that offers better benefits?
Drabinski: Yes, it’s exactly like it worked in the previous system where one would pay different premiums depending on the health insurance company’s rates. You were always free to switch to a cheap Internet insurance company or switch to a more expensive one with more service. It will be exactly the same with the new proposed per capita premium. Except now you will be able to compare a premium that is set in Euros versus comparing a premium based on a percentage figure.
MEDICA.de: Does this mean it is all a setback to the old system?
Drabinski: No, this actually means there is progress with the new system. In the old system health insurance companies had issues with premiums charged for insured people who are sick or of low income. Today this is counterbalanced by a specific risk hedging structure that is determined by illness. Even though this is currently done, there still is much room for improvement. All that said, in the future we should see the competition pattern of the old system combined with an improved risk hedging structure.
The interview was conducted by Anke Barth
- Health Care System: The Future Lies in A Fixed Premium - Article of 1 February 2010