Global Budgeting in Germany: Lessons for the United States

Prologue: Germany's century-old universal health insurance plan represents a middle ground in the spectrum of approaches Western countries have adopted to protect their populations against the financial consequences of illness. Among industrialized countries, West Germany's health insurance plan came closest during the 1980s to limiting increases in spending to a rate equal to growth of its national income; the disparity between the two measures was greatest in the United States. Nevertheless, Germany has remained concerned about the continued rise in health care expenditures, particularly because of the increased pressure that unification of East and West Germany has placed on public spending. Here Klaus Henke, Margaret Murray, and Claudia Ade discuss the latest efforts by the German government to moderate the growth of health care spending. One of the striking features of the 1993 health care reform act in Germany, compared with the meandering pace of the U.S. reform effort, was the speed with which it was enacted. Brought before the German parliament in the fall of 1992, the reform was enacted almost immediately and took effect 1 January 1993. Henke is a professor of economics at the University of Hanover. As chairman of the Council of Medical and Economic Advisers to the National Conference on Health, Henke is an influential figure in German policy circles. Murray, who holds a master's degree in public affairs from Princeton, researched the German system while on a fellowship from the Alexander von Humboldt Foundation. During 1993–1994 she worked as a senior associate at the Alpha Center in Washington and is now with the Office of Management and Budget. Ade is a research associate in economics at the University of Hanover. Last year she was a visiting scholar at the Lyndon B. Johnson School of Public Affairs, University of Texas. Abstract: In 1993 Germany implemented significant health reform legislation that, among other things, strengthened the global budgeting of physicians and instituted global budgeting of pharmaceutical expenditures. German physician expenditures are now capped at the growth in income of members of the sickness funds, in contrast to prior years, in which some growth above a targeted level was allowed. For the first time, dental services also are subject to the budget cap. The new reform legislation also limits growth in pharmaceutical expenditures by increasing the level of copayments and by placing physicians as a group at financial risk for growth over the limit. This paper examines the effect of these reforms during the first year and offers lessons for reform of the U.S. system.