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German and Austrian


									Governance of Social Security:
Social Insurance, Medical Insurance and Pensions

                     GERMAN AND AUSTRIAN

                     HEALTH INSURANCE SYSTEM
                    (Description of the systems
                    with respect to the reforms in Russian health insurance system)

prepared by project short-term expert
H. Fried
H. Fried German and Austrian health insurance system

1. Historical background
The roots of social security and social insurance reach back to the 14th century when workers in
the mining industry established a form of self-organised fund (Bruderladen) to support each
other and their dependants in cases of sickness, work injuries, invalidity, old age and death. It
was at the time of the industrial revolution that social insurance became really important. First
laws on health insurance were enacted 1883 in Germany and 1887 in Austria. At that time Main
task of the statutory health insurance fund was to ensure the financial security of people who
had become unable to work due to illness and to provide them with free medical treatment. The
development of health insurance systems was relatively stable and well balanced in both
countries. Only when Nationalist Socialists were in power the self-administration bodies were
dissolved and replaced by the so-called Fuehrer Principle. Social security administration was
not democratically legitimated anymore. After the end of World War II self-administration was
put into power again. After several upgrades of services and benefits health insurance faces
rocketing expenditure and many attempts of cost containment.
2. Scope of Laws
Germany’s “Basic Law”, the German constitution describes the Federal Republic of Germany
both as a democratic and social federal state as well as a free and constitutional state governed
by the rule of law. The German Constitution guarantees human and civil rights such as human
dignity, the right of life and physical safety, freedom of conscience as well as freedom of
movement as inviolable fundamental rights. These rights are safeguarded by the Federal
Constitutional Court.
As a social federal state, the organisation of an adequate health care system is vital.
The Federal Republic of Germany is a federal state. It is for this reason that its constitution
clearly demarcates the respective rights of the Federal Government and those of the Laender
(federal states) Governments. In certain areas of legislation (foreign affairs, defence, monetary
matters, etc.) the Federal Government has exclusive jurisdiction. In areas involving “concurrent”
legislation, the Laender are empowered to enact laws in so far as the Federal Government does
not act. Health policy matters fall within the scope of concurrent legislation
In order to ensure a uniform standard of service throughout the territory of the Federal Republic
of Germany, the Federal Government has enacted Federal laws covering many areas of the
health care system, including for instance:
      Legislation on the statutory health insurance (Social Security Code, Book V)
      Federal Code of Practice for the Medical Profession
      Drug Law
      Medical Device Act
      Hospital Financing Act
The task of implementing such legislation falls to the Laender. In addition, there are numerous
areas of health care (medical boards, Public Health Service, etc.) regulated by legislation
enacted by the Laender.
Germany has developed a close-meshed social security system for its citizens. The statutory
health insurance system, as the oldest branch of the social security system, makes major
contributions in the respect of health care.
The health insurance system is anchored in the principles of solidarity and subsidiarity. A
characteristic quality of the principle of subsidiarity is self-administration. Instead of being a
state-run public health service, the German system is characterized by the co-operative work of
funds, health professions, hospitals and other providers. The state`s responsibility lies in
providing the necessary framework of regulations and services for all the parties concerned.
The principle of organizing health care funds is self-administration. This system gives those
involved the chance to exercise a direct influence on the shaping of the fund. It contributes to
the sense of social partnership and social peace. The legislator opted for the establishment of
independent administrative bodies in the form of public corporations, placing the responsibility
of administrating these corporations on the employees and employers concerned.
All the above said is in general also valid for Austria. The General Social Insurance Law
contains the main regulations about statutory health insurance. Austria is here mentioned in this
H. Fried German and Austrian health insurance system

connection because the way the administrative bodies of health insurance funds are established
is one of the considerable differences in the systems in Germany and Austria. Whereas in
Germany representatives of employers and employees are elected in social elections there is a
much more indirect form of democratic legitimisation used in Austria. Independent and elected
bodies of chambers of employers and employees nominate their representative to health
insurance bodies.
3. Funding
The operating resources of the statutory health insurance funds are largely raised through
contributions. Corresponding to the solidarity principle contribution rates are linked to the
respective income of insured regardless of the insured risk. Dependent family members with no
income (spouses, children and students up to a certain age) are insured free of charge. This
funding system bases on the principle that each member contributes according to its financial
capacity and receives services on the basis of medical requirements. That guarantees
equalisation between healthy and ill, young and old, singles and families.
Employees and employers share the burden of paying the contribution equally. Contributions
that are to be paid from pensions are shared equally by the providers of pensions and the
pensioners. In Austria self-employed pay their contribution in general themselves in Germany
they are not subject to compulsory insurance by law.
Contribution rates are set in Germany by health funds in Austria by law. The average rate in
Germany is 13,6 in Austria 6,8 percent of the gross salary. It is paid by employees and
employers in equal shares. The big difference in contribution rates could be explained mainly
with different payment settlements for hospitals and higher expenditures with pharmaceuticals,
sick pay, remedies and administration.
Salaries are only taken into account up to a so-called income limit for the assessment of
contributions that is raised every year according to the development of the gross earnings of all
insured. Less than 15 percent of the working population earns over this income limit.
Insurance members have to share the burden of costs for certain benefits. In this respect it is
presumed that the insured, by virtue of his contributing to the payment of such costs, will thus
be encouraged to avail himself of benefits in a cost-conscious and responsible manner. This
concerns mainly co-payments towards the costs of pharmaceuticals, remedies and dentures.
However, regulations covering cases of hardship ensure that the sick receive full range of
medical treatment without being unreasonably financially burdened. Insured with low income
are therefore completely exempt from co-payments. Although co-payments play an important
part in the discussion of health policy the share to funds total expenditures does not exceed 5
3. 1. Methods of equalisation
Since 1994 equalisation is performed in Germany by regulations of the structural risk sharing
adjustment. This means that the financial effects of the various risk-bearing structures are
compensated for between the health insurance funds. All the contributions are virtually put into
a pot from where the funds get money according to:
      Number of insured
      Number of insured without contributions (dependents)
      Age structure of insured
      Sex of insured
This equalisation is organised by a federal authority for insurance (Bundesversicherungsamt).
In Austria equalisation between funds is organised only by a so-called financial equalisation. All
the funds have to deposit 1,4 percent of their contributions into an account at the federal
association of social security funds. If the average contribution of a fund is less than the
nationwide average the affected insurance company is entitled by law to get compensation.
Funds who are in financial trouble are also supported but on an optional base. This system is a
very weak instrument to equalise different levels of contributions and expenditures due to
different risk structure of insured. Nevertheless funds as non-profit organisations have to spend
all their money. So funds that have a favourable risk structure (young and rich) tend to grant
more benefits than those do who`s insured are older and contribute less. The differences in
H. Fried German and Austrian health insurance system

benefits are not vital because law fixes most of them. The Vienna health fund for example
granted only 26 weeks sick leave while it had financial problems in the year 1996 other regional
funds 78.
4. Entitlements of the population in general - Insurers Obligation
As by law the vast majority of population (Austria 99,8, Germany 90 percent) has to be or are
insured with statutory health insurance the definition of entitlements of the population has to be
searched within the tasks of a health insurance fund. Main task of statutory health insurance
fund was summed up by the following definition:
The task of statutory health insurance is to provide those possessing insurance cover with the
necessary benefits in the event of sickness.
In the Reform Act of 1988 the following tasks were placed equally:
      Prevention
      Health promotion
      Medical treatment
      Rehabilitative Care
So the task of funds was defined more wide-ranging and with more emphasize to non curative
medicine as in the past. Nevertheless medical treatment is still the main task and the main
financial burden for health insurance funds.
The same development could be observed in Austria. Illness is defined by law as an irregular
physical or mental condition whose occurrence requires a course of treatment. As soon as an
insured person is ill which means that he fulfils the above mentioned criteria he is entitled to get
free medical treatment. The law also determines which treatment the insured is entitled to get.
Medical treatment according to the the General Social Insurance Law has to be paid by health
insurance funds as long as it is sufficient, appropriate and does not exceed what is necessary.
In other words social insurance funds have to pay all medical treatment as long as it helps to
cure the illness of the insured and it is recognised as medical inevitable.
As the right to this kind of medical treatment is guarantied by law, insured usually get all
necessary cures. If the health insurance fund does not pay for some treatment the insured is
entitled to ask for a decree. In this the fund has to refuse treatment in written form. This decree
can be fought against at a local Labour and Social Court without any fees.
Limitations to the services paid by compulsory health insurance are mainly performed by
contracts between providers and health funds. These relationships will be discussed later. Little
limitation to paid services, aging population and rising expectations of the insured in respect to
number and quality of services combined with easy possibility of raising contributions made the
Austrian as well as the German system very expensive ones. This is also the reason why most
of the recent reforms tried to introduce cost containment policy. Austrian legislation tried to
influence directly the organisation of health funds. Reducing the size of administration bodies,
implementing modern management measures like controlling and forcing providers and
producers of pharmaceutical products to reduce their prices were the answers to cost explosion
in health care. German legislation tried to master rising costs by introducing competition
between health insurance funds. This indirect way of influencing efficiency of health funds leads
to a massive decline of the numbers of funds because of mergers, and due to competition to
better and cheaper services for the insured.
Whereas in Germany insured are free to choose their insurance funds which suits them best, in
Austria the affiliation of each person to a certain fund is stipulated by law.
5. Specific entitlements of the population – types of services
With respect to the range of benefits and services they render health insurance funds are
largely bound by the Fifth Book of the Social Security code in Germany and the General Social
Insurance Law in Austria which are both Federal laws. They predominantly render such
services as benefits in kind. In practice this means that insured persons may obtain health care
benefits without having to pay for them at the point of delivery. It is the health insurance funds
that remunerate the suppliers of services directly.
The range of benefits in kind provided by the statutory health insurance funds include:
H. Fried German and Austrian health insurance system

        Preventive health-care measures and measures to promote the early diagnosis of
          certain diseases
        Treatment administered by doctors and dentists (outpatient service)
        Supply of pharmaceuticals, remedies and remedial aids
        Hospital treatment
        Home Care
        Medical and supplementary services for rehabilitation purposes as well as ergotherapy
        Pregnancy and maternity benefits
In the case of treatment administered by a doctor or dentist, the patient is at liberty to choose a
provider of his choice from among those practicing as panel doctors under statutory health
insurance. Hospital treatment includes all diagnostic and therapeutic measures as well as room
and board.
In addition to benefits in kind, the statutory health insurance system also provides cash benefits.
Chiefly these consist of sickness benefits. In most cases where someone is unable to work due
to illness, the employer in question assumes the continued payment of salary or wages for a
period of six weeks. Thereafter health funds pay sickness benefits amounting to 70 % of the last
obtained earnings. This being restricted to a maximum of 78 week over a three years period for
one and the same illness.
All the above mentioned services have to be paid by insurance funds. As funds do usually not
operate their own facilities they do have contracts with all kinds of providers. The law does only
define entitlements of insured in general. Form and organization of services is determined by
funds within the limits of legal regulations.
6. Relationship between funds insured and providers
6.1. Outpatient Service
On the basis of being a member in the health insurance fund, the insured person is entitled,
among other things, to medical care administered by a doctor. The health insurance fund
basically provides this benefit to the insured as a benefit in kind. By handing over his health
insurance card (in Austria health certificate) the insured is exercising his right to obtain medical
treatment as a benefit in kind. The panel doctor (physicians who have a contract with funds) is
obliged to carry out or prescribe all medically required measures belonging to the range of
benefits provided under contract to the statutory health insurance system. Panel doctors work
self employed with strong contractual relationship to funds.
By being licensed to practise medicine under contract to the statutory health insurance system,
the doctor in question becomes a full member of the association of panel doctors. This
membership entails numerous rights and obligations for the panel doctor. He is obliged to treat
all those who are insured in the statutory health insurance fund. His claim for a fee is not
invoiced to the health insurance fund but solely to his own association of panel doctors. Panel
doctors in Austria invoice directly to the health insurance fund.
In Germany as in Austria fees are not set free, fee-schedules (contracts in Austria) regulate
what physicians and dentists may charge. The fee-schedule assigns points to various medical
treatments. Calculation basis for the fees is a monetary conversion factor determined by
historical costing. The physicians get monthly part-payments from their panel doctor
association, which finally pay or balance their bills. The panel doctor association receives a
fixed amount of money form the health funds. The given budget has to be divided by the total
number of points representing the total number of services provided by the panel doctors. In
Austria fees are part of the contract between doctors and funds. These contracts are negotiated
between association of doctors and funds. The Number of panel doctors is restricted and also
part of contractual negotiations between doctor association and funds. Very similar contractual
relationships are held with all other providers of health services.
As only those services mentioned in the contract will be paid this has a big influence on the
services that are applied. Not all the services have to be mentioned in detail because for some
groups of services (e.g. simple examination, prescription of drug, examination at the end of the
treatment) flat rates are agreed upon.

H. Fried German and Austrian health insurance system

     Relationship between funds, insured and doctors
                                        Contract                   Ass. of
           Fund                                                    Panel doctors
                           Overall Budget for doctors

                  Insurance                                 Allocation
                  coverage                                  of fees

        Insured                                                    Panel doctor

6.2. Hospital
Financing of hospitals is regulated by law. Capital expenditure is totally financed by Laender
(Regions). Operation expenditure are paid more or less by health fund on a DRG basis in
Austria and a more complicated system with flat rates per case, department related rates and
hotel service rates in Germany. Law regulates all essential entitlements of patients with hospital
care. Therefore contracts between funds and hospitals are also predetermined by law.
7. Regulation of insurance funds activities
Insurance funds obligations are determined by law and administration is executed by self-
administration bodies. The role of the state is limited to supervision. State supervision is
supposed to ensure that the corporations involved in the field of statutory health insurance are
administered in accordance with the law. It serves to protect the insured and the body corporate
itself from misconduct on the part of the executive bodies. Furthermore, it protects the legal
system as a whole and serves the public welfare. State supervision is restricted to monitoring
compliance with legislation. The authorities to do supervision are ministers and senators for
labour and social affairs on regional level and the Ministry for Health on federal level.
Supervision authorities must not interfere with everyday business.
8. Relevance for Russia
As mentioned above history of health insurance systems in Austria and Germany goes back
100 years and the developing process is still continuing. How to set up such a complicated
system is not only explainable in terms of law but also in terms of social partnership. The
applied form of self-administration requires a high degree of unionization amongst employees
and employers. Comparing the shares of GNP that are used for health care in Europe it seems
that insurance systems tend to be more expensive than national health services.
One of the strengths of insurance systems is their independence from governmental power and
budget. Contributions paid also by insured would not only increase the available amount of
money but would also strengthen the active participation of people within the health insurance
system. This participation is seen as an essential basis of a democratic statutory health

H. Fried German and Austrian health insurance system

insurance system that is performing on behalf and to the advantage of the population.
Contributions have to be large enough to enable insurance funds to force providers to better
quality and more efficiency and act therewith as agents for their insured.
The above described system also shows that it is possible to operate a high quality health care
system with having only a minimum of centralized control mechanisms installed. It also shows
that control is much more effective if it is performed regarding to regulations about structure and
outcome instead of regulating to many details or even everyday work.
In respect to equalization it seems that Austria could learn a lot from the Russian system.
How entitlements and services are defined is only understandable with the background of a 100
year history of health insurance. Nevertheless some catalogues of fee-schedules (e.g.
Einheitlicher Bewertungsmasstab – Germany) could serve as a base of discussion about the
range of granted services.
Building up health insurance systems is a long and individual process. Even European systems
differ a lot. They differ because there is no best solution for health insurance there is always one
that is suitable for the needs and circumstances of a country at a certain time. As explained
above there are some elements of Austrian or German health insurance system which could be
transformed to be used in Russia. Nevertheless this should be done very carefully and always
bearing in mind that societies are not simple machines but very very complicated structures.
The special political and social environment has always to be considered.


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