Improving Healthcare by Increasing Competition

According to the OECD’s most recent healthcare report, Germany’s health system is merely average – not in terms of healthcare expenditure, which, like the number of doctors and hospital beds per capita, is above the OECD average, but in terms of the quality of provision. Heart attack mortality rates and obstetric injury figures, for example, are above average in Germany.

Since international comparisons may fail to adequately account for the particular structural conditions of different healthcare systems, we would do well to take them with a pinch of salt. They may nonetheless serve to indicate insufficiencies within a health system. And if we also bear in mind that digitisation in the German health system lags well behind its European counterparts, it is clear that the new health minister, Jens Spahn, has his work cut out for him. We might well wonder why Germany’s health system, which incorporates the latest technology and research and whose doctors are in demand across the world, is in poor health. Such problems can of course never be traced back to a single cause, yet a crucial factor here is the lack of sufficient competition between Germany’s health insurance providers. Since these are taking on an increasingly important role in organising healthcare provision, the lack of competition is set to have an ever greater impact on the quality of care.

It is in the private health insurance sector that this lack is most evident. At present, young people who are privately insured save up a premium balance that cannot be retained in full when switching to a new provider. This means that changing insurance providers in later life is not a real option. And this in turn means that private insurers have little incentive to go the extra mile for their clients, who cannot simply change to another provider if they are unhappy with the service they receive. Some proposals have already been put forward to address these issues, such as the possibility of transferring risk-based reserves from provider to provider. New insurance providers would then be in a position to offer older clients a better service.

In the statutory health insurance system, where it is possible to change insurance provider from year to year, competition would not seem to be a problem. Yet competition here primarily revolves around premium prices rather than service provision. One reason for this is that there is no financial incentive for statutory insurance providers to offer their clients a better service. Imagine, for example, a new app-based service that would allow people to keep a closer eye on their health data. Among other things, this would to a certain degree help to prevent heart attacks. From the perspective of insurance providers, however, the introduction of the app would require an investment that would not bring any financial benefit further down the line – since it is only when a patient has already had a heart attack that the provider receives a higher allocation from the central healthcare fund.

Tackling such problems in the statutory sector is a significant challenge, since the income-dependent contributions system necessitates a risk adjustment mechanism to level the playing field for insurance providers. It would nonetheless be helpful if decision-makers were more aware of the issue and were prepared to trial appropriate measures to address it. The Monopolies Commission, for example, has suggested that funding allocations to insurance providers should be pegged to their success in improving client healthcare. In addition, providers should have more opportunity to compete with one another in offering new treatments.

Accounting as it does for over ten per cent of GDP, the healthcare market is one of Germany’s largest. It is then all the more important to make the most of its untapped resources. Over to you, Jens Spahn.

This article was originally published online by Welt, 17 April 2018.