New financial institutions in German Statutory Health Insurance (SHI): are they consistent with its overall goal? Thomas Nebling Department of Strategic Contract- and Healthcare-Management, Techniker Krankenkasse, Hamburg, Germany EHMA Annual Conference 2008 – „The Politics of Health“

2 Agenda 1Some basic facts about German SHI 2How do sickness funds invest in health? 3New financial institutions in German SHI 4Conclusions

3 The overall goal of SHI is defined in § 1 Social Code Book V as "to maintain, recover or improve people's health" 1 Some basic facts about German SHI Overall goal

4  SHI is covered by about 210 sickness funds  Sickness funds are public bodies with self-government  Competition in SHI-market as insurants can choose freely 1 Some basic facts about German SHI Organization

5  Financing based on income of SHI-members  Each sickness fund raises its own individual contribution rate (average at 14.0 per cent)  Contribution covered by both employer and employee each with 50 per cent  Members pay additional contribution rate of 0.9 per cent 1 Some basic facts about German SHI Financing Old World until

6 Agenda 1Some basic facts about German SHI 2How do sickness funds invest in health? 3New financial institutions in German SHI 4Conclusions

7 2 How do sickness funds invest in health? Investments in health (intangible assets) A B good state of health low morbidity level poor state of health high morbidity level Moving from (B) to (A) (Improving state of health / Reduction of morbidity level)  Outcome = intangible asset  In economics, assets are generally everything that generates return/gain/value in future  Assumption: the higher this intangible asset, the better the profit margin for the sickness fund (= return on investment, ROI)

8 2 How do sickness funds invest in health? System theoretical model of the healthcare system Input Throughput Structures Processes Technologies in Healthcare OutputOutcome Result Effect Individual healthcare management contracts Individual disease management programmes State of health Quality of life Resources of sickness fund Intangible asset Investments Management of investments Surgeries Prescribed drugs etc.

9 Agenda 1Some basic facts about German SHI 2How do sickness funds invest in health? 3New financial institutions in German SHI 4Conclusions

10 4 New financial institutions in German SHI Central Health Fund Central Health Fund EmployersEmployeesState/Taxes government-fixed central contribution rate Sickness fund ASickness fund BSickness fund C morbidity-adjusted, per capita lump sums (capitation payment) New World beginning 2009

11 4 New financial institutions in German SHI Morbidity-adjusted financing Woman, age EUR Woman, age EUR Drug prescription 2,400 EUR Inpatient treatment 300 EUR Total: 3,220 EUR healthysick Example

12 4 New financial institutions in German SHI Central Health Fund Central Health Fund EmployersEmployeesState/Taxes government-fixed central contribution rate Sickness fund ASickness fund BSickness fund C morbidity-adjusted, per capita lump sums (capitation payment) capitation = expenditure  capitation > expenditure repayment to members capitation < expenditure additional premium by members  New World beginning 2009

13 4 New financial institutions in German SHI External effects Sickness fund Intangible Asset (= Reduction of morbidity level) Investment (based on individual contracts/DMP) Return on Investment (Central Health Fund pays less to sickness fund) Central Health Fund SHI-System External Effect (improving financial position of central health fund) Potential Loss (Sickness fund receives less payments from central health fund)

14 4 New financial institutions in German SHI Financial effects of investing in health Woman, age EUR Woman, age EUR Drug prescription 2,400 EUR Inpatient treatment 300 EUR healthysick Woman, age EUR healthy Investing in prevention: Avoiding diseases Investing in cure: Making people healthy again Not getting additional 2,700 EUR Loss of additional 2,700 EUR

15  Sickness funds get paid according to the status quo of morbidity level  No consideration of improvement of morbidity or state of health  No consideration of efforts needed for improving health  Calculation of capitation payment with average SHI-data inhibits individual financing of investemts 4 New financial institutions in German SHI Results for investing in health

16 Agenda 1Some basic facts about German SHI 2How do sickness funds invest in health? 3New financial institutions in German SHI 4Conclusions

17  Successful investments in maintaining, recovering or improving health result in lower payments from the central health fund  New financial institutions pay for status quo of high morbidity levels, not taking into account enormous efforts needed to maintain, recover or improve health  Very doubtful, if that‘s the right incentive to follow the overall goal of SHI  ROI can be expected to be very low or even impossible  There should be financial institutions established, rewarding investments in health: the more the morbidity level of insurees decreases, the more payments a sickness fund should receive and not the other way round 5 Conclusions

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20  Example:  Salary: 2,000 EUR x 14.0 per cent = 280 EUR  50 per cent = 140 EUR  Additional contribution: 2,000 EUR x 0.9 per cent = 18 EUR  Contribution employer: 140 EUR  Contribution employee: 140 EUR + 18 EUR = 158 EUR 1 Some basic facts about German SHI Financing

21 1 Some basic facts about German SHI Financing Old World until Financial compensation (risk-structure adjustment)  Compensation criteria: age, sex, income  Comparrison of defined basic premium (BP) with real financial power (FP)  Sickness funds with BP FP