Additional Lump-Sum Contributions and Social Compensation in the Statutory Health Insurance: Incentives and Predictions Until 2030

Abstract

The announced reform of the funding of statutory health insurance providers lets health insurance funds levy unlimited additional lump-sum contributions. The associated reform of social compensation fixes two faulty designs of the current system. On the one hand, the determination of the amount of social compensation based on the average amount of additional contributions provides further incentives for low-income earners to change to a cheaper health insurance fund. On the other hand, the distortion of competition, which might arise in the current system due to social compensation within one health insurance fund, is remediated by the announced implementation of social compensation not within but among all health insurance funds. If the general rate of contribution is fixed at a level of 15.5% and further increases of expenditures in the future are covered by additional contributions, the share of additional contributions in funding will rise to 14% of total expenses in the baseline scenario and to 25% in the realistic scenario. The volume of social compensation for retirees and employees subject to social insurance contributions will be relatively low until 2015, but will rise until 2030 to 15 Billion Euros in the baseline scenario and to 41 Billion Euros in the realistic scenario. Adding the general federal grant, the federal government’s share in funding will rise from 8% nowadays to 9% in 2030 (baseline scenario) or up to 18% (realistic scenario). In comparison to an income-based system without additional contributions, low-income earners will have to carry an additional burden while high-income earners will be unburdened. However, this will only happen if the additional contribution equals the average additional contribution. If a health insurance fund charging lower additional contributions is chosen, the rates partly reverse and low-income earners may experience financial relief, which will be greater the lower the income.