The politics of incremental change: institutional change in old-age pensions and health care in Germany

Abstract

This paper analyzes policy shifts in two core welfare state programs in Germany: old-age pensions and health care. Both programs are prototypes of Bismarckian/conservative program design (benefits are based on occupational and family status; financing is based on payroll contributions, and administration is based on corporatist arrangements) and both have experienced tremendous cost pressures because of demographic change and rising non-wage labor costs. A series of reforms since the late 1980s has reduced the generosity of benefits and aims to change the governance structures of both programs. Although the reforms include substantial benefit cuts, key conservative principles concerning benefit entitlement and financing remain largely untouched. In both programs, derived rights based on family status remain strong, and occupational fragmentation continues to characterize the overall structure of both systems. The paper argues that this pattern of institutional change is not new, but is typical of the politics of muddling through that has characterized the German system since its inception. I emphasize the impact of German political institutions, the structure of electoral competition, and the legacies of conservative social policy to explain the contemporary pattern of policy development.