{news} German Chief Forges Accord on Financing Health Care

[Justine McCabe]

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October 6, 2006
German Chief Forges Accord on Financing Health Care 
By MARK LANDLER

FRANKFURT, Oct. 5 - Chancellor Angela Merkel has survived the most serious threat to her fragile, 10-month-old government, emerging from a marathon, late-night negotiating session on Thursday with an agreement for new financing of Germany's straitened health care system.

But the plan, which Mrs. Merkel once promoted as the centerpiece of her agenda, falls short of a basic overhaul of the huge system and puts off the most important changes until January 2009 - by which time, some critics say, her "grand coalition" may no longer exist.

The noisy debate over health care has become a sort of crucible for the chancellor, testing her ability to reconcile differences between her Christian Democratic Party and its partner, the Social Democratic Party. This compromise, analysts say, shows how hobbled Mrs. Merkel is in taking radical steps.

"The chancellor promised to deliver a grand solution, which was improbable from the start," said Reinhard Bütikofer, co-chairman of the opposition Green Party. "What really failed was this ill-conceived idea that a grand coalition produces grand solutions. It does not."

The watered-down deal deprives Mrs. Merkel of the only bold measure left in her portfolio. Other proposed changes, like loosening Germany's hidebound labor market, were shelved even before the government took power because of ideological differences between the parties.

Far from being a German Margaret Thatcher, as her most ardent supporters once hoped, Mrs. Merkel, 52, has had to devote most of her energy to tamping down internal disputes before they split the coalition.

The dispute over health care is a case in point. After a broad agreement was reached in July, internal bickering forced Mrs. Merkel to delay carrying out the plan by three months, until April 2007.

The stalemate hurt her political standing, reducing approval ratings for the Christian Democrats to their lowest level since the reunification of Germany in 1990. Another political cloud is Mrs. Merkel's insistence on substantially increasing the value-added-tax next year. With the party's regional bosses taking shots at her, political analysts had speculated that the coalition would splinter.

Having set a do-or-die session for Wednesday evening, Mrs. Merkel was plainly relieved to have cut any deal.

"We succeeded, and anyone who knows how complicated things are in health policy also knows that the coalition has succeeded in a very important step," she said in an interview with a German television news channel, before heading to Turkey and a respite from domestic politics.

Few dispute that the health care system needs to be overhauled, and that none of the remedies are simple.

Germany spends more on health care, as a percentage of its economic output, than all countries except Switzerland and the United States. With the rising cost of care, an aging population and chronic high unemployment, a shortfall of nearly $9 billion is projected this year.

At the heart of the system are 252 public health insurance companies, which are financed through a premium paid by employers and employees that amounts to roughly 14 percent of workers' annual salaries.

Conservatives in Mrs. Merkel's party originally pushed for a flat-rate premium, which would cut the link between income level and health care payments. This, they said, would lower Germany's labor costs and encourage companies to hire again. But the Social Democrats balked.

In the end, the parties agreed to raise the premium to 14.7 percent of salaries in 2007, to allow the insurers to close their deficit. They also agreed to pool the contributions in a state-run central fund, which would disburse a uniform amount to each insurance provider to cover their policyholders. The rationale is to force inefficient health insurers to cut costs.

But this proposal got stuck, among other things, on a disagreement over a separate provision that would add an extra premium to cover future shortfalls in insurance coverage. The government decided to delay the central fund by six months, until January 2009, to resolve these differences.

"They are inventing new ways to raise revenue," said Thomas Mayer, the chief European economist at Deutsche Bank. "What I don't see are ways to reduce spending. It's the same old system."

Mr. Bütikofer said the government would have done better to focus on smaller steps, like encouraging more competition among pharmacies, or between public and private health insurance providers.

Some analysts argue that the fine points of Germany's health care system are almost beside the point, in what is basically a power struggle between Mrs. Merkel and rival conservative leaders.

Bavaria's prime minister, Edmund Stoiber, who leads the Christian Social Union, a sister party of the Christian Democrats, said he would withhold judgment until he read the draft legislation. Mr. Stoiber, a former candidate for chancellor, has never masked his skepticism about the coalition.

"These regional princes are trying to weaken her," said John C. Kornblum, a banker in Berlin and former American ambassador to Germany. "This has sapped a good deal of her energy and credibility."
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