Germany’s Health Care Provision Reform


The existing health care system in Germany is considered to be one of the most efficient in the world. The original ideas of the current health care system were introduced by Bismarck, who developed a scheme of social insurance. This system was based on the “sickness funds” which became primary for the further development of the health care provision. However, Germany had undergone substantial historical changes that influenced its development drastically.

After World War II, the country became separated. Two distinctively different systems of health care were functioning until August 31, 1990. After the signing of the Germany Reunification Treaty, the state became one nation. The union of two parts of the country brought confusion in numerous spheres including the health care sector. Germany faced the need to combine the health care systems of West Germany and East Germany. Although the country confronted numerous challenges, it accomplished the successful unification of two distinct health care systems.

The cornerstone of the Health Care System

According to the European Observatory on Health Care Systems, the initial form of the modern health care system of Germany originated in 18831. In that year, the parliament of Germany promoted the compulsory implementation of national health insurance. This system of social support was developed by Otto von Bismarck on the basis of the previously existing system of sickness funds. Bismarck believed that the state should follow the idea of social solidarity.

This idea presupposed that the government should ensure that citizens had particular social benefits. As a result of Bismarck’s initiative, the Health Insurance Act of 1883 was enforced. The primary advantage of this act was that all blue-collar workers could receive medical care. This system was revised several times. During the rule of Adolf Hitler, Bismarck’s system of health insurance was not accepted at all. However, this system survived and became one of the most efficient models of health care systems. Nowadays, Bismarck’s model is most successfully implemented by Netherlands, Japan, France, Germany, and Austria2.

Health Care System Prior to Reunification

The division of Germany into two different states influenced the system of health care drastically. The country was divided into the Federal Republic of Germany (also known as West Germany or FRG) and the German Democratic Public (East Germany or GDR). The approaches of both West Germany and East Germany differed substantially. Thus, West Germany initiated the formation of the private and decentralized system of health insurance on the basis of Bismarck’s model. The health care system in East Germany followed the model of the USSR. It was centralized, and the state was the primary authority and operator of this system. Before the evaluation of the reunification of two systems of health care, it is necessary to have an insight into the operation of both systems.

Health Care System in East Germany

After the end of World War II, Soviet authorities established control over the eastern part of Germany. The Soviets refused to support and continue working with the existing health care system as far as they believed that no capitalist model could be successful. Consequently, the new government initiated the creation of the Central Health Administration that monitored the health care system in the whole country. As Radich writes, “A Soviet decree in 1947 eliminated private practice and established a network of ambulatories (primary care centers) and polyclinics (multispecialty outpatient centers); almost all health care workers were now employees of the state and subject to its rigid rules and regulations”3.

However, East Germany did not neglect the Bismarck model entirely. Workers and employers contributed ten percent of their wages to health insurance. The Soviet authorities established the Free German Trade Union that provided insurance coverage for almost ninety percent of the overall population. The state had to provide insurance for the other ten percent of the population. The state ensured the residents of East Germany had the health insurance that would cover the necessary treatment plan with included benefits. Those employees who had a high-paid job were suggested to contribute additional percent to receive complex health insurance with more benefits.

Such a system of national health care was successful in the beginning. Most benefits were provided for new mothers and their children. After the end of the WWII, the country faced an urgent need for the labor force. Consequently, bearing healthy and strong children became a priority to the Soviets. The success of this system might be observed in the reductions of the mortality rates of infants in comparison to other countries4.

Despite the particular accomplishments, the quality of the health care in East Germany declined drastically in the 1960s and the 1970s. Hospitals experienced a substantial shortage in fundamental medical supplies such as rubber gloves and syringes. Doctors did not have the necessary equipment for proper examination of patients and operations. That gradual decline of the health care system continued until the reunification.

Health Care System in West Germany

As it has been already mentioned, the previously existing Bismarck’s model was not favored during the Third Reich. After the war, the so-called Statutory Health Insurance System (SHI) was reestablished in West Germany. This system was highly decentralized. It operated on the principles of solidarity, self-administration, and third-party payment. The principles of solidarity presupposed that all residents of the state would receive equal and necessary medical services regardless of the amount of their contribution to the health care system.

The amount of contribution was counted on the basis of individual’s income. The second principle of self-administration referred to the explanation of the way the health care system operated. Thus, all health insurance providers were self-governing while the role of the federal government was to provide legal regulations necessary for their efficient activity. The principle of third-party payment identified the payment issues of the SHI. Thus, individuals who needed medical treatment did not have to pay directly to hospitals while health care providers received their remuneration through the sickness funds5.

The development of the post-war SHI system may be divided into several periods. In the 1950s and 1960s, the structural changes to the health care system were of primary significance. The initial aim was to reduce costs and form the associations of various funds, physicians, and organizations that could assist in the achievement of this aim. However, in the 1975s, the cost of healthcare services increased again because of the development of the economy and other factors such as increasing population and new technologies. During this period, the health care insurance system improved. For instance, more groups of people became protected by the SHI such as students or farmers.

Since 1975, West Germany faced another wave of the increasing costs due to the oil crisis. Health care providers became concerned about the constant rise of prices. The Health Insurance Cost-Containment Act was introduced in 1977 as a reaction to the need to stabilize the increasing of cost for health care services. “Since 1977, the sickness funds and providers of health care have been required to pursue a goal of stability in contributions which has remained the main cost-containment target in health care ever since”6. The Uniform Evaluation Standard was created on the basis of the Act. It aimed at identifying fees for all types of medical services, and the amount of reimbursement that should be given for all physicians for the same types of services.

Radich concludes that “By the 1980s, West Germany had succeeded in meeting the four objectives that all health care systems strive for: universal access, high quality, free choice of physician, and socially acceptable cost”7. However, the most significant reform was made in 1989. It was the development and enforcement of the Health Care Reform Act. According to this Act, the amount of contribution of wealthy patients increased. Also, the Act aimed to make the patients more aware of payments necessary for health care system.

West German’s system of health care became one of the most efficient in the western states. However, the reunification of Germany resulted in a challenging need to modify and provide health insurance for residents of East Germany.

Reunification of Health Care System

By the end of the twentieth century, the protests of residents of East Germany culminated and resulted in the fall of the Berlin Wall in 1989. In 1990, two parts of Germany were reunited under the Treaty of German Reunification. As a result of this treaty, approximately seventeen million people from East Germany became citizens of the Federal Republic of Germany. This event was a significant change and challenge at the same time.

The system of health care, as well as economic and political systems, had to be revised and improved. The government had to react to the changes quickly to avoid further uncertainties and aggravations. It was estimated that two systems would be combined. Residents of East Germany expected that their institutions would be preserved. “Yet ideas for a third way, for example, one uniform health insurance system for the former GDR or the whole of Germany, were dismissed on practical, political, legal, and lobbyist grounds”8.

The plan for the reunification of the health care system presupposed the absolute adoption of the West Germany’s model. It meant that centralized health care system of East Germany was to be altered in the typical health insurance model that comprised of SHI and private health business. However, the reunification turned out to be rather a challenging task. The government of West Germany found out that the health care system of the former GDR was in a terrible condition. The state had no necessary medical technologies.

Besides, hospitals were not appropriate for the provision of the efficient health care system. West Germany’s estimations about the needed financial resources for the rebuilding of the East’s system were exceeded substantially. Initially, the government of West Germany was ready to contribute twenty billion dollars to the expansion of health care system. After the examination of East’s infrastructure of health care, more than two hundred billion dollars were provided by West Germany. The further financing of the East Germany’s health care system became possible due to the formation of the new sickness funds.

Still, West Germany agreed to retain some aspects of health care functioning that were relevant in East Germany. For instance, polyclinics were allowed to function for the next five years. During this period, they had to join or collaborate with other associations. However, only a few of such polyclinics managed to function under the West Germany’s system. Besides, Radich dwelled on the fact that West Germany could have adopted some positive aspects of health care system of East Germany. The significance of the maternity and child care might have been unified in the West Germany’s system as well. In general, the reunification of two systems was successful and quick. Germany managed to expand and regulate a new system within two years.


The reunification of West Germany resulted in the rapid growth of prices for medical services. Again, the government faced the need to reduce and control the increasing costs of medical services. A new cost containment policy was required to react to the changing prices. In 1922, Germany introduced a Health Care Structure Act (Gesundheitsstrukturgesetz, or GSG). “The GSG has been classified as a ‘victory over pressure group politics’ and as a clear break with the ‘stalemate of opposed interests and consequent immobility of policy’ that has been characteristic for German health policy since the 1950s”9.

According to Anderson, the Health Structure Act modified the decision-making process on the governmental level with the help of numerous alternations and top-down instruments10. Thomas Gerlinger wrote that this Act led to the long-lasting transformations in the health care system of Germany11. Gerlinger described the top-down mechanisms of the new system more precisely.

The first distinctive feature of the new reform was the introduction of the right to the free choice of funds. Such a regulation aimed to increase the competition between funds. Faced with the need to compete, funds had no other choice but to suggest fair and beneficial financial solutions. Otherwise, they could experience substantial market losses. The second change was the implementation of the fixed budgets that should be spent on the particular health sector. The target of this alternation was to decrease health providers’ personal interest in getting income from the treatment of patients.

Before it, fee-for-service method was utilized, and the length of stay of patients influenced the hospital’s revenue. Fixed budgets presupposed that the same amount of remuneration would be rewarded for the particular health services regardless of the length of stay12. The emphasis on the privatization of spending on health care services was made later in 1997. The Health Care Structure Act was followed by subsequent reforms including Code of Social Law XI (1994), Health Insurance Contribution Rate Relief Act (1996), First and Second Statutory Health Insurance Restructuring (1997), Act to Strengthen Solidarity in Statutory Health Insurance (1998), Statutory Health Insurance Reform (1999), and the other reforms13.


The modern model for the health care provision in Germany is considered to be one of the most efficient in the world. The origins of this system go back to the nineteenth century when Otto von Bismarck introduced his model of health insurance system. The model was rather efficient, and it aimed at providing benefits to all residents of the country. However, the World War II prevented the further development of the system. After the WWII, Germany became divided in East Germany and West Germany. While East Germany was reorganized according to the Soviet vision of health care provision, the West Germany’s system commenced the efficient development. The greatest challenge occurred after the reunification of two parts of Germany. The government of West Germany had to provide health insurance services for more than sixteen million residents of the former GDR. The Health Care Structure Act became the incentive for the significant changes and the establishment of the efficient health care system in the country.


Anderson, Karen. “The politics of incremental change: institutional change in old-age pensions and health care in Germany.” Journal of Labor Market Research 48, no. 2 (2015): 113-131.

European Observatory on Health Care Systems. “Health Care Systems in Transition.” Web.

Gerlinger, Thomas. “Health Care Reform in Germany.” German Policy Studies 6, no. 1 (2010): 107-142.

Giaimo, Susan and Philip Manow. “Adapting the Welfare State.” Comparative Political Studies 32, no. 8 (1999): 967-1000.

Matcha, Duance. Health Care Systems of the Developed World. Santa Barbara: Greenwood Publishing Group, 2003.

Obermann, Konrad, Peter Muller, Hans Muller, Burkhard Schmidt, and Benrd Glazinski. “Understanding the German Health Care System.” miph.umm.uni- Web.

Radich, Nicole. “A Single Health Care System for a Reunified Germany.” Web.


  1. European Observatory on Health Care Systems, “Health Care Systems in Transition,”, Web.
  2. Duance Matcha, Health Care Systems of the Developed World (Santa Barbara: Greenwood Publishing Group, 2003), 13.
  3. Nicole Radich, “A Single Health Care System for a Reunified Germany,”, Web.
  4. Ibid.
  5. Susan Giaimo and Philip Manow, “Adapting the Welfare State,” Comparative Political Studies 32, no. 8 (1999): 976.
  6. European Observatory on Health Care Systems, “Health Care Systems”.
  7. Radich, “A Single Health Care System”.
  8. European Observatory on Health Care Systems, “Health Care Systems”.
  9. Giaimo and Manow, “Adapting the Welfare State,” 977.
  10.  Karen Anderson, “The politics of incremental change: institutional change in old-age pensions and health care in Germany,” Journal of Labor Market Research 48, no. 2 (2015): 125.
  11. Thomas Gerlinger, “Health Care Reform in Germany,” German Policy Studies 6, no. 1 (2010): 113.
  12. Ibid.
  13. Konrad Obermann, Peter Muller, Hans Muller, Burkhard Schmidt, and Benrd Glazinski, “Understanding the German Health Care System,”, Web.