Germany's once generous health service needs urgent surgery as costs soar and premiums escalate. But the battle to reform the nation's creaking health service might only just be starting.

German Chancellor Gerhard Schroeder is facing growing opposition to his plans for tough reforms to the nation’s deficit-hit health system with the country’s powerful drug companies launching a major campaign against the changes and claims that the proposed changes don’t go far enough.

In a series of comments, Germany’s big drugmakers, including Bayer AG, Schering AG and Schwarz Pharma, have threatened to stop investing in the country and to slash jobs if Berlin goes ahead with the reforms to the nation’s health service, which is one of the most expensive in the world. Apart from costing companies about EUR 1 billion in lost revenues, both the industry and analysts have also raised concerns that the reforms could cast a shadow over Germany’s international standing as a centre for drug research. Up until now Germany’s once generous welfare state provided the country with largely comprehensive healthcare services, including spa treatments and taxi bills paid by insurers. But health premiums have jumped from 11 percent of gross salary in 1977 to more than 14 percent today with only the Swiss and the Americans paying more than the Germans for healthcare. However, critics of the reforms say that they will fail to adequately wind back the contributions made by workers and employers to the health service and that additional big changes will be needed in the coming years to stem the costs of the system as the German population ages. As a sign that the German health reform debate still has some way to go, there have now been calls for the introduction of a so-called citizen insurance scheme which could require every citizen to make contributions to the nation’s hard-pressed public health insurance groups. This includes many public sector employees and the self-employed who are at present are able to take out private health cover. Apart from spreading the insurance burden for Germany's costly health system, proponents of a citizen insurance scheme argue that it would reduce contribution levels and non-wage labour costs while boosting the income of the nation’s public health insurers. “People get older and older and not enough young people are coming in,” Health Minister Ulla Schmidt told German TV. “A citizen insurance is an important alternative,” she said. While the citizen insurance proposal has won widespread support including from leading members of the government, the opposition and the trade unions, its introduction is years away. In the meantime, with the shortfall in the public health fund having reached EUR 3 billion last year, Schroeder’s Social Democrat-led government has now unveiled a string of changes aimed cutting costs and sharing the pain of reform with Germans forced to pay more out of their own pockets for medical care. The health reform plans set out last month by Schmidt also call for a redistribution of costs over many areas including prescription medicines, dental treatment, hospitalisation and sick leave compensation. With the Social Democrats and their Green Party coalition partners having lost control of the upper house of the German parliament, the Bundesrat, Schroeder’s government has managed to hammer out a deal on health reform with the nation’s conservative opposition. But in addition to the drug companies also lining up against the proposed changes have been medical professionals such the doctors with signs that the on-going debate about the need for the public to share the burden of the costs of healthcare system having set off alarm bells across the electorate. Berlin hopes that the plan, which is due to come into force next year and which officials have dubbed revolutionary will generate healthcare savings of about EUR 20 billion by 2007. However, drug companies have been angered by the proposal to trim costs by increasing next year the rebates drugmakers offer insurers from six percent to 16 percent. “This is a completely wrong signal for the pharmaceutical’s industry’s research,” said Hans-Joachim Rothe, managing director of Bayer Vital GmbH, the healthcare offshoot of Europe’s third biggest chemical maker Bayer. Likewise, Schwarz Pharma chief Patrick Schwarz-Schuette said as a result of the reforms he expected his company’s German business to report its first-ever loss next year with the group saying it planned to halt investment and cut 200 jobs. Already grappling with a strong euro, Schering said its full-year profit may drop with the government’s drive to cut healthcare spending costing the Berlin-based company EUR 40 million. Indeed, Hermann Kortland, spokesman for Germany’s drugmakers’ association predicted a big cutback in jobs as a consequence of Berlin’s overhaul of the healthcare system with industry projections of annual sales fall by about EUR one billion. The association has called on the government to phase in the proposed changes over two years and to allow the state health funds to meet the cost of more non-prescription drugs, including aspirin. August 2003