Health premiums or health contributions? An evaluation of health care reform options in Germany

The present study quantifies the revenue, distributional and efficiency effects of various reform options for the German health care system. Starting from a baseline path of the economy which represents the existing public and private mixture of health care providers in the German health care system, we introduce various reform packages which change the financing, the contribution base and the membership in the public system. Our simulations indicate that a premium system is superior to the citizen insurance model, since the former allows the redistribution to be financed through consumption taxes instead of wage taxes. Efficiency gains are maximized with the health premium model because this reform allows an immediate transition (compared to a privatization strategy) and minimizes the required compensation payments (compared to the citizen premium model) which distort labor supply. Winners of such a reform are mainly younger workers, while older workers, civil servants and self-employed will lose.