There are a few different healthcare models that various governments abroad adopt. You may have heard of the national health insurance model or recognize the out-of-pocket model. But there is also the Bismarck model of health insurance, often called the social health insurance model. This premise of providing healthcare to a nation’s citizens is popular in European countries and has become the topic of conversation here in the U.S., as well.
Here in the states, there isn’t a single nationwide healthcare system that all citizens use. As you know, health insurance can be purchased via the marketplaces provided by the government or via private sector companies. While the Bismarck model isn’t our primary platform for health insurance, there are familiarities between how Americans manage healthcare funds and Europeans who do have the Bismarck Model. Today, we’ll explain the various aspects and nuances of the Bismarck Model. It may not be as foreign as you think.
What Is the Bismarck Model of Healthcare?
A Prussian Chancellor named Otto von Bismarck invented a welfare platform as part of Germany’s reunification years ago. This system, now called the Bismarck model, offers healthcare coverage for citizens in Germany. And several other countries have also adopted the centralized funding platform, including European neighbors and Japan. The model provides an insurance ecosystem that is different from what we know health insurance to be here in the states. Here are some basic definitions regarding what the Bismarck model actually is.
A Limited Healthcare System
The Bismarck model is a health insurance-based system. However, there are significant limitations that make it much different than the health insurance industry we have here. For example, the government requires every citizen must be covered with health insurance and participate at some level. And the insurance companies there don’t necessarily make a profit.
Citizens Pay in Their Fair Share
In Germany and other countries that function under the Bismarck model, citizens pay into government funding earmarked for healthcare costs. In Germany, for example, there are more than 200 different funds allocated for citizen healthcare spending. In these scenarios, everyone makes a contribution to the pool, and the government agencies manage the control of payouts for individual health-related services.
Government & Private Providers
There are government and private providers under the Bismarck model. And the doctors and hospitals tend to be privatized. Japan, another Bismark model adopter, actually has more privatized hospitals than we do in the U.S.
How Does the Bismarck Model of Healthcare Work?
We’ll keep using Germany as an example, and there, it’s mandatory for every citizen to have health insurance. Reports estimate roughly 86% of the entire population is enrolled in what officials call statutory health insurance. This is a general coverage that pays for inpatient, outpatient, mental health care, and prescriptions.
Often called sickness funds, the Bismarck model of healthcare is paid for with allocated payments. Industrial sick funds function much like financial institutions and extend cash payouts for members who become injured or sick. In a way, it works much like our health insurance companies do here in the states, as well as its method of reimbursements for healthcare costs.
Financed Jointly with Employers
Sickness funds are also financed by employers who jointly contribute on behalf of their employees. There is a general wage contribution of about 14.6% and a supplementary contribution of about 1% in total. Copayments are applied to prescriptions and inpatient services, and there are a variety of deductibles that also apply. In Germany, participants who earn more than $68,000 annually can opt-out of the government-sponsored version and choose a private health insurance provider if they want. The government subsidies, however, don’t apply in the private sector.
Government Funding & Premium Tax Credits
The healthcare funds and general subsidies are managed administratively by non-government insurers. The German government, for example, doesn’t play a role in selecting a person’s healthcare. However, the government maintains control and monitoring of the fund collections and manages the insurance program that all citizens use to contribute.
How Is the Bismarck Model Similar to the U.S. Healthcare System?
If any of the Bismarck model aspects sound familiar, it’s because they are. The U.S. doesn’t operate entirely in this type of model or insurance ecosystem. But there are many features of our healthcare and health insurance system that mimic the Bismarck Model.
Flex Spending & HRA Similarities
Here in the states, we have a few programs that rely on participant funding and reimbursements. Flexible spending accounts (FSAs) and health reimbursement arrangements (HRAs) are both examples of similar platforms. In either case, an individual contributes to a general fund that can then be used to cover the actual costs of health and wellness services.
The Bismarck model is based on employer contributions as a supplement to the employees’ contribution. There are similar employer contribution programs here in the U.S. that function much the same way. Employees see these employer contributions as additional benefits that inspire better attention to healthcare.
Government Funded & Tax Similarities
In Germany, individuals contribute to the sickness funds as a payroll deduction through their employers. And there are subsidy benefits to working through the government-sponsored providers. Our version of the ACA operates similarly with tax breaks, available payroll deductions, and marketplace tax credits for plans selected within the exchange.
While the Bismarck model of health insurance isn’t a reality for Americans, there are certain aspects of the platform that do work well with how our system operates. To learn more about the many benefits of an ICHRA, or other HRA offerings, contact us.
Controlling costs and providing real cost-saving benefits to your employees doesn’t require a complete rework of your strategy. Contact W3ll today to learn more about enhancing your company benefits platform to include some of these popular reimbursement models. It’s not the Bismarck model of health insurance. But it can certainly pluck some of the best features of the German welfare system and socialize medicine and help your business’ bottom line.