Financial consequences of falling ill: Changes in the German health insurance system since the 1980s

The incidence of a health risk may result in two different types of financial consequences: the creation of new needs and the loss of savings and/or income to meet those needs. Illness often requires the purchase of medical help. Although in Germany virtually the entire population is covered by statutory or private health insurance, over time these insurance schemes have become less generous as private out-of-pocket payments continue to rise and, in extreme cases, lead to financial hardship and even poverty. This paper describes the institutional regulations that cover the financial risks of becoming ill and the changes in these regulations since the 1980s. It begins with a structural overview of the German health insurance system, the benefits provided (both in-kind and in-cash) and the evolution of benefits since the 1980s. It then considers the related risk of permanent work-disability and the main institutional means of covering this risk. Here the discussion focuses solely on provisions dealing with loss of income and the changes therein since the 1980s. Aggregate data on short- and long-term illness are then presented to illustrate several effects resulting from changes in institutional rules. The paper concludes with a brief summary of major legislative changes, followed by conclusions and hypotheses about the consequences of occurring risks.