Health Insurance Funding Reform
The increase in the health insurance supplementary contribution proposed by the Federal Ministry of Health will be relatively low for all income groups. Due to tax effects, the net disposable income of households will not be reduced by the total contribution increase. This was calculated by a team of researchers at ZEW Mannheim using the microsimulation model ZEW-EviSTA. The researchers based their calculations on the assumption that the statutory health insurance contribution would increase by 0.3 percentage points. This was one of the measures proposed by the Federal Ministry of Health to reform statutory health insurance funding.
On average, health insurance contributions will increase by 57 euros per household and year, according to the ZEW calculations. However, the higher contributions are not passed on one-to-one to the disposable household income. On average, they are reduced by 42 euros in net terms. “This difference is primarily due to the fact that the health insurance contributions reduce income tax, since they count as provident expenses. This has an effect above all on higher income groups,” explains Professor Holger Stichnoth, who heads the ZEW Research Group “Inequality and Public Policy”. As a result, the federal budget would lose tax revenue amounting to 600 million euros. At the lower end of the income distribution, on the other hand, the higher additional contribution ensures that the entitlement to long-term unemployment benefits increases for the respective recipients. According to the calculation, the additional expenditure on social transfers amounts to 30 million euros.
Tax effects reduce net burden
The higher the income, the more the health insurance contribution increases in absolute terms. For the lowest-income ten per cent of households, the increase amounts to an average of 15 euros per year. In net terms, disposable income falls by 13 euros. “Low-income households pay little income tax. That is why the difference between gross and net burden due to the higher health insurance contribution is so small,” says Stichnoth. The richest 30 per cent of households by income will pay 90 euros more health insurance contribution per year. Due to the tax effects described above, however, net income is only reduced by about 60 euros.
The ZEW researchers have also calculated the relative effects of a higher additional contribution on net disposable income. “In our model simulation, we show that the relative burden on households is the same across all income groups. On average, net disposable income is reduced by about 0.1 per cent in all income groups. The burden is therefore moderate for everyone,” says ZEW economist Stichnoth.
The Federal Ministry of Health estimates the additional revenue of the health insurance funds at 4.8 to 5 billion euros, should the additional contribution be increased by 0.3 percentage points. The ZEW calculations confirm this. The model simulation results in an additional revenue of 4.66 billion euros for the current year 2022. “In the ZEW-EviSta model, we have calculated a sum that is just below the estimate of the federal government. However, if we take into account the currently high inflation, we arrive at roughly the same amount stated by the ministry for 2023,” explains redistribution expert Stichnoth.