Hannes Richter

Austria's Health Care System

Hannes Richter

The U.S. Supreme Court has announced its decision. The individual mandate foreseen in the Affordable Health Care Act has been upheld. On the path to universal health insurance coverage, the U.S. has taken another small step forward.

While only now the U.S. seems to be on its way to extend health insurance to (almost) all its citizens and residents, European nations have long been at the forefront of providing affordable health care to its peoples. Providing for health insurance goes a long way back in Austria. It is more than two hundred years ago, in 1810, that a law came into force that made it mandatory for employers to take care of sick domestic servants for a period of up to four weeks.

In 1837, an imperial decree extended this requirement to employees working in manufacturing and retail. The 1859 Industry and Trade Regulation Act (“Gewerbeordnung”) foresaw compulsory health and accident insurance for employees working in companies employing more than twenty workers. Just a few years later, in 1867, workers were given the right to set up insurance associations to provide health insurance to its members.

It was then that for a first time workers could change their employer without losing coverage. Yet, it was still only a minority of employees who benefitted from that system. In 1889, the year that marked the beginning of the public social security system in Austria, health insurance for workers employed in mining, industry and transportation was made mandatory. People working in the (still large) agricultural sector and public employees, however, were still not covered.

In spite of the limited coverage the new law provided for, by the turn of the century about 2.5 million people in Austria (or around 10%) already had public health insurance (out of a population of 26 million, as we are still talking about Austria in her pre-1914 borders). The catastrophe of World War I and the dissolution of the Austrian-Hungarian Empire in 1918 brought along food shortages, poverty, the return of thousands of soldiers from the battlefields and an influx of public employees who had worked in cities and towns no longer belonging to Austria.

In order to fight social unrest, the newly established Ministry for Social Affairs was keen to extend mandatory health insurance to (federal) public employees and, in a next step, to everyone who was employed in private business. In addition, the law also foresaw the possibility to extend health insurance coverage to family members (spouse, children).

As a result of these bold measures, by 1921, about three fifths of all Austrians (i.e. four million out of a total of 6.7 million) had health insurance. In 1928, agricultural laborers were also granted public health insurance which increased the number of Austrians covered even further. After the end of World War II which also brought an end to the seven-year German annexation of Austria, the social security system was re-organized.

The 1956 Social Security Act, passed by parliament after lengthy and extensive discussions, still forms the basis of the current Austrian social security system even though the law has been changed numerous times since its initial passing. In the 1960s, in order to close the last gaps that still existed towards the path to (almost) universal public health insurance coverage (in 1956, 70% of Austrians had health insurance), farmers as well as tradesmen and craftsmen were included in the public health insurance scheme.

Consequently, in 1978, the number of Austrians covered by public health insurance reached 99% for the first time and has stayed at that level since. The increase in coverage went hand in hand with a significant reduction in the number of public health insurance agencies. While in 1918 there were over 540 agencies and still over 170 existed in 1925, there are less than 40 today (the official number of public health agencies in Austria is 19, but this number does not include smaller health insurance programs for public employees run by some Austrian provinces or cities).

In addition, the e-card system, introduced Austria-wide in 2005 and replacing an old-fashioned voucher system, enables the health care administration to process claims electronically which significantly reduces backlogs and bureaucracy. Consequently, administrative expenses amount to just over 3% of all expenditures which is quite low compared to the U.S. or France where health administration costs reach 7% (or more than double the percentage we see in Austria).

The public health insurance system in Austria is part of the larger social security structure which was set up the way it still exists after World War II. It consists of three pillars: pension/retirement funds, accident insurance (“workers compensation”), and health insurance. Social security in Austria is to a large extent governed by the principle of self-administration which ensures independence from direct state administration while at the same time making sure that important societal groups are involved in the decision-making and management process.

Public health insurance is not the largest of the three pillars which is, to no one’s surprise, the pension fund, but it administers still quite a large amount of money of more than 14 billion Euros a year. The Austrian public health insurance system is compulsory and based upon the principle of solidarity, which basically means equal benefits for all people insured regardless of age, origin, race or sex. Due to the large number of individuals insured the risk is spread evenly and effectively.

Apart from a few exceptions, it is not possible for an insured person to choose his or her social security institution. There is no competition between these institutions. The health insurance system is funded by contributions from both employees and employers. Everyone having gainful employment in Austria is required to pay into a public health insurance scheme. The contribution amount is determined solely by salary levels, with health insurance set at 7.65% of gross salary. While the employee pays half of the amount (i.e. 3.8%), the other half is borne by the employer.

For example, if a worker or salaried employee makes 2,500 Euros a month, he pays around 95 Euro for public health insurance while his employer must contribute an equal amount each month. Contributions are capped, meaning that an employee, regardless of how much he earns, never contributes more than 165 Euros per month into the public health fund. Dependants of residents having insurance (such as homemakers, children, and students (up to a certain age) are automatically covered.

About 25% of all Austrians are publicly insured without actually paying contributions themselves. The Austrian health care system is characterized by a high density of easily accessible health care facilities. There are 267 public and private hospitals nation-wide with about 64,000 beds available for in-patient care. Austria also has an above-average density of practicing physicians.

While there are 4.8 doctors per 1,000 people in Austria, in the U.S. it is just half that number: 2.4. In addition to physicians working in a hospital, there are about 19,000 physicians (general practitioners and specialists) working in their own clinic. There are more than 900 out-patient clinics in Austria that help ensure high-level out-patient health care. Patients can choose their family physician freely and have free access to most other forms of medical care.

Family physicians usually have a contract with the social health insurance funds. In contrast to many other countries, there is no obligation in Austria to enroll with a specific physician or to consult him or her prior to accessing specialized (in-patient) treatment. In short, physicians have no gate-keeping function. It is also possible to consult out-patient departments of hospitals without obtaining prior consent by the family physician or one’s health insurance fund.

The existing public health care system in Austria is generally viewed favorably by the Austrians. More than 75% of the Austrian population older than 15 years of age said in 2007 that their general state of health was either very good (37.5%) or good (38.1%). In 1991, the corresponding figures were 32.1% and 39.1%. A Eurobarometer opinion poll conducted in 2009 found that among all EU nations Austrians are the least likely to believe that they will be harmed by hospital- or non-hospital care.

Only 12% (EU average: 26%) say that they or their family members have ever experienced an adverse effect or harm when receiving healthcare. Overall, 95% of all Austrians rate the quality of healthcare in Austria as good (only in Belgium the percentage is slightly higher than in Austria). Good service comes at a price. Health care is not cheap and never will be. In 2009, the year for which the most recent OECD figures are available, Austria spent 11.0% of GDP on health care.

That is above the OECD average of 9.5% and also above the EU average of 8.3%. In absolute numbers, the total health care costs amounted to around 30 billion Euro that year. Almost half of those expenses (48%) are covered by public health insurance funds while slightly less than a third (29%) is paid for by the government (mainly expenditure for hospitals and in-patient care). Out-patient care is almost entirely financed by public health insurance funds, while expenditure for in-patient care is shared between the public sector and health insurance funds.

Long-term care services are mainly funded through taxes. About one fifth of health care costs is borne by private insurance agencies (5%) and by private household out-of-pocket expenditure (15%; e.g. copayments, prescription costs). In addition to the public health insurance system, there is also private health insurance available in Austria. It is primarily used to supplement the public health care system provided by the state. Private insurance tends to either cover hospital costs or daily benefits, depending on the insurance plan preferred.

About a third of all Austrian residents have private health insurance which enables them to add additional services (e.g. access to private hospitals and doctors, smaller wards in hospitals) to their public health coverage. Yet, while quality health care is expensive, the Austrian public health care system has managed to keep cost increases low compared to some other nations (between 2000 und 2009 Austrian health spending per capita increased, in real terms, by 2.2% per year on average, while the average growth rate in health spending in all OECD countries was 4%), while at the same time still guaranteeing near-universal coverage.

In 1962, exactly 50 years ago, Austria and the U.S. spent nearly the same percentage of GDP on health care: Austria: 4.6%, USA: 5.3%. Since then, the gap has considerably widened. In 2009, Austria spent 11.0% of GDP on health care (8.6% come from public funds and 2.4% are private expenses) while the USA was faced with costs of 17.4% of GDP (public funds: 8.4%, private money: 9.0%). Despite the high costs spent on health care in the U.S., health insurance coverage for a core set of services (as defined by the OECD; it usually includes consultations with doctors and specialists, tests and examinations, and surgical and therapeutic procedures) reached only 81.3% of total population in 2009 while in Austria it stood at 99.0%.

It is worth noting that in Austria these core services are fully covered by public insurance while in the U.S. coverage is provided mainly through private health insurance (55% had private health insurance for their basic coverage). Publicly financed coverage insured an additional 26% of the total population (the elderly, people with low income or with disabilities), leaving 19% of the U.S. population - mostly people under 65 years of age - without basic health coverage.

It is striking for an outside observer that while in Austria health care costs are mainly covered by public funds (even though one should bear in mind that contributions to the health insurance funds are equally shared by both employer and employee), in the U.S. more than half of the financial burden is actually shifted to the private sector.

It is predominantly the private business sector which bears the brunt of the costs. According to the Kaiser Family Foundation, the average annual firm premium contribution for single coverage in 2011 was $4,508, while the worker premium contribution was just $921, or 17%, of the total premium contribution. In fact, 16% of all covered workers (single coverage) make no premium contributions at all. In absolute numbers, private health expenditure in the U.S. amounted to around $1,250 billion in 2009 which is slightly less than twice the budget of the U.S. Defense Department of that year.

Despite the huge financial contribution by the private sector, U.S. public health care expenditures per capita (on purchasing power parity basis) are the third highest among all 28 OECD countries for which 2009 data is available (US: $3,795; Austria: $3,330). Even though the Austrian health care system is not the cheapest one, it is, by quite a margin, less expensive than the one in the U.S. Based on the principle of solidarity it makes sure that even if someone loses his job (by the way, the unemployment rate in Austria is just around 4%), he still enjoys public health insurance coverage which, in turn, prevents one from losing all his savings or running up large amounts of debts in cases of medical emergencies or long-term illnesses.

A debate over the individual mandate as we have seen in the U.S. or states opting out of health care expansion would be unthinkable in Austria. Not because Austria is a socialist country (which it is not; it is a liberal democracy), but because there is widespread consensus that a healthy population, one that does not need to worry about proper and affordable health care, is, among other things, good for business and the economy. Thus, universal public health care coverage, in place for more than forty years by now, is held in high regard and broadly appreciated by all Austrians. It might even be one of the reasons why Vienna, Austria’s capital, ranks top in the 2011 Mercer Quality of Living Worldwide City Ranking. And who wants to miss out on being top?