Government expenditure on health-care services has soared in most industrial countries in recent years. This has put a serious strain on public budgets in state-managed health-care systems. In Discussion Paper No. 1516, Peter Geil, Andreas Million, Ralph Rotte and Klaus Zimmermann examine the extent to which the German health-care system affects individual behaviour, and whether a change in the health-insurance system would help curb the demand for hospital visits.

The authors find that age and income are insignificant in determining the individual’s decision to visit a hospital; family structure and position in the labour market seem much more important. Being married and having children also affect men’s and women’s behaviour significantly. The main finding of the paper, however, is that the type of individual insurance coverage does not play an important role in the hospitalization decision, and public social insurance does not seem to be the principal explanation for rising demand. This finding implies that a change in the German health-insurance system is not likely to curb the demand for hospital trips. The authors conclude by stating that the difficulties may be due to the fact that doctors both supply medical care and decide the kind and level of care an individual needs, and that measures such as limiting prices and capping hospital budgets may well be better policies.

Economic Incentives and Hospitalization in Germany
Peter Geil, Andreas Million, Ralph Rotte and Klaus F. Zimmermann