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Lambert here: When health insurance actually translates to health care, lives are saved. Mirabile dictu! Wouldn’t it be great if the United States in 2017 could do what Germany did in 1884?
By Stefan Bauernschuster, Professor of Public Economics, University of Passau, Anastasia Driva, Associate, Swiss Re, and Erik Hornung, Professor of Economic History at the University of Cologne. Originally published at VoxEU.
The model for today’s health insurance systems was Otto von Bismarck’s compulsory health insurance, introduced in the German Empire in 1884. This column uses contemporary mortality data to show that, by extending access to healthcare, Bismarck’s health insurance significantly reduced mortality rates for blue-collar workers, probably by increasing the public’s knowledge about communicable disease transmission. This supports theories about the fundamental role of hygiene in reduced mortality at this time.
The United Nations’ Sustainable Development Goals commit members to achieving universal health coverage by 2030. Success could massively improve health, while reducing out-of-pocket spending. This spending averages 32% of expenditures on health services (WHO 2014).
Many developing countries are experimenting with compulsory health insurance models (Lagomarsino et al. 2012, Miller et al. 2013). Although large informal sectors make these schemes hard to organise, they decrease out-of-pocket spending by extending access to health services and preventive services. This is important in places with high prevalence of infectious diseases such as HIV, malaria, and tuberculosis. In the US, Medicare for the elderly and Medicaid for the poor have extended coverage to subgroups of the population. These programmes resulted in significant improvements in healthcare utilisation and health outcomes (Card et al. 2008 and 2009, Currie and Gruber, 1996, Finkelstein 2007, Finkelstein and McKnight 2008, Goodman-Bacon 2017). While we await more comprehensive evaluations of the 2010 US Affordable Care Act (known as ‘Obamacare’), we can learn from earlier large-scale implementations of universal healthcare schemes.
In December 1884, Otto von Bismarck, Chancellor of the German Empire, introduced the first large-scale compulsory insurance to establish universal healthcare. For the first time in history, all blue-collar workers were covered by an insurance that provided paid sick leave and unrestricted access to doctors and medical treatment.
Bismarck’s original intentions were not genuinely social. His health insurance was a reluctant reaction to upheavals among the working class in the wake of the Industrial Revolution, and a way to secure a political advantage against the Socialist Worker’s Party in the Reichstag, Germany’s parliament. Bismarck’s clever design ensured that the imperial budget was not affected. It was jointly financed by employers (one third) and employees (two thirds).
The scheme served as a blueprint for others. Even today, many health insurance systems are based on Bismarck’s health insurance. But although researchers agree that this was an important milestone for the development of social insurance systems, they don’t agree about how successful it was.
Bismarck’s Insurance Reduced Mortality
In recent work, we investigate the impact of Bismarck’s health insurance on mortality (Bauernschuster et al. 2017). We build our main analysis on administrative mortality data from Prussian districts between 1875 and 1905. Prussia was two-thirds of the German Empire, and had a statistical office that collected and reported data on mortality by occupational group. Combined with the imperial occupation and population censuses, this lets us calculate occupation-specific mortality rates at the district level. When insurance was introduced in 1884, it was compulsory only for blue-collar workers (our treatment group). Access to healthcare was unchanged for other occupational groups such as public servants (our control group). Comparing mortality rates across both groups before and after 1884, we identify the impact of Bismarck’s health insurance on mortality (Figure 1).
Figure 1 Crude death rates for blue-collar workers and public servants, 1875-1905
Notes: The figure shows the number of deaths per 1,000 people by sectoral groups of blue-collar workers and public servants. Using difference-in-difference, the counterfactual is computed by parallel-shifting the trend of the public servants up to the blue-collar workers level in 1884. The vertical dashed line indicates the introduction of Bismarck’s health insurance in 1884.
A generalised difference-in-difference method suggests that Bismarck’s health insurance reduced blue-collar worker mortality. Blue-collar workers and public servants followed very similar mortality trends prior to the introduction of compulsory health insurance. Soon after 1884, mortality rates for blue-collar workers declined much faster than the mortality rates for public servants. By the end of the 19th century, the reduction was almost 9%. Much of this decline was driven by the children of the insured, indicating significant within-family spillovers to uninsured family members.
The effect of Bismarck’s health insurance on mortality turns out to be very robust. Sanitation infrastructure such as sewerage systems and waterworks improved around this time, and urbanisation tendencies or improved working conditions for blue-collar workers could also confound the effects, but we rule them out. We are also able to show that healthier individuals were not taking blue-collar jobs.
To gain a deeper understanding, we look at data on the causes of death in Prussia. They imply that the decline in airborne infectious diseases mortality was driven by a decline in communicable airborne diseases, in particular tuberculosis. They were the main causes of death at that time, a situation similar to many developing countries today. Medical treatment was, nevertheless. limited. Antibiotics would not be widely used until the 1940s and many important vaccines were not available, and so the significant reduction of infectious disease mortality in the blue-collar population is surprising to see.
Results based on data from aggregate sickness-fund balance sheets suggest that the mortality reduction is primarily associated with expenditures for doctor visits and medical treatment, but not with sick pay. Bismarck’s health insurance probably achieved improvements in health outcomes because it provided low-income households with unlimited access to doctors that they were formerly unwilling or unable to consult. Poor worker families gained access to the newly emerging medical knowledge on the transmission of communicable diseases, the fundamental role of hygiene for preventing infections, and health procedures that became available at the end of the 19th century.
Concluding Remarks
This research helps establish the causes of the mortality decline during the historical demographic transition at the turn of the 20th century. Proponents of the nutrition view (McKeown, 1979, Fogel 2004) have argued that changes in income and standard of living most important, whereas proponents of the public health view (Deaton 2013, Preston 1975, Cutler and Miller 2005) argued that directed investments in public health infrastructure, and the application of public health knowledge, as driving forces.
Paid sick leave may have reduced financial risk, stabilised nutritional intake and thus improved the health status of insured in the long run, but the immediate benefits of Bismarck’s health insurance worked largely through the prevention of infectious diseases. The diffusion of hygiene knowledge to the working class was probably crucial at a time when treatment by medication was still limited. We can even argue that compulsory health insurance that focused on disease prevention through hygiene education would have been more cost-efficient. On the other hand, Bismarck also desired social peace, and this form of heal insurance may not have promoted this political objective.
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It is also worth remembering why Bismark introduced healthcare, which was to thwart the rise of socialism. Can we expect a commensurate rise of socialism as basic social rights and the requirements for a cohesive society are withdrawn?
Well, in this context, it is important to keep in mind that the German Empire’s constitution – while designed to be an autocratic monarchy – had just enough democratic elements in order for this to happen and that, while those were considerably less democratic than what we have in America, they had aspects that made it easier for the social democrats to gain actual influence.
For starters, while the German Empire had a strong executive, there was no interest in vesting all that power in the emperor. The kings and princes that ruled the federal states (not to mention that the Empire also included three republics, the city states of Bremen, Hamburg, and Lübeck), the local nobility, and the gentry were all not particularly interested in having an absolute monarch, but wanted veto points. Plus, certain aspects were simply inherited from the German legal and constitutional tradition as it had developed so far, especially during the 1848 revolution and the North-German Federation (the federation that was the direct predecessor of the Empire).
In summary, the constitution of the German Empire had the following aspects that are of interest here:
* Near universal male suffrage. This was unusual in Europe at the time. There were exceptions for soldiers, prisoners, and people entirely dependent on public welfare, but even so, suffrage was plenty broad and elections enjoyed high turnouts. The 1912 election – the last election before Weimar – had a turnout of 84.5% of the voters (up from 50.7% for the first election in 1871), with the social democrats gaining 34.8% of the votes and 27.7% of the seats.
* While the electoral system for the Reichstag used FPTP, the winning candidate in a district needed an absolute majority, otherwise there was a runoff election between the two leading candidates. This allowed for a multi-party system to develop.
* While the government could ban parties – and the social democrats were banned between 1878 and 1890 – their members could still run for office. The social democrats actually gained votes while they were officially banned.
* Members of the Reichstag enjoyed broad immunity against prosecution (plus the usual immunity for anything that was said in the Reichstag) and the Reichstag generally backed them against frivolous prosecution.
* While the Reichstag did have virtually no direct control over the executive, it wasn’t powerless. As the lower house in a bicameral system, it was needed for all legislation and, crucially, held (together with the Bundesrat, the upper house representing the states) the power of the purse. (Because of this, it is not unlikely that the story would have continued as in Britain, with the parliament wrestling more and more de facto powers from the monarchy, had WWI not intervened and Germany not turned into a republic in its aftermath.)
I don’t want to talk the democratic features up; the government certainly did its best to suppress democratic ideas, but the point was that these elements were sufficient for the social democrats to gradually gain power and – importantly – for Bismarck to realize that he had to do something about it, especially after banning them proved ineffective.
If you want the one key difference between the German Empire and the modern United States that is relevant here (for all the many shortcomings of the Empire), that was the existence of a genuine multiparty system through which voters could express their preference. With a two-party system, what you get is two uneasy quasi-coalitions of disparate interests, often torn apart by internecine warfare.
It is also worth pointing out that calling the social democrats socialists is not really accurate; the “democracy” in “social democracy” and the belief that legitimate social change could only be accomplished through democratic means and under the rule of law, as opposed to revolution, was always very important to them (and what set them apart from various communist movements, and in direct opposition to the autocratic forces of the Empire).
Tremendous comment, thank you very much for taking the time to write this up. You make me want to get a history of the period and dive in — any recommendations?
I am wondering if there might not have been a military dimension to Bismarck’s introduction of health insurance at work here as well. Yes, the mortality rate for blue-collars went down but that is a matter of quantity. What about quality? What if one of the main objectives of this scheme was to raise the average health of the populace as well so as to provide more qualified candidates for future wars? Bismark fought three strategic wars – against Denmark (1864), Austria (1866) and France (1870) and along with the American Civil War these count as the first of the modern wars. Modern warfare is a matter of organizing, training and equipping a portion of the populace to fight in battle. The more healthier a population, the more men you can put in uniform. In other words, it is a numbers game.
I seem to remember reading once that the Reserves that the British had at the commencement of WW1 had to be mostly used to replace those soldiers that were found not fit for overseas service (but don’t take my word for this memory). I do remember reading, however, something about Germany that may reinforce this conjecture. William L. Shirer in his epic book “The Rise and Fall of the Third Reich” states that he witnessed German troops escorting British POWs back in 1940 (America was not yet at war with Germany). He was visibly struck by the difference between the two groups. The young Germans were hale and healthy with solid suntans. The British troops, however, were hollow-chested, pale and thin. Remember the British did not get health Insurance until 1946. When I read this article I made a connection between these events and wonder if this outcome may have been one of the factors behind the introduction of health insurance back in 1884.
Also, since the end of conscription in the USA, the death rates have started to climb. Deplorables are useless mooches to the Global Elite.
“Paid sick leave may have reduced financial risk, stabilised nutritional intake and thus improved the health status of insured in the long run, but the immediate benefits of Bismarck’s health insurance worked largely through the prevention of infectious diseases.”
The authors focus in the lower part of the article on infectious / communicable diseases. The current thinking in places like the U S of A is that the great achievements in public health don’t have to be maintained, as if it is all done by magic. This article shows otherwise: Not only does it describe good public policy, but it is also an antidote to the anti-vaxxers, the apologists for polluted water in Flint, the fluoride panic-sowers, and so on. Public health requires constant vigilance: The current stagnant life expectancy and the opioid epidemics are signals to us of what the neglect of public health is bringing to the U.S. Without intervention, these things will get worse.
So the single-payer bills are good concrete material benefits and good political tactics.
The Rev Kev wrote: ‘William L. Shirer … was visibly struck by the difference between the two groups. The young Germans were hale and healthy with solid suntans. The British troops, however, were hollow-chested, pale and thin.’
There are true accounts of Australian and New Zealand troops — since those countries participated in the Gallipoli campaign in 1915, during WWI, as independent British Commonwealth dominions — watching a battalion of Welsh fusiliers, IIRC, being marched up to the battlefront and literally breaking down in tears at seeing these stunted, hollow-chested, and visibly unhealthy little men, who’d been miners and averaged about 5’2” in height, staggering dutifully off to be slaughtered.
Such were the glories of Empire.
Fun fact: since the introduction of the “social laws” in the imperial Germany then, Gemany didn’t win any war afterwards. WWI: lost WWII: lost.
Something to consider, if you are planing a war…
Churchill attributed Germany loosing WW I and WW II to the US joining both wars.
US Citizens were quite healthy, compared with the British.
Germany lost WWI because they ran out of resources, not because they had a better social safety net than many other countries. By late 1918 they just didn’t have enough petroleum and food.
They lost WWII because they foolishly invaded the Soviet Union while they still had an active adversary on the other side of their country (Britain). Then they split their forces by attacking Stalingrad when they should have focused on the oil region around Baku. Remember why they lost WWI?
They also declared war on the United States. The U.S. still might have entered the European war, but why did the Germans force it?
Who is this fool? Germany lost due to the overwhelming resources it was fighting against. WWI: Germany vs Britain+France+Russia+USA. WWII: same enemies, and with a massive handicap to start (treaty of Versailles). Without access to the social structure built by Bismark, Germany wouldn’t have been able to challenge the might of the British Empire in 1910
Also Bismark wasn’t truly altruistic when he build the social safety net: his goal is for the expansion of the German Empire, which means his goal first and foremost is the health and well-being of Prussian citizens so that if there was a war, Germany would have the advantage of a healthy Army. His foresight is the reason why Germany was able to fight a prolonged war for 4 years
>>Who is this fool? Germany lost due to the overwhelming resources it was fighting against.<<
Ultimately true, but still a little simplistic.
Britain almost did not enter into the war. Germany almost captured Paris
The way the alliances were set up before the First World War was Britain, France, and Russia against Germany, Austria-Hungary, and Italy. Italy switched sides, breaking its treaty agreements, because of secret negations with Britain and France for some territory it wanted. So became Britain, France, Russia, and Italy fighting Germany, Austria-Hungary, and the Ottoman Empire as the main combatants.
Each almost collapse at least once, or faced being starved out. It was a war of attrition with each empire almost, or actually, collapsing, one, or more times.
The German U-boat campaign was not successful enough, but almost, as in the Second World War too, to forced Britain out. The French Army almost collapsed in 1917, as well as the Italians' temporarily. The Austro-Hungarian army did by early 1918. The Russians had their military completely collapse in 1918.
Had the Germans acquired the Romanian oilfields in 1917, or Poland's agricultural output in late 1917 instead of early 1918, who knows? It was that close.
The laugh is on you, eyebear.
Britain introduced a system loosely modelled on Bismarck’s, in the years just before the Great War.
https://en.wikipedia.org/wiki/People's_Budget
FWIW, they were on the winning side in both World Wars.
The USA introduced Social Security not long before the Second World War. The USA is generally considered to have been among the winners of that conflict.
Best of all, a whole bunch of NATO countries adopted full-blown social welfare systems during the Cold War, and won that struggle decisively, while scarcely firing a shot.
Fun fact: socialism means victory without violence.
I’m note sure about this but I seem to remember that, along with health insurance, Bismark also introduced the first retirement pension ?
I’ve tried to use this when I’m confronted with “that’s just socialism” when talking about single-payer. Sadly here in the US I just get “Bismark who ?”.
“The guy what the ship was named after.”
Or the jelly donut.
I would be interested in seeing the drop in mortality for those Western countries that did NOT have universal health insurance. If my recollection is right the decline in mortality from infectious disease was due to increased awareness of the causes of infectious disease. It was during the latter half of the 19th century that municipalities began serious efforts to separate drinking water from sewerage discharge.
Germans were never weighed down by what they called, contemptuously, “Manchester economics,” i.e.., “free market” economics. Political economy, to them, was always the most obvious way to think about modern society–too bad they began with all those Prussian commitments.