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What were the benefits of the world’s first health insurance?

Econometric study sheds light on Bismarck's health insurance and its historical impact on mortality.

Anyone who falls sick goes to see the doctor, receives treatment and, if necessary, is given a sick leave until their health is restored. This goes without saying in Germany, a country were health insurance is mandatory and is part of the social system. Other countries follow the German model whose essential features were introduced by Otto von Bismarck in 1884 in the German Reich.

The historical consequences of the world’s first mandatory health insurance for workers' health is surprisingly controversial, especially because medical treatment was still in its infancy when the insurance was introduced. Many developing countries are currently debating the introduction of statutory health insurance. Even in countries where a corresponding system exists, its design and the need for reform are continuously in the focus of public attention.

Professor Stefan Bauernschuster (University of Passau), Anastasia Driva (Swiss Re) and WiSo Professor Erik Hornung from the Center for Macroeconomic Research examined the impact of the introduction of health insurance on mortality in Prussia in a study soon to be published in the Journal of the European Economic Association. Their econometric approach is based on administrative mortality data from Prussian counties and districts from the years 1875 to 1904.

Already during this period, the statistical office in Prussia reported mortality rates by occupational group. Combined with the imperial occupation and population figures, Bauernschuster, Driva and Hornung were able to calculate occupation-specific mortality rates. The authors made clever use of the fact that compulsory insurance was introduced in 1884 only for workers, while other occupational groups such as civil servants were excluded. The introduction of health insurance can thus be used in a natural experiment with a treatment group (workers) and a control group.
The analysis shows that soon after 1884 the mortality rate of the workers decreased significantly, at the end of the 19th century by up to eleven percent. The authors exclude that this result is driven by improvements in sanitary infrastructure and changes in the degree of urbanization coinciding with the introduction of the insurance. In total, the insurance reduced mortality in the average county by 0.83 deaths per 1000 inhabitants, equivalent to 16.5% of the total mortality decline in this period.

Further analysis of data on causes of death and the expenditure structure of health insurance funds revealed that the insurance reduced infectious disease mortality, especially from tuberculosis. The decline was particularly associated with higher insurance expenditures on doctor visits, whereas a similar effect for expenditures on sickness benefits could not be found. Bauernschuster, Driva and Hornung conclude that the insurance worked through the prevention of infectious diseases while the provision of stable incomes during periods of sickness did not have any immediate effects.

Thus, the insurance was successful because doctors provided a population living under poor hygienic conditions with access to new knowledge about hygiene and information on the transmission of infectious diseases. In the developing world, such information provision could be similarly crucial in preventing the spread of Ebola and other infectious diseases.

• The study is available in the Journal of the European Economic Association.

• Find an Expert-page of Prof. Dr. Erik Hornung