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Positive side effect of Bismarck's health insurance system

Our study substantiates that the first system of general compulsory health insurance saved lives, primarily through the dissemination of exclusive medical knowledge. By Professor Stefan Bauernschuster

A look into Robert Koch’s study. Source: RKI

The introduction of the world's first system of general compulsory health insurance is a historic example of successful science communication. It shows impressively what happens when scientific findings carry through.

While conspiracy theories and fake news compete with science today, in the 19th century, well-trained doctors had to prevail against quacks and charlatans. And they did so with findings that sounded more than adventurous at the time. Small animals were said to cause infectious diseases, rather than bad odours from the earth, which was the general opinion at that time. 

When Otto von Bismarck introduced the world's first system of general compulsory health insurance in 1884, all workers were insured against illness for the first time in history. They were given paid sick leave and unrestricted access to doctors and medical treatment. Using historical data from Prussia, we examine how this innovation affected the mortality rate.

Our main analysis is based on administrative mortality data from Prussian districts between 1877 and 1900. Prussia made up two thirds of the German Empire and had a statistical office that collected and reported data on mortality according to occupational group. In combination with the imperial censuses, we can thus calculate occupation-specific mortality rates at the administrative district level.

Mortality rate decreased by 9 per cent

When insurance was introduced in 1884, it became compulsory for workers only. For other professions, such as civil servants, access to health care remained unchanged. While mortality rates for workers and civil servants were very similar before the insurance was introduced, after 1884 they declined much faster for workers than they did for civil servants. Our calculations show that Bismarck's system of health insurance reduced the mortality rate of workers (and their families) by nearly 9 per cent by the end of the 19th century. This accounts for around one third of the total mortality decline of this group during this period.

Grafik zur Entwicklung der Sterblichkeit in Preußen von 1877 bis 1900.

Development of mortality in Prussia from 1877 to 1900: The graph shows the deaths of workers (solid black line) and civil servants (dashed line) per 1,000 in Prussia at the administrative district level. The light grey line is the upwardly shifted mortality rate of civil servants. It shows that the workers’ curve fell disproportionately compared to that of the civil servants after Bismarck's health insurance system was introduced in 1884. The large, light grey arrow marks the overall decline in mortality among the workers, while the small, dark grey arrow marks the proportion attributable to Bismarck's system of health insurance.

Now there could be many competing explanations for this. For example, that the drinking water and sewage systems have developed, which particularly benefited workers, or that their working conditions and wages have improved more than those of other groups.

But all these explanations do not change the findings. We applied modern methods of data analysis to the historical data mentioned above, and can substantiate that it was indeed the introduction of Bismarck's health insurance system, and especially the dissemination of new knowledge that this facilitated, which disproportionately reduced the mortality rate among workers.

Significantly fewer deaths caused by tuberculosis

To this end, we took a closer look at data on the causes of death in Prussia. They show that the introduction of Bismarck's health insurance system particularly led to fewer deaths caused by tuberculosis. Yet medication for tuberculosis was not developed before 1946. At that time, neither antibiotics nor the most significant vaccines from today's perspective were available. Therefore, most infectious diseases were not curable at the turn of the millennium. This is why the decline in deaths caused by tuberculosis is so surprising.

Data from aggregated health insurance company records suggest that this decline was associated with expenditure on doctors' visits and medical treatment, and not with sick pay. Thus, Bismarck's health insurance system had the effect of giving low-income households unrestricted access to doctors, which they could not have afforded previously.

Excellent medical training in the empire

This facilitated the dissemination of revolutionary medical know-how among poor working class families. It was the time when Robert Koch discovered the tuberculosis bacteria. Until then, science had assumed that epidemics and diseases such as tuberculosis or cholera were caused by toxic fumes rising from the ground.

German scientists were leaders in many medical fields and attracted students from all over the world. The system of approbations, i.e. state accreditation, ensured the professionalization of medical training on the basis of scientific qualification. The academic titles were also associated with a high social status, which, in turn, attracted patients. Thus, the best conditions for educating the public about the role of hygiene in the prevention of infectious diseases prevailed. It was precisely this information that saved lives, especially since medication was still limited.

Our control samples also prove this. The decline in the mortality rate was greater in those areas located close to medical schools or where there were many licensed physicians. Thus, the effect on the mortality rate could have been acquired quite easily and affordably, for example with compulsory health insurance that focused on prevention through hygiene education.

But Bismarck's invention was not primarily concerned with improving workers' health. In fact, the introduction of compulsory health insurance with expensive components such as sick pay was a domestic political calculation - it was aimed at holding on to power as well as ending unrest among workers and the rise of the Socialist Workers’ Party (SPD) that accompanied it. However, in contrast to the decline in the mortality rate, health insurance failed to have the desired effect here. By the time Bismarck stood down, the SPD had become the largest party in the empire.

Professor Stefan Bauernschuster

researches empirical evaluation of political measures

How do political measures influence decisions made by individuals and families?

How do political measures influence decisions made by individuals and families?

Professor Stefan Bauernschuster has held the Chair of Public Economics of the University of Passau since 2013. Moreover, he is a research professor at the ifo Institute in Munich, CESifo Affiliate and a member of the Social Policy Committee of the German Economic Association.

The study ‘Bismarck's Health Insurance and the Mortality Decline’ will appear in October 2020 in the renowned economic paper Journal of the European Economic Association. Professor Stefan Bauernschuster, holder of the Chair of Public Economics at the University of Passau, analysed the historical data from Prussia together with Dr. Anastasia Driva (LMU Munich) and Professor Erik Hornung (University of Cologne). They published the first findings of their study in 2017 as a discussion paper. Researchers use this faster format to discuss topics and to have preliminary findings critically reviewed by other experts. Over the past three years, the research team has examined the validity of the main findings and incorporated important suggestions from peers.

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