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From Welfare State to Social State

From Welfare State to Social State. Wilfried Prewo, 2004. Time for Change. “Government is the problem” Globalisation has made the German welfare state unsustainable, as jobs are lost to more frugal countries Now widely accepted that benefits must be cut. The Prewo Prescription .

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From Welfare State to Social State

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  1. From Welfare State to Social State Wilfried Prewo, 2004

  2. Time for Change • “Government is the problem” • Globalisation has made the German welfare state unsustainable, as jobs are lost to more frugal countries • Now widely accepted that benefits must be cut

  3. The Prewo Prescription • The “Consumer Model” • Financial empowerment and individual responsibility “the cornerstone” • Enable individual to buy the current benefits • Requiring purchase only of a minimum preventing the “worst case” • Allowing savings from prudent behaviour to be kept

  4. Consumer Model

  5. In Practice • All current contributions put into an SSA (i.e. revenue neutral for state, individual and employer) • SSAs “corrected” for current cross-subsidies (“no loss rule”) • Individual has free choice above minimum cover (e.g. catastrophic risk, care about a specified annual sum) • Savings can be used to buy any social security services

  6. Questions • Patients may “Save themselves Sick”! • SSA savings/balances can only be used for social security: “forced saving”. As with any system deductibles & co-payments need careful design. • Young and fit would “underinsure” • Switching to a more generous plan later would be expensive as actuarial rates would be higher. But their SSA balances (and other assets) would provide a fall-back.

  7. Conclusions • An important attempt to balance empowerment and responsibility. • Prewo suggests that existing system can be adapted rather than destroyed. • Deals at a stroke with the political problem of taxi fares, spa visits and other “luxuries”

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