REF: 2021

Impact case study

Improving the fairness and efficiency of Austria's social insurance and healthcare system


[The restructured insurance system will] provide more healthcare for the patient and create a simpler, citizen-oriented system.

Austrian Council of Ministers presentation, 23 May 2018

Professor Elias Mossialos

Research by

Professor Elias Mossialos

Department of Health Policy

Research by

Jane Cheatley


Inna Thalmann

Research by

Inna Thalmann

Nuffield Department of Population Health

The Austrian government introduced substantial reforms to the country’s health insurance system based on LSE Health’s models for improvement. 

What was the problem? 

The financing and provision of healthcare services in Austria are organised through a social insurance model, with responsibilities divided between self-governed social health insurance carriers and the government. Under the system in place before 2018, some 99 per cent of the population were allocated to one (or more) of 21 insurance carriers based on their occupation and location. Once allocated to their insurance carrier, individuals and their employer would pay a financial contribution relative to their income in return for access to a benefits package. However, the multiplicity of schemes available, coupled with the complexities of a person’s eligibility being based on both their occupation and their location, led to a somewhat fragmented system. 

Because of concerns about inequities and potential inefficiencies created by the system, the Austrian Ministry of Social Affairs wanted to understand its options for reform and commissioned a review of the entire system.  

What did we do? 

The Austrian Ministry of Social Affairs engaged LSE Health (the Department of Health Policy’s affiliate research centre) to undertake a comprehensive efficiency review of the country’s social insurance and healthcare system.  

LSE Health, led by Professor Elias Mossialos, was chosen on the basis of earlier work in Austria, reviewing the pharmaceutical sector and public health system, and work across Europe in countries with similar social insurance systems, including Germany, France, and the Netherlands.  

The efficiency review of the Austrian system was carried out between December 2016 and August 2017 and culminated in four reports, two of which were led by Professor Mossialos, with support from a team of international healthcare experts from France, the Netherlands, Germany, and Austria.  

This process involved an initial review of academic and policy literature to gain an understanding of Austria’s political and federal policies and of the existing strengths and challenges within its health system. To complement this, LSE Health consulted relevant stakeholders through roundtables, interviews, and confidential written submissions. These included all social insurance carriers and the sector’s representative body, key health workforce associations (doctors, pharmacists, dentists, and nurses), the patient ombudsman, the pharmaceutical industry, and others. A total of 40 stakeholders were interviewed.  

The review identified a range of inefficiencies in the existing insurance system. While each of the 21 insurance carriers required equal contribution rates from citizens and their employers, there was not a standardised benefits package and thus there were disparities in what insurance providers covered. In particular, health insurance carriers that covered a greater proportion of individuals with relatively poor risk profiles, such as older and/or unemployed persons, offered lesser benefits, both in kind and in cash. This led to a three- to eight-fold variation in medical aid allowances.  

Across carriers, funds were not distributed equitably, which created further issues. Typically, in social insurance systems, differences in the financial situation of carriers and those that they insure are counteracted by a comprehensive risk-adjustment mechanism across insurers. In Austria, however, the existing risk equalisation fund was relatively small (comprising just 1.64 per cent of contribution payments) and was not comprehensive: it incorporated only nine of the 21 carriers. 

Another inefficiency was duplication of coverage: the system allocated people to insurance carriers based on both their location and their employment. Thus, it was possible to be insured by more than one carrier (in fact, 33 per cent of contributing individuals had multiple insurers). This created further inequities as people with multiple insurers had a wider range of providers and payment options to choose from.  

These challenges were compounded by the fact there was no single coding system for healthcare services, which made it difficult to compare prices across services and meant there was little transparency.  

As a result of this research, LSE Health developed a number of policy options for the Austrian government.  

What happened? 

LSE Health proposed four options to restructure Austria’s social health insurance system. These models were presented by Professor Mossialos and relevant ministers to the media and key stakeholders in August 2017, in conjunction with their formal consideration by policymakers:  

  • Model One proposed that the 21 carriers be amalgamated into four: one national accident insurance carrier, one national pension insurance carrier, one employed health insurance carrier, and one self-employed insurance carrier (for the self-employed and farmers).  

  • Model Two proposed a slightly more limited amalgamation: one national pension insurance carrier, one national self-employed insurance carrier, one health insurance carrier (excluding civil servants and rail carriers), one accident insurance carrier (excluding civil servants), and one health and accident insurance carrier for civil servants.  

  • Model Three was a proposal to more fully amalgamate health and accident insurance, resulting in one national pension insurance carrier and one health and accident insurance carrier (split according to the nine states).  

  • Model Four proposed maintaining the current structure for insurance, but with a formal mechanism to encourage coordinated activities and enhanced risk-adjustment.  

In 2018, after evaluating the benefits and drawbacks considered in the LSE report, the Austrian government introduced its proposed restructure of the country’s social insurance system, in line with LSE Health’s Model Two. These changes were implemented in January 2020.  

This amalgamation of the 21 social insurance carriers into five had several benefits. Firstly, it significantly reduced the variation in benefit packages, improving equity of access to healthcare services and associated costs, particularly for those who were previously insured by a carrier with a poor risk profile. Additionally, under the new system, it is no longer possible to have multiple forms of insurance and therefore this unfair advantage is removed. 

By increasing the size of each social insurance carrier, the new scheme also increased the size of risk pools within the system. As a result, risks associated with citizens’ health are more likely to be offset through the consolidated pool of citizens, achieving a more equitable distribution of funds.  

By amalgamating carriers, variation in coding practices and prices of healthcare services are also being reduced. As a result, price transparency will be improved, which may create an incentive for carriers to reduce prices.  

The government estimates the reforms will save €1 billion by 2023. This was calculated based on estimated reductions in administrative costs and synergy effects, such as efficiencies from joint purchasing and consolidation of IT, as well as by not replacing vacant positions over time. Over the next 10 years, the total number of people employed in the social insurance system is expected to fall by 30 per cent. Overall, the new system is expected to be fairer to users and more efficient and cost-effective to run.