Merkel announces coalition deal on health care

BERLIN, Oct 5 (Reuters) Germany's coalition government overcame months of bickering today and agreed a compromise on health care reform viewed as a test of Chancellor Angela Merkel's leadership and her government's stability.

The deal, announced by Ms Merkel after more than seven hours of talks between leaders of her right-left coalition, foresees a one-year delay in a new centralised fund at the very core of the reform and it is unlikely to silence critics of the government.

''We are pleased to announce an agreement that aims for a wide-reaching reform to reshape Germany's health care system,'' Ms Merkel, head of the conservative Christian Democrats (CDU), told journalists just before 3 am (0630 IST). ''I believe the law-making process can now move into the final phase.'' With an annual cost of 140 billion euros Germany's health care system is one of the most expensive in the world. This year it will have a funding gap of around seven billion euros and experts say it is ill prepared to cope with Germany's ageing population and high unemployment rate.

Overhauling health care was a key goal of Ms Merkel's when she came to power last November at the head of Germany's first ''grand coalition'' of conservatives and Social Democrats (SPD) since the 1960s.

The ruling partners presented a blueprint for the reform in early July, but that was denounced as inadequate by health care experts, economists and leading members of the ruling parties.

The coalition has spent the past three months bickering over the details and its popularity has declined sharply.

Poll ratings for Merkel's conservatives are at their lowest since German reunification in 1990 and some experts had warned the health care row could doom her fragile government, which groups parties that are traditional rivals.

CONSERVATIVE CONCESSIONS The deal reached today, which both sides called reasonable, may put an end to the bitter arguments within the government, but it is unlikely to silence critics -- particularly the powerful conservative state premiers who have haunted Ms Merkel throughout the health care talks.

Ms Merkel said that under the deal, a new centralised fund into which salary-linked contributions are to be paid by workers and employers, would not be introduced until 2009, one year later than previously planned.

Ms Merkel also appears to have given ground to the SPD on the most contentious issue of recent weeks -- allowing health insurers to levy an additional premium from policy holders in case they run out of money.

SPD Chairman Kurt Beck said his party had succeeded in capping this premium at one percent of household income, with some modest one-off fees added, even though conservatives insisted it had to be more.

''It's a good compromise,'' Beck said.

However, Edmund Stoiber, the chairman of the Bavaria-based Christian Social Union (CSU), signalled caution.

''The impact of some of the decisions cannot immediately be determined and must still be examined in the context of the draft legislation,'' said Stoiber, who has been accused by both the SPD and CDU of using blocking tactics.

More details of the reform compromise are expected later on Thursday. The cabinet hopes to approve a draft law on the healthcare reform later this month.

REUTERS BDP RAI1149