Merkel's health reform shores up German coalition

BERLIN, Oct 5 (Reuters) Germany's government sealed an agreement on healthcare reform today which eased concerns about the coalition's stability but attracted criticism as a face-saving compromise that delays key changes.

The deal, announced by Chancellor Angela Merkel after seven hours of talks with leaders of her left-right coalition, postpones a main plank of the reform that the government said was a top priority when it took power last November.

The creation of a fund at the heart of the reform was delayed until January 2009 -- a year later than planned and just nine months before Germany's next parliamentary election.

''The reform is planned to come into force in January 2009 and a lot can happen by then,'' said Goldman Sachs economist Dirk Schumacher. ''Both sides had to find an agreement and this is not a real reform but rather a face-saving exercise.'' Economists, lobby groups and opposition politicians criticised the reforms for failing to address the issue of funding and being based on the lowest common denominator between Merkel's conservatives and the Social Democrats (SPD).

''Clinging to a lazy, botched compromise has nothing to do with proving one's deal-making abilities,'' said Reinhard Buetikofer, head of the opposition Green party.

Germany has one of the most expensive healthcare systems in the world and the burden for funding it lies mainly with workers and employers, putting a brake on hiring in the German economy.

Rising healthcare costs and an ageing population are putting additional strain on the system and a deficit of around 7 billion euros is expected to emerge this year.

WORKFORCE BURDEN The centrepiece of Merkel's reform is the new fund, designed to pool statutory insurance premiums from workers and employers with tax money, and thus reduce the burden on the workforce. However, there will be no significant rise in tax funds and instead statutory premiums will go up by 0.5 percentage points from around 14 per cent of a workers' pay-packet at present.

The grand coalition, the first grouping of the major parties since the 1960s, hammered out a compromise after months of squabbling.

Major sticking points, including measures to allow insurers to levy additional premiums from their clients in case they run out of money, were resolved in the coalition meeting with Merkel seen as having given some ground to the Social Democrats.

SPD Chairman Kurt Beck said his party had succeeded in capping the limit for these additional premiums at one per cent of household income, with some modest one-off fees added, even though conservatives insisted it had to be more.

The agreement may put an end to the bitter arguments in the coalition but critics said it did not address the real problems of a system which relies too heavily on workers' contributions.

''This has stabilised the government since the controversial issues have now been put aside until the end of the legislative period,'' Commerzbank analyst Eckhardt Tuchtfeld said.

''The parties will already be campaigning for the next election by the time the fund is actually in place,'' he said.

Criticism from powerful conservative state premiers had haunted Christian Democrat (CDU) Merkel in the health talks, prompting charges from the SPD that her leadership was weak.

In a sign that controversy could continue, Edmund Stoiber, the chairman of the Bavaria-based Christian Social Union (CSU), said he was reserving judgment on the compromise deal even though he had taken part in the talks.

The cabinet hopes to approve a draft law on the healthcare reform later this month.

REUTERS