Critics Lambast German Healthcare Reform

According to the deal which was hammered out after late-night talks Sunday, healthcare contributions paid by employees and their employers will increase from the beginning of next year by around half a percentage point to help close a massive funding gap.

In addition, around 1.5 billion in tax revenue will go toward health insurance for children in 2008 and double that amount in 2009.

"This is an important breakthrough we have succeeded in making," Merkel said Monday after the late-night huddle.

However, a day later Finance Minister Peer Steinbrück said the financing plans for children's healthcare were not yet fixed. In Tuesday's edition of the Handelsblatt daily, Steinbrück said "We have not yet agreed to the finance format."

Merkel's health reform thwarts the plan by the SPD coalition partners, who had sought an increase in tax to meet the funding shortfall. Merkel rejected the tax hike partly because the electorate already faces a rise in sales tax next year.

SPD critical of health reform

On Tuesday, the leader of the SPD, Kurt Beck, told the daily Mainzer Allgemeinen Zeitung he had hoped to be able to lower contributions but that "one has to make compromises in a coalition." In the end, "patients would be the winners" of the deal, he said.

The reforms drew the ire of Guido Westerwelle, the leader of the Free Democrats, the biggest opposition group. Westerwelle said the proposals reminded him of a planned economy and had "nothing to do with free competition." Westerwelle accused the coalition government of using the distraction around the football World Cup to "cash up."

Industry says health reforms stifle employment

Big business has argued that the reforms will make it even more expensive to hire new employees. Statutory healthcare costs are currently 14 percent of an employee's wage, split between worker and employer.

The President of the Association of German Chambers of Industry and Commerce (DIHK), Ludwig Georg Braun told the daily Neuen Osnabrücker Zeitung on Tuesday that the increase in non-wage labor costs means that firms won't be able afford to expand their workforce. He called for set health care contributions independent of wages.

The head of the panel of six economic advisors to the government, Bert Rürup, called the reform a "rather modest compromise based on the lowest common denominator."

Germany's 123-year-old public health system is widely criticized for its bloated bureaucracy and lack of transparency.

According the Organization for Economic Co-operation and Development, Germany spends close to 11 percent of its gross domestic product on healthcare, more than France, Austria, the Netherlands, Italy, Britain and Spain.