Merz at one year: a health reform nobody loves and an energy bill nobody wanted

by Luís Rijo 8 min read
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One year into the job, Friedrich Merz sits on a number that should bother any politician: 15%. That is the share of Germans who told a Forsa pollster in late April they are satisfied with his work as chancellor - down from 39% when his government took office. In the same poll, 83% said they were not satisfied, and the far-right AfD had overtaken his own CDU/CSU as Germany's most popular party.

And yet, on the Wednesday before this interview aired, his cabinet did something that had defeated every German government for a generation: it passed a structural overhaul of the country's statutory health insurance system - the GKV, which covers around 90% of the population. The reform is messy, politically contested, and funded in part by a sugar levy that Merz spent last year calling "green paternalism." It goes to parliament now. Whether it survives is anyone's guess.

The irony is hard to miss. Germany's most unpopular chancellor in modern polling history is trying to fix one of the country's most expensive problems while his coalition partner uses words like "cynical and contemptuous of human dignity" to describe his social policy instincts. Welcome to the arithmetic of democratic governance.

The background

Germany's statutory health insurance system, known as the GKV (gesetzliche Krankenversicherung), is the backbone of healthcare for the vast majority of Germans. Workers and employers each pay 7.3% of gross salary into the system. On top of that base rate, each insurer charges a variable "supplementary contribution" (Zusatzbeitrag), which has been rising steadily for years.

That supplementary rate stood at around 1.4% in 2022. By 2026 it averaged 2.9%, with the most expensive providers charging 4.4%. In concrete terms, a worker earning the median German salary now pays over 700 euros a month into the GKV before they see a doctor. For top earners, monthly health and nursing care contributions alone now break the 1,000 euro mark.

The underlying problem is structural and demographic. Germany has an aging population, which means the system has more expensive patients and fewer working contributors. In 2024, health insurers and the central health fund recorded a combined deficit of nearly 10 billion euros, which the government plugged with emergency loans. That is not a one-off: it is a trend line.

In March 2026, an expert commission appointed by Health Minister Nina Warken published a blunt assessment. Without reform, the GKV faces a funding gap of 15 billion euros in 2027, rising to more than 40 billion euros by 2030. On the current trajectory, the supplementary contribution rate - that bolt-on charge workers pay on top of the base 7.3% - would reach 4.7% by 2030.

For most workers, that is a pay cut delivered through the payroll, invisible but real.

What is actually happening

The cabinet reform approved last Wednesday tries to address several things at once, with varying degrees of political comfort.

The most contested element involves the free co-insurance of non-working spouses. Until now, a spouse who does not work - or earns very little - has been able to access full GKV coverage at no additional cost, as a dependant of the working partner. Around 2.5 million spouses currently benefit from this arrangement. The reform does not abolish it outright - the SPD wanted full abolition, the CDU pushed back - but it introduces a small surcharge for non-working spouses without young children. Merz framed this as an incentive for both partners to work. The SPD is resisting in parliament, calling it an attack on families.

The government is also increasing the federal contribution paid for each Bürgergeld recipient - people on basic income support - from 144 euros per month into the GKV, with incremental rises planned in the years ahead. The logic: the state, not working contributors, should pay for those not in work. The reality: the increases start at 250 million euros annually, rising in 500 million euro steps. Against a financing gap of 12 to 15 billion euros, Merz himself acknowledged on air that this is, in his words, "a joke" relative to the scale of the problem.

Funding the shortfall also requires new revenue. Here is where the reform collides with Merz's own political biography. The cabinet package includes a sugar levy on certain beverages from 2028, a tobacco tax increase, and a plastic tax - all of which Merz spent much of last year opposing as "paternalism." He now defends them as consumption taxes rather than income taxes, noting simultaneously that the government is cutting fuel taxes to offset some of the burden.

Federal spending on the GKV is also being trimmed. The government is reducing the federal subsidy flowing into statutory health insurance, a transfer that had grown year by year. In exchange, the health system gets more money for Bürgergeld recipients. The net effect on contribution payers is contested and depends heavily on assumptions about how quickly the incremental payments grow.

Then there is the Iran war. Germany halved its 2026 growth forecast to 0.5% following the outbreak of the US-Israel conflict in late February, which disrupted the Strait of Hormuz - the maritime channel through which roughly 20% of the world's seaborne oil and LNG passes. Petrol prices in Germany crossed two euros per litre for the first time since the 2022 Russia energy crisis. The GKV's finances - tied to wages, employment, and economic activity - get worse as growth slows.

The money trail

Germany spends close to 500 billion euros a year on healthcare, about 12.8% of GDP. That is the pot of money in question here, and understanding who pays into it and who draws from it explains why every reform attempt becomes a political war.

The GKV is a solidarity system: healthy workers cross-subsidise sick ones, high earners subsidise low earners, employed people subsidise the unemployed. That solidarity is also its political vulnerability. Every proposal to change the funding formula is instantly framed as an attack on someone - because it is. The question is only on whom.

The spousal co-insurance debate is a good illustration. The SPD wanted to end free coverage for all non-working spouses, which would have pushed premium costs onto households that had previously paid nothing for full coverage. That is redistributive: it raises money from people who are currently not contributing. The CDU blocked full abolition on the grounds that it penalises stay-at-home parents and single-income households. The compromise - a modest surcharge - satisfies no one. Critics on the left call it insufficient. Critics on the right call it a tax on marriage.

The Bürgergeld contribution hike looks progressive in isolation: the state paying for the unemployed rather than workers. But critics point out that while 250 million euros is flowing into the GKV from the federal budget, the federal subsidy to the system is simultaneously being cut by 2 billion euros. The net arithmetic is negative for the GKV in the short term, even if the reform's architects argue the incremental contributions will grow over time.

On the revenue side, the new sin taxes - sugar, tobacco, plastic - are classic consumption levies. They fall proportionally harder on lower-income households, who spend a larger share of their earnings on everyday goods. They are politically easier to pass than income tax increases because they can be dressed up as public health measures. The tobacco tax alone is estimated to generate 1.2 billion euros annually by 2027, the sugar levy around 100 million euros.

Meanwhile, the Iran shock is tightening every fiscal calculation. Soaring energy prices have created what ING's global macro research head called a scenario "spoiling the German growth party before it even started". Lower growth means lower wage growth, which means lower GKV contributions, which means the 15 billion euro gap may arrive earlier and wider than projected.

The real question Merz did not answer on air is who pays if the reform falls short - and the answer, historically, has been the same people every time: workers, through higher contribution rates on their payslips.

What people are doing about it

Health insurers have been raising their supplementary rates ahead of the reform, anticipating that the legislative package will not fully close the gap. The most widely used insurer, Techniker Krankenkasse, raised its supplementary contribution from 2.45% to 2.69% for 2026. Others have gone higher. Workers with the flexibility to switch providers have done so - GKV rules allow a special cancellation right when rates increase.

German trade unions and social welfare organisations have lobbied hard against the co-insurance surcharge and the reduction in sick pay that was floated - though the sick pay cut was not included in the final cabinet package. The DGB, Germany's main union federation, has argued the reform loads costs onto working people while failing to touch the structural problem of underfunding.

Some German employers, particularly in energy-intensive industry, have been pushing for a broader social contribution cap - arguing that the combined employer-employee burden is deterring investment in Germany. A German worker on average income pays close to half their gross salary in taxes and social contributions combined, a comparison Merz himself made on air with Luxemburg at 40% and the United States at 30%.

The Iran energy shock has prompted a wave of household-level responses. Germans began buying more efficient appliances after petrol crossed two euros per litre. The federal government announced a 1.6 billion euro fuel tax cut and tax benefits on inflation bonuses worth roughly 3 billion euros to cushion some of the pressure. Consumer organisations warned that these measures do not compensate for the cumulative rise in energy and insurance costs hitting lower-income households simultaneously.

The bottom line

Germany is trying to fix a health insurance system that has been running a structural deficit for years, while a war in the Middle East is simultaneously cutting growth, inflating energy bills, and shrinking the wage base that funds the system in the first place. The reform the Merz cabinet passed adds a little more money to the GKV and distributes the pain across sin taxes, spousal surcharges, and reduced federal subsidies. It is not nearly large enough to close a projected 40 billion euro gap by 2030. Whether it survives parliament in its current form is uncertain. What is certain is that someone will pay the difference - and that the more the economy slows, the more of that bill lands on the workers already carrying most of it.

Timeline

Summary

Who: Federal Chancellor Friedrich Merz (CDU), his grand coalition with the SPD, Germany's 75 million statutory health insurance members

What: Germany's cabinet approved a structural reform of the GKV - the statutory health insurance system covering 90% of the population - including a new spousal coverage surcharge, sin taxes on sugar, tobacco and plastic, and incremental increases to federal contributions for welfare recipients. The reform comes as the GKV faces a projected funding gap of 15 billion euros in 2027 and over 40 billion euros by 2030.

When: Cabinet approval on 30 April 2026, one week before the government's first anniversary on 6 May 2026; parliamentary vote expected before the summer recess

Where: Berlin; the reform affects workers, families, and employers across Germany

Why: The GKV has run structural deficits for years, recording a near-10 billion euro shortfall in 2024 alone. An aging population, rising healthcare costs, and now an Iran-war-driven energy shock compressing economic growth have made the status quo fiscally untenable. The average supplementary contribution has more than doubled since 2022, and without intervention would continue climbing toward 4.7% by 2030.

Luís Rijo

Luís Rijo

Luis Rijo has spent over a decade watching money move through digital markets - where it goes, who follows it, and who gets left behind when the flow changes direction. [email protected]