After more than seven hours of negotiations between Merkel's conservatives and the pro-business Free Democrats (FDP) at a coalition caucus stretching into the early morning hours, the parties agreed to axe the doctor's office fee of €10, the so-called Praxisgebühr, as of January.
Introduced in 2004 the quarterly fee has failed to reduce unnecessary trips to specialists, and instead increased overhead for clinics and surgeries.
In exchange for winning that concession, the FDP agreed to back a benefit for parents who care for their young children at home, starting in August 2013.
The online service of the news weekly Der Spiegel called it a "Summit of Gifts" ahead of the general election next fall, intended to shore up support for the governing parties whose majority is under threat.
"There were presents for everyone so close to the election year - not only for the voters but also for the individual coalition partners," it wrote.
While Merkel's Christian Democrats are leading in the polls, their Bavarian sister party, the Christian Social Union (CSU), is said to face a tough re-election battle in a state vote next year.
And the FDP, whose priority in its election platforms has long been tax cuts, has seen this aim thwarted by Merkel's austerity drive and demands for a balanced budget by 2014.
In a poll released on Sunday, the FDP again fell beneath the five percent hurdle required to take seats in parliament.
Analysts say the most likely electoral outcome next year will be a repeat of the "grand coalition" between the conservatives and the Social Democrats, with Merkel at the helm, last seen from 2005-2009.
The benefit for stay-at-home parents, the brainchild of traditionalists in the CSU, has been criticised for discouraging women from working outside the home, and for compromising the integration of immigrant children who might benefit from day care.
The proposal would pay families with one- and two-year-old children €100 per month through July 31, 2014 - if they do not use state-sponsored childcare. After that, such families would receive €150 per month.
The main opposition party, the Social Democrats (SPD), searching for issues of its own to wield against the mighty Merkel, has pledged a court challenge against the benefit, derisively dubbed a "Herdprämie", or literally "stove bonus".
Thomas Oppermann, speaker of the SPD in the Bundestag, said the agreement on the stay-at-home benefit was an election year gift for the SPD.
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"Paying money for kids who stay at home, that is not right," Oppermann said Monday morning on Deutschlandfunk public radio.
The parties also agreed to a small increase in pensions for low-income households, pledging to work out the details at a subsequent meeting.
In its first major caucus meeting in a year, the coalition also agreed to support €750 million more for transport projects, an issue driven by the CSU.