Stabilizing Private Health Insurance: Actuaries' Blueprint for Reform
Sharp, unpredictable premium increases are a major concern for holders of private health insurance (Private Krankenversicherung, PKV). In a recent issue of its magazine "Aktuar Aktuell," the German Actuarial Association (Deutsche Aktuarvereinigung, DAV) has outlined a series of proposed reforms aimed at creating a more stable and predictable pricing environment. While the DAV notes that average annual premium growth in PKV (3.0%) has been slightly lower than in statutory insurance (GKV, 3.3%) over the past decade, the problem lies in the volatility—the dramatic "premium jumps" that can hit policyholders unexpectedly. Their solutions target the rigid legal framework governing premium adjustments.
The Core Problem: Inflexible Adjustment Triggers
Currently, German law allows private insurers to review and increase premiums only under two specific "triggering factors":
- When actual healthcare costs exceed the calculated costs in the tariff by at least 10%.
- When the life expectancy of the insured exceeds the originally calculated figure by at least 5%.
The DAV argues these thresholds are set too high. Insurers may be locked into a tariff for many years without adjustment, leading to a massive, sudden increase once a threshold is finally breached. This creates the very "premium jumps" that are difficult for consumers to plan for and undermine trust in the private health insurance system.
Key Reform Proposals from the Actuaries
The DAV's recommendations focus on creating smoother, more frequent adjustments to avoid future shocks.
| Proposed Reform | Current Rule | Proposed Change | Expected Outcome |
|---|---|---|---|
| Cost Trigger Threshold | 10% cost overrun required | Lower threshold to 5% | More frequent, smaller adjustments; fewer large jumps. |
| Include Interest Rates | Not a formal trigger | Formally consider the low Rechnungszins (accounting interest rate) in calculations. | Recognizes that low investment returns hinder the growth of age-based reserves, justifying earlier adjustments. |
| Legal Surcharge (Gesetzlicher Zuschlag) | 10% surcharge paid from age ~21 to 60 | Increase surcharge (e.g., to 15%) and extend payment period. | Builds larger reserves to better smooth premiums, especially after age 65. |
| Tariff Switch & Reserves | Full transfer of age-based reserves upon switching tariffs. | Limit the amount of reserves transferred during a tariff switch. | Retains more funds in the collective pool to mitigate future premium increases for all. |
The Impact of Low Interest Rates and Aging Reserves
A critical, often overlooked factor is the persistently low-interest-rate environment. The Rechnungszins is a key variable for calculating the growth of age-based reserves (Altersrückstellungen)—the capital buffer designed to keep premiums stable in old age. With lower investment returns, it becomes harder to build these reserves adequately from premiums alone, creating additional pressure for future increases. The DAV insists this economic reality must be formally integrated into the adjustment mechanism.
Addressing the High-Cost Years: Reforming the Legal Surcharge
The existing system uses a 10% legal surcharge and participation in interest surpluses to stabilize premiums after age 65. However, the DAV points out that low interest rates have diminished the latter source of funds. Their solution is to strengthen the former: by increasing the surcharge and extending the payment period, a larger reserve can be accumulated, providing more effective smoothing of premiums into advanced age and preventing the highest costs from hitting policyholders around age 60.
Comparative Perspective: Seeking Stability in Private Insurance Markets
The German debate mirrors broader challenges in private medical insurance markets worldwide. In the U.S., regulators and insurers grapple with predicting long-term healthcare costs and ensuring the solvency of Medicare Supplement (Medigap) plans or long-term care insurance. The core issue is universal: designing a system that remains financially sound over decades while providing consumers with predictable, affordable premiums. The DAV's proposals represent a technical, actuarial approach to achieving this stability within the German PKV framework.
Conclusion: A Call for Legislative Action
The German Actuarial Association's analysis moves beyond criticism to offer concrete, mathematically grounded solutions. Implementing their proposals—lowering adjustment triggers, incorporating interest rates, and reforming the legal surcharge—would require changes to insurance supervision laws (KVAV, VAG). However, the potential payoff is significant: a private health insurance system characterized by greater transparency, predictability, and fairness, where severe premium jumps become a relic of the past. For policymakers, the message is clear: actuarial expertise provides a viable roadmap for reform.
Insurers and brokers face challenges in claims management with high backlogs, rising claim frequencies, skilled labor shortages, and growing customer expectations. Manual processes are expensive and slow.