Problems with German health insurance

I am currently looking into switching my (German) health insurance, specifically moving from a “private” (“private”) to a “gesetzliche” (“legal”) one. Here I re-encounter some idiocies in detail that I have previously discussed in a bigger picture ([1]; also note many related discussions, e.g. [2]).

The “gesetzliche” insurance is a public scheme, with at least the partial purpose that those who earn more should pay for those who earn less. (While a proper insurance would have those with luck in health pay for those unlucky.) It is the default and is hard to get out of—by design, because the more people leave, the less money is left for the rest, and because those who earn more have more to gain by leaving. The monthly fees are a proportion of the income at an outrageous 14.6 % “kranken” (“sick”) insurance and another 3.05 or 3.3 “pflege” (“care”) insurance—to which is added a “Zusatzbeitrag” (“additional fee”) averaging* another 1 %. Typically, then, about 19 % of income is paid for health insurance alone**.

*Unlike the other percentages, the individual insurer may chose it as it sees fit.

**Another 18 (?) percent goes to mandatory pension schemes. Then there is income tax, VAT on purchases, and whatnot…

Some of the detail issues:

1. Because the fees are (almost) unchangeable by the insurers, and a certain basic cover must not be reduced, the insurers mostly compete through offering services beyond the basic cover. The result is an increase in costs, which puts an unnecessary upwards pressure on the percentages. These additional services usually include the quackery that is homeopathy… (Something that does not just cause entirely unnecessary costs, but also allows this quackery to remain profitable.)
2. The use of percentages give negative incentives towards earning more (e.g. through harder work, more responsibility, or a switch from part- to full-time or to working more over-time), because that much more of any pay increase is swallowed. (Up to a certain maximum amount, which is beyond the reach of most of the population. Also note, again, that it is not just the insurance fees that cause problems—we also have pension fees, income tax, lost or reduced government support for low earners, …)
3. Because the percentages are independent of actual use of services, the customers do not have a reason to be restrictive in their use, implying that the overall costs are unnecessarily high. Moreover, this does not just lead to those lucky in health paying for the unlucky, but also to the fit paying for the obese, the non-smoker for the smoker, the reluctant hospital visitor for the hypochondriac, the skeptic for the superstitious (cf. homeopathy above), …
4. The insurance includes children and spouses with no (or only minor) own income, implying that those who are unmarried or lack children have to pay that much more to cover other peoples expenses.* Moreover, it can give spouses (pre-dominantly women) additional incentives to not find own work.

   *This type of undue, unethical, and absurd discrimination against the unmarried and childless is quite common in Germany. The next item is another example—as are different tax rates to the disadvantage of the unmarried; that the childless pay taxes to cover school costs; and the government provided “Kindergeld” (“child money”), which amounts to more than 200 Euro per child and month!

5. People with children pay the 3.05 % “care insurance” (cf. above), while those without pay the 3.30 %. Imagine this: Someone causes less strain on the system and has to pay more!

On the other hand, the “private” insurers are equally bad. In theory, these work according to the principle that everyone pays an income independent fee, which does vary depending on how services are used, what age someone is, and (possibly) other factors relating to the likelihood to cause costs. Moreover, the choice of scope of insurance is larger, allowing a choice between paying more for better service and paying less for a lesser service. Children and spouses are not automatically included. On paper, this is a fair system—this is how it should be.

In reality there are a number of problems, some caused by the politicians, some by the insurers, including:

1. Even the buyers of private insurance has to pay a supportive fee to the gesetzliche system. (Unfortunately, my brief search for details on this was not successful, and I do not want to spend too much time on this text. Going by memory, it might have been a few tens of Euros per month, starting a few years ago.)
2. Sex is not included in the risk/fee assessment, implying that there is a transfer from men to women, the latter being much more cost-intensive when it comes to health insurance. Apart from the dubious ethics of this, it reduces the possibility of giving women incentives to not over-use medical services, which keeps the cost level up.
3. A significant portion of the monthly fees are used for “Altersrückstellungen” (possibly, “old-age savings”), which are nominally intended to make the insured party pay a little more today so that he can pay a little less during his old age (compared to what would otherwise have been the case). In reality, these fees are intended to lock him in, because if he switches insurer, the old insurer keeps the “saved” money… However, if they truly were gathered for his future benefit, it would be obvious that he would either take them with him to the new insurer or receive the money as a payout.

   Moreover, whether someone wants to have Altersrückstellungen should be up to him—it should not be decided over his head by others. (Note arguments made in [1] on similar issues, including that the money might be more profitably spent paying off a mortgage.)

4. At least* with my insurer, HUK, the increase of fees with age is not based on a fair risk assessment. Instead, fees are continually hiked up and up and up, year by year by year, in a disproportionate manner. Even when discounting inflation, my own rates are entirely disproportionate to my (low) use, age increase**, health, whatnot. The scheme is simple: Because it is hard*** to leave the private insurance (and because of Altersrückstellungen), chances are that most people will remain with the same insurer even with the disproportionate increases—as long as no individual increase becomes too painful individually. (Boiling frogs…) Switching to another private insurer is an option, but would not necessarily lead to lower fees…

   *Going by media, it is the same everywhere.

   **How they relate to my absolute age, I leave unstated, because that is much harder to judge. However, even if they were in order today, they would be out of order in ten years, assuming the same upwards trend.

   ***Yes, it is hard to switch in this direction too: The politicians want to actively prevent even high-earners from returning to the gesetzliche insurance, because they would usually do so in their old age, when they (a) cause more costs, (b) eventually will not earn that much (at the latest after retirement).

   Indeed, I have heard the claim (but do not vouch for its correctness) that many private insurers deliberately offer young people artificially reduced fees to lure them in—and the money lost there must then be recovered through higher fees later in life. This is not only unethical but contrary to the principles behind an insurance. (Interestingly, a mechanism that is the reverse of the Altersrückstellungen—how about just skipping them both?)

   On the positive side, the law has at least partially made this scheme less profitable through mandating a “Basistarif” (“base [scheme, rate, fee, plan, whatnot]”), which roughly matches the gesetzliche insurance and is capped in terms of fees. Should the fees grow too high, the aging can move to the Basistarif and avoid a complete disaster.

Excursion on how to do it better:
How to do it better is tricky, and the answer depends on what compromises are acceptable to the individual. (For instance, most Leftist politicians take the line that the private insurance should be abolished, so that everyone must be in the gesetzliche system, which I would rule out as unethical and increasing problems.) Moreover, a complete answer might require a full Ph.D. thesis… I would make the incomplete suggestions, however, that:

If both schemes are kept, then everyone should have the ability to switch from the one to the other and back again at will. This would make the tricks of the private side hard to pull and force the gesetzliche to be more responsible and cost competitive.

The gesetzliche be remodeled to be more like the (on-paper version) of the private.

The gesetzliche should not include family members without additional fees.

All insurances should work with a very large deductible, to give incentives for the insured to be responsible, to put downward pressure on costs, and to reduce the overall fee level. Failing this, the requirement of being insured at all must be reduced for groups like free-lancers.

The Altersrückstellungen are abolished and existing amounts paid out to the rightful owner.

Excursion on my switch:
My attempts to switch have three reasons: Firstly, cf. above, the private insurance is not what it portrayed it self to be when I originally* switched. Secondly, with my move from IT consulting to writing, a percentage is much less costly. Thirdly, my insurer, HUK, has not only again and again and again proved to be extraordinarily incompetent (to the point that even a change of address is beyond what it can handle), but has also left me serious doubts as to its honesty—even if I were to remain with a private insurer, it would not be with HUK.

*I was aware of the increasing costs with age, but not of the disproportionate increase and Altersrückstellungen were not actively mentioned—obviously, these are aspects that the insurers try to keep on the down-low and the amount of information on the Internet was much smaller than today. Items 1 and 2 above, in turn, did not yet apply.

Excursion on “Arbeitgeberanteil” (“employer’s portion”):
A common portrayal by politicians and insurers is that “the employer pays half”, in that the percentages above are partially deducted from pay (like income tax), partially paid on-top of pay by the employer. This is, obviously, a complete fiction, because the Arbeitgeberanteil does not grow on trees—it is an additional cost of employment that implies a downward pressure on salaries. This pressure might not amount to exactly the Arbeitgeberanteil, but it should at least be similar, implying that the situation is the same as if the employee received a larger pay-check and paid the full percentage—and that is the correct view. A minor side-effect, however, is that the exact percentages are slightly exaggerated: Someone who nominally earns 40,000 Euro/year, assuming 19 % overall, would pay roughly 7600 Euro. His “true” salary, after adjusting for the Arbeitgeberanteil, would then be roughly 43,800 Euro/year, and the “true” percentage 16.4 (give or take).