Welcome to our new Insurance Mythbusters series! In these posts, we debunk common misconceptions about the insurance industry. For our first post, we’re digging into the oft-misunderstood world of private health insurance.
“Private health insurance is only for rich people.”
If you mention private health insurance in Germany, you’re likely to get negative reactions. Many will say that it’s astronomically expensive—and that it’s built to price-gouge the elderly. But a bit of research shows that being privately insured can often cost less than spending your life in the public system. So what’s the truth here?
Myths often go hand-in-hand with convoluted origin stories, and this one is no different. It’s no secret that in many countries, private health insurance truly can put consumers at a disadvantage. In the U.S, for example, the private system is infamous for its rising premiums and sky-high deductibles. Private insurers are also known for barring people from receiving coverage for pre-existing conditions. So it’s safe to say that the private health insurance industry is often preceded by an unsavory reputation.
But in Germany, things are a bit different. The German system already has a robust network of publicly funded Krankenkassen (health funds), which all Germans are eligible to join at relatively affordable costs. So private insurers need to have something competitive to offer—and if they operated like their counterparts in the U.S., then nobody in their right mind would consider getting a private plan.
So can the non-ultra-wealthy ever afford private insurance?
The real deal
Private insurance can indeed be affordable for the Average German Jo(hannes)—and since private rates aren’t dependent on salary, it can sometimes be even cheaper than a public plan. But there are some important things to note.
The earlier you enter the private system, the more affordable your payments will be in old age. This is due to Alterungsrückstellungen (ageing reserves), an important mechanism that private insurers have in place to keep premiums consistent.
So how does it work? Let’s say you’re in your late 20s and relatively healthy. The monthly premium you’re paying now is intended to stay the same over the decades to come—so you should be paying around the same amount each month when you’re 80 years old, with some adjustments for rising overall health systems costs and inflation.
Since you have no major health problems, your current health costs are relatively low, and a significant portion of your monthly premium goes into the reserves. But even as you get older and require more expensive care, your monthly premium will stay consistent. The additional costs are covered by the reserve money you and other members have put away over time.
The bottom line
Private insurance can provide many advantages over the public system, like quicker access to care and a wider network of doctors to choose from. And many private insurers also cover a greater variety of treatments and medications than is typically covered by the Krankenkassen.
But if you want to get privately insured, the key is to start early and be consistent. The earlier you switch to private insurance, the more time you’ll have to contribute to the ageing reserves. But if you jump from plan to plan, you’ll lose the reserves you’ve already put away—and your premiums through a new insurer will be more expensive. So if you decide to join the private system, you should carefully research providers and choose a company you feel comfortable sticking with for the long haul.