A 55-year-old man reports to an actuarial expert after his private health insurance (PKV) has more than doubled its premiums within nine years, even though he has been insured for almost thirty years. The actuary replies, yes, I just calculated that for a client – around 8% annual increases are quite realistic, especially if you have been insured for a long time.
The fallacy of lower premium adjustments for long-term policyholders
If he had only been insured for 10 years, premiums would only have increased by about 50% since then. In fact, if the tariff increases by 4%, the customer will be adjusted by approximately 4% of the new premium at the age he has reached. If, however, he pays only half of the current new premium because of the earlier entry age and the high accumulated ageing provision, the same increase in euros amounts to 8 percentage points for him.
This is law and actuarial and therefore almost inevitable and correct. Customers who, in view of the threat of poverty in old age due to private health insurance costs, think they need to reserve a place under the bridge should ask themselves why they actually went into private health insurance if they cannot afford it at all in old age with lower incomes.
Tariff change to savings tariffs does not stabilise premium increases
However, the insured had switched to a cheaper tariff four years ago, and since then the premiums had risen even more in percentage terms. This, too, is entirely correct and to be expected, the mathematician counters. Anyone who has been paying EUR 500 in a tariff that costs EUR 1,000 for a new policyholder of the same age will have their premium increased by EUR 40 or 8% of their paid premium if the tariff is adjusted by 4%. Whoever switches to a tariff that costs only EUR 700 for a new policy at the age he has reached will pay only EUR 200 there, minus the previous EUR 500 discount from the ageing provision. If this rate is then adjusted by 4 % of the new premium or EUR 28, this is as much as 14 percentage points in relation to the EUR 200 paid. The percentage increases therefore actually tend to increase as a result of the tariff change, even if the insured would prefer to believe the opposite.
Legislator prevents old-age poverty for persons insured under private health insurance schemes
Who becomes officially certified by the private health insurance contributions needy of help, however, gets in the basic tariff with sufficient performance level as with the health insurance contribution concessions or even state subsidies and then has a remaining income at least at Hartz IV level. According to declarations by the Federal Government, this is not old-age poverty, but sufficient for a dignified and self-determined life. It is therefore simply not true that private health insurance contributions must lead to old-age poverty.
Those who are already 55 years old currently have only a few options to return to the statutory health insurance (GKV). This is because by taking up employment that is in itself subject to compulsory insurance, a person who was previously insured under private health insurance is generally no longer subject to compulsory insurance under the statutory health insurance scheme from the age of 55.
GKV obligation via residence or camouflage residence abroad
Resourceful credit institutions and insurance brokers offer their clients the establishment of cover residences abroad. The bank, so that the customer is officially cared for in Germany, but allegedly in the more favorable foreign country his income could be taxed. The insurance broker, so that the customer abroad can enter into the local statutory health insurance even in old age. Such “camouflages” are sold at a high price, but are mostly unnecessary when designed like this.
In many cases, a main residence abroad for a little more than two and a half years is sufficient to be registered in the GKV upon return to Germany by taking up employment subject to compulsory insurance, even from the age of 55. However, multiple residences can also result in multiple tax liability in different countries, so the ratios need to be well designed.
GKV obligation due to new main profession
Up to the standard age limit of between 65 and 67, depending on the year of birth, you can join the GKV by taking up a self-employed activity as an artist or publicist (e.g. writer and journalist), if possible on your own, in accordance with the Artists’ Social Insurance Act (KSVG), compulsorily insured from the first day.
There is no minimum income limit for the first three years – (life) artists can apparently get by without an income for that long. So it’s enough to credibly say that you’ve now started seriously writing a novel, or painting watercolors, but unfortunately couldn’t sell one in the first three years.
A minor self-employed activity in addition is permissible, income from capital or e.g. GmbH shares and renting would be possible without limit. So there’s a lot of design that can be done.
As an artist, you are compulsorily insured on application, but you can be exempted from this if you take up self-employment as an artist for the first time and can prove that you have private health insurance. But one can even declare later that this liberation should end again. The case is different if you were exempted because you exceeded the annual earnings limit (JAEG). There are also cases of freelancers who were helped by their professional chamber or body to exempt themselves from compulsory insurance by filling in forms – as it may turn out afterwards, an expensive and annoying mistake that needs to be repaired.
The previous PKV can be terminated with compulsory insurance according to the KSVG. The artists’ social insurance fund pays the (other) half of the contribution – also to the pension insurance – financed by the artists’ social insurance levy. This form of compulsory insurance also lasts until the start of the pension, provided it is suitably designed.
SHI contributions depending on asset and income structure
Depending on your income, the contributions to the GKV can initially be higher than with a PKV. But this can also be arranged, i.e. minimized, if one converts the assets in time, because in some cases only certain incomes are liable for contributions to the GKV. Occasionally, there are de minimis limits, the exceeding of which can then suddenly become expensive. On the other hand, there are different rules for artists or publicists.
In principle, there is never a compulsion to return to private health insurance, because a new private health insurance contract would always be voluntary! Even if the obligation to be insured in the GKV would cease, the GKV insurance cannot simply end if no new insurance is proven.
Accompanying topics are also questions about anticipated succession, gifts with conditions, leasing and sale of businesses. Expert advice will therefore focus on asset structuring, such as converting annuity policies into investments or endowment policies against a single premium with a later partial surrender – or even policy loans – instead of an ongoing annuity. Optimisation from a tax point of view also then requires in-depth actuarial mathematics. As a basis, everything must be on the table, i.e. assets and comparable insurances, family circumstances, previous activities, income, expected retirement income, inheritances and residence. Shifting to domestic or foreign (trust) foundations, e.g. in the case of life annuity reservations, can also save taxes and social security to a considerable extent and even lead to a tax credit.
Premium development and advantages of private health insurance must be weighed up
In cases of doubt – and as a layman one must always have doubts – a first step will be to examine how the private health insurance will develop in comparison to the statutory health insurance in terms of premiums, including the possibilities for optimisation. In private health insurance, it would also be advisable to think about optimising tariff changes, although this would ultimately require in-depth actuarial mathematics in order to estimate the resulting development of premiums in old age, which can increase significantly as a result of errors made when changing tariffs. For example, new or merely unchanged risk surcharges when switching can have an extremely detrimental effect for actuarial reasons. Particularly popular in practice are errors in temporary premium reductions through tariff changes, which turn out to be wastepaper after 5 to 15 years – unless this was not deliberately calculated as a temporary interim solution and was only recognised as interesting on an interim basis.
More often, customers pay insurance brokers a success fee equivalent to the premium savings for one to two years for advice on changing tariffs. Later, the customer inquiring about high premium adjustments with the expert learns that he may have lost five-digit amounts in the ageing reserves for a long time as a contribution-reducing effect. Or by the Umdeckung only temporarily less paid – in the long run and after the life expectancy however up to six-digit amounts altogether as additional expenditure to expect. The tariff change broker did not even calculate this for him – also because he perhaps could not or did not even suspect it, and did not refer to an expert.
Mostly no favorable health insurance for retirees after returning from PKV
The problem with a later return from private health insurance to statutory health insurance is that, as a rule, this does not result in compulsory health insurance for pensioners (KVdR). Due to the voluntary health insurance that this requires, however, all old-age income, including capital and rental income, and the full amount – not just the share of earnings – of private pensions will be used to pay contributions to the statutory health and long-term care insurance, up to the full maximum contribution to be borne by the individual. The continuation of the PKV would have been there even only from the contribution usually more favorable.
How to design the start of the pension and the amount of the pension?
One can only sometimes – if it becomes scarce – still postpone the beginning of the pension in such a way that perhaps still about half of the expenditures for the GKV is saved, by coming nevertheless still into the health insurance of the pensioners (KVdR). In order to reach the required 90% insurance periods in the GKV in the second half of working life, periods of family insurance can also be included.
A completely different issue would be whether a partial pension – also in the case of a mini-job – deliberately creates the opportunity to pay voluntary contributions to the German Pension Insurance Federation (DRV) to increase the pension – especially since the partially later start of the pension also increases the statutory old-age pension. Depending on the state of health or life expectancy, however, an early retirement pension may also appear more lucrative, which must be calculated in each individual case.
GKV insurance obligation despite drawing an (early) mini-retirement pension?
The obligation to be insured as an artist does not depend at all on whether you already receive a pension, but on the fact that you take up the profession as a self-employed person for the first time before the standard retirement age. One also wants to capture starving people who, out of sheer necessity, apply for an early mini-retirement in order to be able to afford a roof over their heads and occasionally a slice of dry bread, with a slice of Emmentaler, at least in the first three years, when they earn nothing at all as painters, if their patron might bring them something out of pity, or their fellow solo musician has afforded it from the coins thrown into his violin case in the Munich railway station underpass, perhaps even with a litre bottle of Macedonian red wine from Aldi for 1.19 euros, with which one can then tolerate the cold in the studio much better, even with two warm sweaters on top of each other, woollen gloves and a bobble hat.
A predominant income from other self-employed or freelance activities can become a problem. There is the way to be advised and accompanied in detail beforehand – this is more favorable in the result; often higher is the expenditure for repairs after a self-attempt which ended in a shallowness where the GKV obligation was not reached at all.
Cheaper contribution due to compulsory insurance than with voluntary GKV insurance
The trend towards second or third jobs is unbroken – also in parallel with the continuing decline in pensions. Instead of having to pay full contributions to health and long-term care insurance as a voluntary GKV member, even on rents, capital income or private pensions, it is possible to be compulsorily insured in the GKV as an employee even as a pensioner who does not belong to the KVdR with the help of more than marginal employment, and is then no longer a voluntarily insured pensioner. This means that only one contribution is levied on earned income and the pension – and only the “employee’s share” – with the exception of the full contribution in the case of occupational pensions.
This option is also available to all those insured, including those who are currently in private health insurance, if they are no longer eligible for artists’ social insurance (KSV) because they have exceeded the standard age limit.
The very first step will always be to first get into the GKV, and then, if necessary, to avoid the disadvantages of a lack of compulsory insurance as a pensioner (KVdR). From the age of 55, however, one is only obliged to be insured as an employee if one was temporarily insured in the GKV during the last 5 years. A further prerequisite is that these persons were exempt from insurance for less than half of this time, exempt from compulsory insurance or were not compulsorily insured as self-employed persons, § 6 para. 3a SGB V, which can also be achieved by going abroad.
Option: partial maintenance of PKV
If one considers only the premiums of private health insurance and statutory health insurance, savings of up to more than a quarter of a million euros are possible, based on the remaining lifetime. But the design does not have to end there, because there is still the option to remain insured in the private health insurance, possibly combined with a change of insurer. Be it by taking out supplementary insurance policies to the statutory health insurance or by strategically retaining only individual tariff components of the former comprehensive private health insurance. No one can be forced to cancel their PKV because of an insurance in the GKV. It is also possible, for example, to maintain only the outpatient tariff, possibly now with a higher deductible, or to switch to 80% reimbursement if the other tariffs are discontinued. This may require a change of tariff from a compact to a building block tariff.
GKV change via family insurance
Prerequisite for the possibility to get into the GKV-family insurance, in order to be co-insured there free of charge with the spouse, is either that one has only a mini-job with a gross income of currently up to 450 euros, or only up to 390 euros – for example as a surplus from rental or capital income or a pension of the DRV. In most cases, this can still be arranged, even if the way to get there may seem almost impossible at first. If there is a manageable time gap between gainful employment and receipt of the old-age pension, this will often be just as possible as by reducing a full pension that is already in payment to, for example, a pension from the DRV. a one-third pension.
Family insurance can be a first step back into the GKV. If a higher pension or other earned income is received later, the family insurance ends again, but not the statutory health insurance, because the law wants to prevent non-insurance. If the person leaving the family insurance does not prove that he or she has private health insurance – which nobody can force him or her to do – then the GKV will continue compulsorily, albeit with a more expensive assessment of contributions for voluntarily insured persons. Then the further way would still be to be optimized, so around still into the more favorable obligation insurance to come.
In the GKV because of severe disability?
By law, severely disabled persons have three months to apply for admission to the GKV. This deadline is often overlooked. In addition, it requires the detailed study of up to more than 100 GKV statutes in order to know the individual regulations that permit admission to the GKV – or not, for example, if the frequent age limit of 45 years is exceeded. It might be easier to sign up with an artist agency as an extra for theater or television; or offer piano or singing lessons.
PKV change abroad …
For more than 100 Euro per month you can get a so-called expatriate-PKV from foreign private health insurances. Recently also without starting a world trip. With a new foreign PKV, which is also suitable in terms of content, the previous domestic PKV insurance can first be terminated. This is because terminating it is ineffective if no suitable new KV insurance cover is proven. Even such PKV from abroad would then be at best a first step of several to permanently reshape the circumstances.
Some PKV does not recognize this as a follow-up insurance, however, because these tariffs from abroad do not meet the requirements of a statutory compulsory insurance, and are therefore void. However, it overlooks the fact that it is sufficient if a comparable entitlement is thus given, which then prevents an insurance obligation from arising in the first place.
… or to a solidarity community or pension foundation
It would also be conceivable that an employer, for example also a so-called entrepreneurial company (UG haftungsbeschränkt), could grant a legal claim to pay for all utilisation of doctors and hospitals, remedies and aids, etc., irrespective of the fact that an insured event – i.e. illness – exists. This means that it is not an insurance company under BaFin supervision, i.e. it is not subject to supervision.
An offer via a self-help association or a pension foundation is also possible. Today, in most cases, no legal entitlement triggering the supervisory obligation is granted for payment only for life risks incurred by corresponding provident funds, but instead a PKV reinsurance policy with the necessary minimum benefits is maintained for this purpose. However, this reinsurance is no longer legally required in the case of a benefit commitment given with a legal entitlement irrespective of illness.
This commitment may only not be limited to life risks, i.e. it must always be paid if you would like to see a doctor for whatever reason or if you want to go to hospital.
Also, a Chinese-style flat-rate premium to the doctor would not be insurance, so if, for example, you pay the doctor with monthly premiums as long as you are healthy – gladly at other times.
Instead of insurance, this is then usually called “life design”. The Federal Financial Supervisory Authority (BaFin) had already let it be heard once that a company which pays a monthly lump sum if one would like to speak to a lawyer – and also does not stop payment if something like a legal protection insurance case were to occur – is not operating an insurance business, but is offering life insurance.
Of course, an actuary can calculate this from the premium and build in proven tools into the product design to keep benefits from getting out of hand. Exclusions, e.g. for cures, dietary supplements, drugs, fertility treatment or illnesses existing at the start of the insurance, even perhaps only for a limited period, are still possible, as are deductibles and limits, exemption from benefits in the event of excess, and even an ordinary right of termination or an extraordinary right in the case of persons who take unreasonable advantage of the offer or do not pay their premium is permitted, as is the fact that at least some kind of plausible explanation is given as to why one has visited the doctor.
In terms of calculation, this does not differ too much from a normal PKV if the product is suitably designed. After all, who goes to the doctor if they don’t have to, and which PKV can check whether the patient was really ill if the doctor notes “suspicion of” as the reason? Also, the innkeeper will not calculate a different price for brunch if everyone is allowed to eat as much as they want, or only as long as they are hungry.
In this way, at least with a genuine legal entitlement – via solidarity-based organisations of one’s own installed in the company, commercially or by foundations and associations – “comparable benefit entitlements” to normal health insurance can then also be organised entirely without an additional minimum reinsurance as an alternative to PKV and GKV, without BaFin supervision and expensive insurance regulation. Of course, actuarially determined capital requirements must be imposed on them if there is not to be a risk that higher invoices will soon lead to insolvency, insofar as this is not covered by reinsurance.
by Dr. Johannes Fiala / Dipl.-Math. Peter A. Schramm
published on 09.07.2015 in P.T. Magazine
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About the author
Dr. Johannes FialaPhD, MBA, MM
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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