The German Private Compulsory LTC Insurance and Its Relation to the - PowerPoint PPT Presentation

IAAHS Colloquium 2004 - Dresden The German Private Compulsory LTC Insurance and Its Relation to the German Social Security System Roland Weber Verantwortlicher Aktuar Debeka Versicherungsgruppe Koblenz, Deutschland Folie 1

IAAHS Colloquium 2004 - Dresden This session will cover � Some introductory remarks about the German Health Insurance System � Basic conditions of the German Private LTC (PPV) � Effects on the calculation of the PPV � The PPV-Model as a pattern for the integration of the Private Health Insurance Sector into the Social Security Scheme? Folie 2

Introductory Remarks Financing of Health Costs within the German Health Insurance System Pay-As-You-Go System � Statutory Health Insurance Gesetzliche Krankenversicherung (GKV) Funded System � Private Health Insurance Private Krankenversicherung (PKV) Folie 3

Introductory Remarks Pay-as-you-go System � Equivalence principle per period (e. g. calendar year) Σ contribution received = Σ benefit expenditures � No capital accumulation for future periods � Intragenerative solidarity � Intergenerative solidarity Folie 4

Introductory Remarks Effects for GKV � 1975: Contribution level of 10.5% average max. contribution 110 € � Today: Contribution level between 12% and 15% average max. contribution 500 € � Future: Contribution levels above 25% are anticipated The economic pressure placed on future generations will rise Folie 5

Introductory Remarks Funded System � Individual life-long equivalence principle constant premiums (in non-varying circumstances) cash value of premiums received = cash value of expected expenditures � Accumulation of capital to cover costs in old age = ageing reserves Folie 6

Introductory Remarks Assumption: constant basis of calculation (health costs, life expectancy etc.) Transfer from the ageing reserves Paying in to the ageing reserves 20 30 40 50 60 70 80 90 Age average age-related risk premium constant premium Folie 7

Introductory Remarks PKV � Voluntary insurance, risk selection � Self-employed persons, civil servant officials and high-income employees have access to the PKV � Obligation to contract those who have recently been given the rank of a civil servant official � Waiver of orderly right to termination � Benefits are contractually guaranteed Folie 8

Introductory Remarks Population Trends in Germany � Steady decrease of total population � Increasing „ageing“ of the population Consequences � Explosion of premiums in the pay-as-you- go system due to demography � Increased need for demography-resistant coverage based on capital Folie 9

Introductory Remarks LTC in Germany Social LTC Private LTC SPV PPV 90% 10% Folie 10

Basic Conditions of the PPV Basic Conditions of the PPV � Compulsory insurance (“care follows health”) � Obligation to contract � Uniform benefit package � No contractual relation between insurance companies and service providers � Peculiarities concerning tariffication and calculation Folie 11

Effects on the Calculation of the PPV Effects on the Calculation of the PPV � Need for financial transfer: intragenerative from men to women, intergenerative from young to old policyholders � Uniform calculation model within the health insurance line � Uniform bases of calculation for all insurance companies Folie 12

Effects on the Calculation of the PPV � Age- and Gender-Depending Net Premiums  ≤ ≤ ≤ K ( x ) where 0 x 18 or year of birth 1915 ,  =  A ( x ) P ( x ) ≤ ≤ ≥ where 19 x 100 and year of birth 1916 .   a ( x ) K(x) = actuarial per capita benefit A(x) = cash value of aggregate benefits a(x) = cash value of annuity Folie 13

Effects on the Calculation of the PPV � Gender-Neutral Premiums = − ⋅ + ⋅ ≤ = ≤ P ( x | y ) ( 1 Q ) P ( x ) Q P ( y ) 0 x y 100 y y , Q y = proportion of women in relation to all policyholders of age y = x � Transfer due to children 18 ∑ = ⋅ UK L ( x ) P ( x | y ) = x 0 L(x) = total number of premium-free children of age x Amount of transfer: 18,000,000 € Folie 14

Effects on the Calculation of the PPV � Transfer due to the limitation of maximum premiums 100 ( ) { ( ) } ∑ = + ⋅ − ⋅ − σ ⋅ − Γ UG L ( x ) L ( y ) max P ( x | y ) 12 ( 1 ) HG max 0 ; = x , y 19 , = x y L(x) = number of male policyholders of age x L(y) = number of female policyholders of age y = x HG = maximum premium of the social LTC insurance Γ max = statutory maximum cost loading per capita σ = safety loading Amount of transfer: 212,000,000 € Folie 15

Effects on the Calculation of the PPV � Total amount of transfer = UK + UG = 230,000,000 € � Payment of transfer by policyholders whose risk-equivalent premiums are below the maximum premium � Realization of transfer by a uniform per capita adjustment component U Folie 16

Effects on the Calculation of the PPV � Monthly gross premiums  + Γ  Γ P ( x | y ) U = − +  max  b ( x | y ) min ; HG ⋅ − σ ⋅ − σ ⋅ − σ   12 ( 1 ) 12 ( 1 ) 12 ( 1 ) Γ ≤ Γ the company-specific absolute max loading Sufficient premium income taking into account all policyholders of all insurance companies Folie 17

Effects on the Calculation of the PPV � Risk transfer among the insurance companies inevitable � Transfer organized in two stages D1-transfer D3-transfer Folie 18

Effects on the Calculation of the PPV � D1-transfer = ∑ 100 ( ) ( ) − + ⋅ ⋅ ⋅ − σ − Γ D 1 : L ( x ) L ( y ) 12 b ( x | y ) ( 1 ) = x , y 19 , = x y 100 ( ) ∑ ⋅ + ⋅ L ( x ) P ( x ) L ( y ) P ( y ) = x , y 0 , = x y L(x), L(y) = number of male, female policy- holders within one specific insurance company Folie 19

Effects on the Calculation of the PPV � D3-transfer 100 ( ) 1 ∑ = ⋅ + ⋅ ⋅ S L ( x ) K ( x ) L ( y ) K ( y ) − σ rech 1 = x , y 0 , = x y = − ⋅ Z ( i 0 , 035 ) V i = interest rate of the respective insurance company for the ageing reserves V = ageing reserves = − − D 3 : S Z S rech S = actual benefits Folie 20

Effects on the Calculation of the PPV Development of Premiums 70 avg. premium social LTC max. premium social LTC 60 premium private LTC (40 y.) 50 40 30 20 10 0 1996 1997 1998 1999 2000 2001 2002 2003 Folie 21

Integration Into the Social Security Scheme The Model of the PPV as a Pattern for the Integration of the Private Health Insurance Sector Into the Social Security Insurance Scheme � Question: Does it make sense to extend the model of the PPV to larger groups of people and to the sickness costs risk? Folie 22

Integration Into the Social Security Scheme Requirements � Unconditional obligation to contract for the insurers � Obligation to insure for (a specified part of) the population � Several problems arise Folie 23

Integration Into the Social Security Scheme Problems � Registration of all relevant personal data of all (concerned) members of the population � Distribution of the persons concerned to the single private insurance companies � Supervision of the execution of the obligation to insure � Massive collection failures to be expected Folie 24

Integration Into the Social Security Scheme Objectives � To promote competition � To increase efficiency � To orient better towards the policyholders’ wishes � Is the model of the PPV suitable to achieve these aims??? Folie 25

Integration Into the Social Security Scheme Cons � Uniform benefit package � Restricted freedom of contract � Balancing of risks � uniform calculation � Relationship to the service providers not organized competitively Folie 26

Integration Into the Social Security Scheme Incentive effects of the risk balancing � Consequences of inefficient acting??? � D1-transfer up to the required standard � D3-transfer to a certain extent offering incentives to uneconomic behaviour Folie 27

Integration Into the Social Security Scheme Distributional justice � Intragenerative distributional justice realized � Risk solidarity � Income equalization to a certain extent � Intergenerative distributional justice realized � Limitation of maximum premiums Folie 28

Conclusion Is it worth generalizing the PPV-model to further groups of persons and further branches of social security? Pros � On a long-term basis transition to the more demography-resistant funded system � Double burden of the younger policyholders adequately distributed to the subsequent younger age-groups � Separation of the vertical income distribution from the insurance principle Folie 29

Conclusion Cons Prevention of competition, uniform range of � benefits, uniform calculation of premiums Relations to the service providers not � designed competitively Balancing of risks with incentives to � uneconomic behaviour Too expensive for the whole population � (double burden, no vertical income distribution) Folie 30