Unisex Tariffs in Health Insurance ? Dr. Erich Schneider 2nd International Health Colloquium Dresden, Germany 27 - 29 April 2004
Unisex Tariffs in Health Insurance ? Proposal for a COUNCIL DIRECTIVE implementing the principle of equal treatment between women and men in the access to and supply of goods and services (presented by the commission) {SEC (2003)1213} Article 4 Actuarial factors 1. Member States shall ensure that the use of sex as a factor in the calculation of premiums and benefits for the purpose of insurance and related financial services is prohibited in all new contracts concluded after [date referred to in Article 16(1)] at the latest.
History of the Distinction by Sex in the German Private Health Insurance � beginning 1922 Calculation often without distinction by sex and age (until 1945) � 1933 - 1942 Development of � statistical bases for medical costs by sex and reached age � premium calculation by sex and entry age � level premium with ageing reserve � 1938 - 1940 Discussion of actuaries about “risk shift” risk shift : Premium paid for males are partly used to cover the risk of children and females
Discussion about risk shift Germany 1938 -1940 Pros Cons Too high premium increase for A family has to pay the true price females and children by exact anyway allocation Reasons of The composition of the portfolio changes, because � social policy � the demand of fostered groups � population policy increases (fostering of large families) � in a war males leave the private � competition with social insurance insurance ⇒ no fixed premiums Private insurance is voluntary! "Economy has to subordinate oneself Balancing of sexes is not the under the goals of the state" function of insurance. This can be done by government action.
History of the Distinction by Sex in the German Private Health Insurance � 1951 Supervisory authority: “Directive for technical tariff plans in health insurance” � Risk shift is not allowed � 1992 Supervisory authority: “Allocation of birth risk” � Costs of birth may be assigned to both sexes
History of the Distinction by Sex in the German Private Health Insurance � 1994 Long Term Care Act � §23: Obligatory long term care insurance with uniform insurance conditions in the whole private health insurance market � §110: No premium distinction by sex � §111: Identical level net premiums in the whole market � §111: Obligatory pooling of all long term care risks No competition in this area
History of the Distinction by Sex in the German Private Health Insurance � 1996 “Ordinance of calculation” � §6: Claims have to be calculated for each tariff according to sex and age � §10: Costs of birth may be assigned to both sexes
Unisex Tariffs in Health Insurance ? Proposed EC-directive Remark Article 1 No. 3 This directive does not preclude That means: Differences in medical differences which are related to services and their costs are goods or services for which men allowed. and women are not in a comparable situation because the goods or But if these services are insured, services are intended exclusively or different premiums or benefits are primarily for the menbers of one sex not allowed. or to skills which are practised differently The proposal does not justify, why for each sex insurance and non-insurance are treated differently.
Unisex Tariffs in Health Insurance ? Proposed EC-directive Remark Article 4 No. 1 1. Member States shall ensure that Can sex-specific benefits be the use of sex as a factor in the excluded? calculation of premiums and benefits for the purpose of Can the cover be restricted to insurance and related financial sex-specific benefits? services is prohibited in all new contracts concluded after [date Is the reserve a benefit? referred to in Article 16(1)] at the latest.
Unisex Tariffs in Health Insurance ? Proposed EC-directive Remark Explanatory Memorandum p. 6 Studies show that sex is not the Sex is a main determining factor for main determining factor for life medical costs expectancy Attention: Only the factors already known at policy issue can be regarded
Unisex Tariffs in Health Insurance ? Mortality q x of Private Insured Persons 0,300000 0,250000 0,200000 Probability Males 0,150000 Females 0,100000 0,050000 0,000000 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Age
Unisex Tariffs in Health Insurance ? Yearly Expenses K x for Outpatient Treatment 9.000 8.000 7.000 6.000 5.000 Males EUR Females 4.000 3.000 2.000 1.000 0 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Age
Unisex Tariffs in Health Insurance ? Yearly Net-Level-Premium by Entry Age for Outpatient Treatment 9.000 8.000 7.000 6.000 5.000 Males EUR Females 4.000 3.000 2.000 1.000 0 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Age
Unisex Tariffs in Health Insurance ? Yearly Expenses K x for Hospital Treatment 6.000 5.000 4.000 Males EUR 3.000 Females 2.000 1.000 0 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100 Age
Unisex Tariffs in Health Insurance ? Yearly Net-Level-Premium by Entry Age for Hospital Treatment 6.000 5.000 4.000 Males EUR 3.000 Females 2.000 1.000 0 0 5 0 5 0 5 0 5 0 5 0 5 0 5 0 5 0 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 0 1 Age
Unisex Tariffs in Health Insurance ? Proposed EC-directive Remark Explanatory Memorandum p. 6 Studies show that sex is not the Sex is a main determining factor for main determining factor for life medical costs expectancy The ignorance of sex leads to the following effect: The low-cost group will support the high- cost group whereby: low-cost group = young men and old women high-cost group = young women and old men
Unisex Tariffs in Health Insurance ? Proposed EC-directive Remark Explanatory Memorandum p. 8 Differences of treatment based on The principle of equal treatment in actuarial factors directly related to insurance means that everybody sex are not compatible with the has to be treated in the same way principle of equal treatment and (according to his risk). Therefore should be abolished the principle demands a difference related to sex.
Unisex Tariffs in Health Insurance ? Proposed EC-directive Remark Explanatory Memorandum p. 6 Unisex tariffs do not affect the Financial viability is not the only financial viability of the companies goal. What are the consequences of unisex tariffs?
Consequences of Unisex Tariffs � Alternative 1: Balancing over the whole market (like in long term care) Unified benefits and net premiums, little competition � Alternative 2: Balancing over the portfolio of the insurer Calculation according to tariff is destroyed One tariff may support another tariff
Consequences of Unisex Tariffs � Alternative 3: Balancing over the portfolio of each tariff of the insurer � Alternative 3a: Ignoring the difference between the sexes in the actuarial bases for premiums and reserves Reporting standards have to require the ignorance of sex � Alternative 3b: Taking into account the difference between the sexes Rules have to be set for the calculation of unisex premiums � for new business � for premium adjustment and tariff switch (crediting the sex dependent reserve)
Consequences of Unisex Tariffs Alternative 3: Balancing over each tariff 1. Premiums have to be adjusted if the composition of the tariff portfolio changes 2 . Acquisition of females increases the premiums at issue Tendency to sex discrimination 3. In Unisex-Tariffs with high retention or high cost-dependent profit participation the support is (absolutely) low Partial non insurance is the favourite choice for the low cost group Discrimination of sex by tariff choice
Consequences of Unisex Tariffs Alternative 3: Balancing over each tariff 4. The right of tariff switch (§178 f of the Insurance Policy Law) will lead to switches to unisex tariffs in the high cost group to normal tariffs in the low cost group
Unisex Tariffs in Health Insurance ? Results � Private health insurance today The existing rules demand a pure risk-dependent calculation based on the principal of equal treatment. Private health insurance is regarded as a process which balances the random deviations of the expected expenses
Unisex Tariffs in Health Insurance ? Results � Private health insurance according to the proposal The proposal introduces a redistribution of expenses which commits the low-cost group to support the high-cost group The groups may be identified by tariff, sex and age. If the proposal is accepted, the member states have different alternatives to realize it. These alternatives affect (each one in a different manner) � the competition � the scope of demand for private health insurance � the existing regulation and actuarial techniques In the proposal private health insurance is regarded as a process which redistributes health expenses and which can be designed according to the political goals of the EC
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