Cost of private and public health insurance

At KLforExpats we get many questions surrounding the cost of both public and private health insurance. Which has the most affordable monthly contributions, which offers the most value in terms of quality benefits and which is the better choice financially in the long run? The answer depends on an individual's own unique situation, which is what we explore in more detail below and how this impacts the cost of both private and public health insurance.

Cost of public health insurance

In the German public health insurance system, contributions are calculated based on an individual’s income. For employees, the cost of statutory health insurance has a general contribution rate of 14.6 percent of total gross income earned. This is in addition to a contribution rate that is determined by each individual fund, which in 2019 was an average of 0.9 percent. This total contribution is half paid by the employee and half paid by the employer.

So that the cost of statutory health insurance and monthly contributions for high-earners is capped, there is a contribution assessment limit. Not to be confused with the ‘Compulsory Insurance Limit’ which is €62,550 and dictates whether an employee earns enough to be eligible for private medical insurance, this capped income threshold is €4,687.50 per month or €56,250 per year.

Despite contributions being capped, it should not be forgotten that health insurance contributions will still increase over time which is true for both privately or publicly insured individuals. For publicly insured persons, this is due to the cost of statutory health insurance being fixed according to a percentage of an individual’s income rather than a fixed monetary figure. To give you an idea of this impact, statutory health insurance contributions have increased to 14.6 percent in 2019, up from 8.2 percent in 1970. This is due to medical progress and inflation and becomes an issue in the public health system as there are no ageing reserves to offset such increases. Therefore, to keep contributions as stable as possible, as contribution rates increase, the level of benefits also decrease in parallel. This is one reason many find privagte medical insurance advantageous. Unlike within the public system, private medical insurance providers are regulated in such a manner that benefits can not be compromised or deviated from what is set out in the initial terms agreed when initially entering a private health insurance contract.

In addition to the cost of statutory health insurance, there is also the cost of obligatory long-term nurse care insurance. Which for publicly insured persons, comes to 3.05 percent of an individual’s income for those who have no kids, and 3.3 per cent for those who do. Similar to regular health insurance, there is an income threshold which caps the contribution for long-term care insurance too.

One question we get asked often is whether statutory health insurance is cheaper than private medical insurance and the answer of course, lies in an individual’s own personal situation. Given public health insurance offers family coverage that doesn’t require each family member to pay their own contribution and because contributions are capped based on income, this is often a more favourable option for those with a family. However, for those who are young, healthy and not intending to start a family in Germany, private medical insurance would likely be the better option. To get an estimate of what your statutory health insurance contribution may be based on your personal situation, you can refer to tools such as this online calculator provided by Techniker Kasse which is one of Germany’s largest and reputable public insurance providers.

For further clarity on the cost health insurance in Germany, don’t hesitate to get in touch with us at KLforExpats. We’d be happy to talk you through everything you need to know.

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The cost of private health insurance

The cost of private health insurance, i.e. an individual’s monthly health insurance contributions is calculated differently to premiums within the public health insurance system. Private health insurance premiums are not calculated according to income like in the public system, but on the level of benefits an individual wishes to include in their coverage. This is based on what’s called the principle of equivalence. In addition, an individual’s current age upon application and state of health is also taken into consideration.

Advantages of how contributions are calculated

What is also important to note regarding the cost of private health insurance is the notion that when entering private health agreements, they should be viewed as life-long contracts. This is beneficial to an individual being insured because it means that the premium for the entire term of the contract (i.e the duration of a person’s life) is calculated in advance and on the basis of a person’s age and health when first entering the contract. This means that although an individual may initially pay higher premiums in the first years of their private medical insurance membership, this is then offset because the individual’s premiums won’t increase in the later stages of life due to age when they may need increased medical care. This is associated with the ageing reserves provision that is enjoyed for those privately insured but does not exist in the public system.

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Mirja Link-Lundehn - Co-Founder of KLforExpats Mirja Link-Lundehn – Independent insurance broker

Co-founder of KLforExpats and licensed insurance expert

Stability of private medical insurance costs over time

Private medical insurance prices cannot be arbitrarily increased by insurers. This is because the private health insurance industry is regulated by the Federal Financial Advisory Authority on the basis of the Insurance Supervision Act which specifies how the cost of private medical insurance must be calculated.

This is not to say that the cost of contributions don’t increase and in fact, costs do increase by approximately 3-4 percent each year, regardless of whether one is insured privately or publicly. However, this is not dictated by health insurance funds themselves, but by natural advances in medical technology, increases in medical inflation and prolonged life expectancy. As a result, no one can say with absolute certainty how the healthcare system will develop in future and how contributions, both within the private and public scheme, will be impacted as a result.

When increases do occur, an individual has the right to cancel their health insurance contract, although this isn’t always recommended as cancelling an agreement might mean an individual loses their ageing provisions and switching to another provider could result in a high premium anyway depending on a person’s age and new medical assessment which needs to be taken before entering a new health insurance agreement.

You can find more in-depth information about private medical insurance here or get in touch with us at KLforExpats today.

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