Risk-Adjustment in Long-Term Health Insurance Contracts in Germany

In the private health insurance (phi) market in Germany ageing provisions are used to reduce age-related premium increases in long-term contracts. Currently, the provisions are not transferred if the insured person switches to another provider. Thus, there are no incentives for the insured to cancel their old policy because they would have to pay higher premiums for the same services under a new contract due to higher age and the loss of their ageing provisions. There is a long-standing discussion if it is possible to intensify competition on the phi-market in Germany. The main question is whether the transferring of ageing provisions would lead to risk selection or not. We have reconsidered Meyer's model of transferable risk-adjusted ageing provisions. It has been shown that it is indeed possible to prevent risk selection in a competitive phi-market. We will present a number of counter-arguments to the most frequently stated criticism of the model.