Unbiased Analysis of Today's Healthcare Issues

Adverse Selection in Germany

Written By: Jason Shafrin - Jul• 27•11

In Germany, poor and middle class individuals must use public insurance, but well-off Germans can choose between using public and private insurance.

“In Germany, about 90% of the population is publicly insured (Colombo & Tapay, 2004). Buying public insurance is mandatory for dependent employees with a regular employment contract as long as their income does not exceed the so-called compulsory insurance threshold. The public insurance premium equals a certain percentage (nowadays about 15% that are equally shared between the employer and the employee) of gross income up to the so-called contribution ceiling, and equal to it thereafter.

Why would someone want private insurance? Coverage is universal in the public system and the deductibles and co-payments are limited. Here’s why”

Contributions for private health insurance are mainly based on health and age, so buying private insurance is especially attractive for young individuals. As a consequence of this, and because of the fact that private insurers are allowed to reject individuals, the risk pool of the private insurers is much better than in the public system…Privately insured individuals can buy better care, e.g. treatment by the head doctor in a hospital or a single room in a hospital, but this comes at a higher price.  Deductibles and co-payments are much more common, and many insurers offer a rebate if an individual did not use medical services in the past calendar year.”

In fact, a paper by Hullegie and Klein (2011) finds that individuals with private insurance are much less likely visit a doctor. This is likely due to adverse selection although moral hazard may also play a role since private insurance plans have higher copayments and deductibles.

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