Unisex-Calculation and Secondary Premium Differentiation in Private Health Insurance

Insurance The de facto paid premium in the (German) private health insurance depends on the insurance payments in the past (claim's experience). In case the insured does not make use of the insurance contract and accepts his health costs, he receives a defined premium refund – based on the monthly premium – the following year. The insured should therefore trade off between the premium refund and the health costs he pays by her own, which can be calculated with the stochastic dynamic optimization, to minimize the total financial burden of the health costs (sum of insurance contract and out-of-pocket payment). Primary and secondary premium differentiation have to be analyzed simultaneously. If there is a tendency in German or European legislation to prohibit gender based (primary) premium differentiation (like in Germany for " Riester "-contracts (as from 2006) or private compulsory nursing care insurance), the insurance industry has still the opportunity to adjust the secondary premium differentiation – especially in health insurance with high claim probability. In this paper various premium refund systems – which differ e.g. in the amount of the repaid monthly premiums – and their results on the total financial burden of the insured are discussed under realistic assumptions (regarding interest rate, inflation of health costs, gender based probability of medical treatment). It is shown that under these assumptions strongly differentiating premium refund systems result in total financial burdens of the insured that are close to the values achieved by gender based premiums. Simulation studies lead to the conclusion that the strongly differentiating premium refund systems can be accepted even if they have a wider range of the stochastic financial burden. The reason is that women will pay less than in actual premium refund systems with differentiated premiums and men will be better off than in actual premium refund systems with unisex-calculation.