Unisex Tariffs in Health Insurance ? Dr. Erich Schneider 2nd - - PowerPoint PPT Presentation

• Dr. Erich Schneider

Unisex Tariffs in Health Insurance ? 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 females and children by exact allocation A family has to pay the true price anyway Reasons of social policy population policy (fostering of large families) competition with social insurance The composition of the portfolio changes, because the demand of fostered groups increases in a war males leave the private insurance ⇒ no fixed premiums Private insurance is voluntary! "Economy has to subordinate oneself under the goals of the state" Balancing of sexes is not the 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 differences which are related to goods or services for which men and women are not in a comparable situation because the goods or services are intended exclusively or primarily for the menbers of one sex

• r to skills which are practised

differently for each sex That means: Differences in medical services and their costs are allowed. But if these services are insured, different premiums or benefits are not allowed. The proposal does not justify, why 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

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. Can sex-specific benefits be excluded? Can the cover be restricted to sex-specific benefits? Is the reserve a benefit?

Unisex Tariffs in Health Insurance ?

Proposed EC-directive Remark Explanatory Memorandum p. 6 Studies show that sex is not the main determining factor for life expectancy Sex is a main determining factor for medical costs Attention: Only the factors already known at policy issue can be regarded

Unisex Tariffs in Health Insurance ?

Mortality qx of Private Insured Persons

0,000000 0,050000 0,100000 0,150000 0,200000 0,250000 0,300000 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Age Probability Males Females

Unisex Tariffs in Health Insurance ?

Yearly Expenses Kx for Outpatient Treatment

1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 9.000 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Age EUR Males Females

Unisex Tariffs in Health Insurance ?

Yearly Net-Level-Premium by Entry Age for Outpatient Treatment

1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 9.000 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 Age EUR Males Females

Unisex Tariffs in Health Insurance ?

Yearly Expenses Kx for Hospital Treatment

1.000 2.000 3.000 4.000 5.000 6.000 20 24 28 32 36 40 44 48 52 56 60 64 68 72 76 80 84 88 92 96 100 Age EUR Males Females

Unisex Tariffs in Health Insurance ?

Yearly Net-Level-Premium by Entry Age for Hospital Treatment

1.000 2.000 3.000 4.000 5.000 6.000 2 2 5 3 3 5 4 4 5 5 5 5 6 6 5 7 7 5 8 8 5 9 9 5 1 Age EUR Males Females

Unisex Tariffs in Health Insurance ?

Proposed EC-directive Remark Explanatory Memorandum p. 6 Studies show that sex is not the main determining factor for life expectancy Sex is a main determining factor for medical costs 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 actuarial factors directly related to sex are not compatible with the principle of equal treatment and should be abolished The principle of equal treatment in insurance means that everybody has to be treated in the same way (according to his risk). Therefore 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 of the companies Financial viability is not the only goal. What are the consequences of unisex tariffs?

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 1: Balancing over the whole market (like in long term care) Unified benefits and net premiums, little competition

Alternative 3b: Taking into account the difference between the sexes Rules have to be set for the calculation of unisex premiums

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 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
• r 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

Private health insurance today The existing rules demand a pure risk-dependent calculation based on the principal of equal treatment.

Unisex Tariffs in Health Insurance ? Results

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