Today I want to give you some basic information about staying in the statutory health insurance system versus taking out private health insurance. I’ll be putting this post into my little series Personal Finance 1.0. But this topic is important for you, too, if you’re already further advanced on your career path. The choice of healthcare system has implications for everyone who thinks about retiring early in Germany. And if you didn’t land an extremely well-paid graduate position, you’ll only be able to choose some time in the future, since access to the private healthcare system has become rather more difficult during the past years.
My husband and I are privately insured. And if I had been as well-informed as you are going to be after reading this post, we might well have decided differently 😉 .
Health insurance in Germany
In Germany taking out health insurance is mandatory (the last “loopholes” were closed by 2009) and there’s a two-tier health insurance system: statutory health insurance (“Gesetzliche Krankenversicherung (GKV)”), and private health insurance (“Private Krankenversicherung (PKV)”). Both sectors supply full health insurance. That is, different from other countries with universal healthcare like the NHS in the UK you cannot only take out additional insurance cover for dental, for example, but you can buy your whole health insurance package from a private provider (“Krankenkasse”).
Access to the private system is only possible for employees after you’ve reached a certain salary threshold, the so called “Pflichtversicherungsgrenze”. That’s the gross annual salary up to which insurance in the statutory system is mandatory for salaried employees. In 2019 the threshold is 60,750 Euro. Contrary to this, private insurance is mandatory for some salaried professions like “Beamte” (civil servants with a special employment status). (There are some new approaches on the federal states’ level to offer “Beamte” the choice of joining the statutory system but that’s beyond the scope of this post).
The “Pflichtversicherungsgrenze” is not only relevant the first time you pass the threshold. If you claim unemployment benefits or if your salary is lower after a change of jobs, you have to take out health insurance with one of the statutory providers again. If you’re unemployed and want to stay in the private system you can get around this by applying for exemption, or you can secure being able to go back to the private system later by paying a monthly fee for the so called “Anwartschaft”.
High level of security and quality
Especially if you compare the situation in Germany with countries like the US, having access to universal healthcare with a very high standard is golden. In essence, you are entitled to take out insurance with any of the statutory healthcare providers up to the age of 55, regardless of any pre-existing conditions. And from my own experiences I would say the statutory healthcare in Germany compares quite favorably within Europe.
If you’re a member of the statutory healthcare system your children will be covered free of charge. And in case only one of two legal partners receives an income, the other can be insured free of charge also.
Is private health insurance “better”?
That sounds brilliant, why would anyone think of becoming privately insured, then? On the one hand this is about the diversified service offering of the private insurance providers, on the other about the way their premiums are calculated.
Generally speaking, private health insurance offers more choices and can be adapted to your preferences more individually. You can take out pretty much exactly what the statutory health insurance covers. But you can choose additional services, such as a better room category for hospital stays or treatment by the most senior doctor as well. Private health insurers will often cover alternative methods of treatment that are not necessarily covered by their statutory counterparts. And they will usually reimburse higher percentages for dental work like crowns or implants, and for glasses.
Preferential treatment of private patients?
From our experience it is true that you will get a specialist doctor’s appointment faster as a privately insured patient. There are even doctors who will only treat private patients. (Background to this is that doctors can bill their services higher for privately insured patients than for those with statutory insurance).
Important to know: If you are in the statutory system, you can choose to pay privately for specific services not covered by your health insurance as well. If you only do that where comparatively small amounts of money are involved, taking out complementary private insurance is probably not worth it.
There are some services in the statutory system not offered by the private insurance providers, too – a household help in certain circumstances for example – or for which you have to take out extra cover, like sick-pay (“Krankengeld”, paid by the insurance after the 6 weeks covered by your employer, called “Krankentagegeld” with the private insurers), or cover of treatments at health resorts.
Premiums are calculated differently
The second thing that can look attractive has to do with the differences in how premiums are calculated in the statutory and the private insurance sector. For the statutory providers the premium is set as a percentage of your gross-salary. Currently it is at 14.6% of which employer and employee each pay half.
Individual statutory providers might charge between one and two percent on top of this. There is a ceiling for the absolute premium you pay which is currently set in line with an annual salary level of 54,450 Euro. This means for any Euro you earn above this level, there will not be any contribution to the healthcare system. Thus the highest monthly premium in the statutory sector is currently at 662.38 Euros. (There is an additional contribution for long term care insurance).
Low premiums in the private sector for the young
Naturally real costs for providing healthcare are not higher the more someone earns. That’s mirrored in how the private health insurers do their calculations. Like with any other insurance, premiums are calculated based on statistical risks.
Which results in the situation that particularly younger, high income earners will have to pay significantly lower premiums in the private sector. The flip side of the medal is that premiums will increase in older age, and might end up significantly higher than those in the statutory sector.
This has provided some serious problems in the past, especially for many privately insured, self-employed people with low earnings. That’s why as of 2009, the private insurers have to offer a basic rate corresponding to what the statutory insurance covers (“Basistarif”) which cannot cost more than the maximum premium in the statutory system.
In my opinion the “Basistarif” is really a last resort. If you decide to join the private system you should not consider this a sustainable way to save on healthcare costs.
Before some changes in the law, a tactic to escape the higher premiums was to switch back into the statutory system when you got older. There are only a few ways left to do this, and from 55 years on, going back has become impossible. Against that background it makes a lot of sense to invest what you save versus the statutory system while you’re young in a way that will allow you to subsidize your premiums later in life.
Two classes of retirees in the statutory health insurance
If you’re considering early retirement there’s a decisive caveat to be aware of in the German healthcare system. We didn’t know about this when we opted for private health insurance. And I’m not sure whether we would have realized the implications – at that time we hadn’t thought of stopping to work before official retirement age.
Within the statutory health insurance there are two different classes of premiums (but not of services), based on whether you are classified as “pflichtversichert” (mandatorily insured) when in retirement, or not. Quick jump back to the beginning of this post: you’re normally classified as “pflichtversichert” up to the “Pflichtversicherungsgrenze”. If you earn more you can stay in the statutory system, but you will be considered “freiwillig versichert” (voluntarily insured). If you’re classified as voluntarily insured, the income your premium is based on as a retiree will include any earnings from rentals, dividends and so on, on top of your old-age pension. If you’re considered “pflichtversichert” as a retiree, your premium will only be based on your old-age pension (there were some nasty exceptions of this when people received one-time payouts from whole-life-insurances, but this goes beyond the scope of this post also).
Important: The 9/10-Rule
So far, so good. Against this background I assumed up till some years ago that you would keep the status of “freiwillig Versicherter” as a retiree if you didn’t count as “pflichtversichert” during your working years. And, remember, you’ll drop out of the “Pflichtversicherung” automatically after passing the salary threshold, even if you stay in the statutory health insurance system.
This is not correct, though, and here’s the trick: If you are insured in the statutory health insurance system for a minimum of 90 percent of the second half of your working years (9/10-Rule) – even if you’re classified as voluntarily insured during that time – you will be classified as mandatorily insured as a retiree.
Why is this particularly important for early retirees? As an early retiree you will probably accumulate lower claims to the state pension system than the average person, and the income streams from shares or real estate you built up will not be considered when setting your healthcare premiums if you’re classified as a mandatorily insured retiree. A sort of win-win situation, since this will bring down your healthcare contributions in old age.
Timing is of the essence
If you opt for the private healthcare system like we did, you’ll only have a small window of opportunity to take advantage of this “arbitrage” effect. If you have children they will count 3 years each to your advantage when applying the 9/10-rule. But depending on when you started to work, the window will probably start closing during your 40s, especially since you can’t switch between the two sectors as you please.
You could try to time your early retirement such that by applying for unemployment benefits you will be automatically transferred to the statutory system just in time. But I don’t know whether there are any additional criteria applicable if you completely stay off paid work till you claim your old-age pension. So if this option is relevant for you, you should definitely get in touch with your health insurance provider, or, better still, get legal advice from a lawyer specialized in this area.
When I did some research, I only found examples of how to apply the 9/10-rule that assumed a standard retirement at age 67. But you can opt to claim your state pension later, at 70 for example. This can be advantageous from a financial perspective, which I’ll write about in a separate post. Should the actual date of your claim be decisive for the 9/10-rule, and not the date from which you’re entitled to claim, this might provide some more room for manoeuvre.
Don’t calculate too tightly for your future
Since I was privately health-insured via my parents as a child, it felt quite natural to do the same when I had the opportunity. Looking at this solely from a cost perspective and given the knowledge I have now, I would probably choose to stay in the statutory healthcare system and get complementary private cover. Would this give me exactly the same services and treatment I have access to today? I’m not sure, I suspect not.
Plus I’m someone who generally prefers less to more state involvement and regulation (within reason, I am very glad we have good universal health care in Germany). So emotionally I’m actually feeling more comfortable in the private sector of the healthcare system. But that’s a lifestyle decision with a price tag attached to it.
Since future costs for this choice are uncertain, I’m with the more prudent faction of the FIRE community in the US where this topic is concerned. I expect costs to keep rising faster than the general inflation across all healthcare systems. And I make sure to build this into my financial plans and any drawdown strategies.
If you have further questions, just post them in the comments or get in touch with me directly.
Financial Independence Rocks!