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Risk Segmentation in the German Health Insurance Market

By Shan Huang (DIW) and Martin Salm (Tilburg University)


“Individuals’ choices between public and private health insurance in Germany are affected by financial incentives and can lead to a market segmented by health risk.”

With the Covid-19 pandemic placing additional financial burdens on health care in many countries, the issue of financing a national health insurance system's is gaining increased importance. Germany is, next to the United States in parts and Chile, one of the few countries with a dual sector health insurance system. On the one hand, companies in the public health insurance sector in Germany are not allowed to price insurance to reflect the expected health care expenses for an applicant and cannot reject an applicant based on health risk. On the other hand, companies in the private health insurance sector in Germany set prices according to health risk, such that prices are lower for healthier applicants.

This difference in pricing makes the private sector particularly attractive for individuals with lower health risks and might lead to disproportionately more individuals with worse health risk to be enrolled in the public sector. Segmentation by health risk between the public and private sectors can increase health expenses in the public sector and threaten its financial sustainability. However, regulations are in place to restrict switching between sectors. For example, only certain employment groups may opt to move from the public into the private sector and voluntary switching from the private into the public sector is not possible. Thus, it remains an empirical question whether individuals are price-sensitive regarding their choice between public and private health insurance.   

To empirically study whether individuals’ choices between public and private health insurance are responsive to changes in pricing, BCCP Doctoral Student Shan Huang and co-author Martin Salm examine the effects of a regulatory ban on gender-based pricing for the private sector. Private health insurance plans were more expensive for women than for men prior to the so-called unisex mandate. In contrast, gender was never used as pricing factor in the public sector. The unisex mandate made private health insurance more attractive for women and less attractive for men. While the unisex mandate only changed regulation in the private sector, it may have unintended effects on the composition of risks in the public sector.

Using yearly information on individuals’ type of health insurance from the German Socio-Economic Panel, the authors provide empirical evidence that the unisex mandate substantially increased switching from the public into the private sector by women relative to men. Moreover, the size of the effect varies over employment groups and is in line with different financial incentives regarding the choice between the public and private sectors. The effect is largest for the groups of self-employed and mini jobbers. In contrast, the unisex mandate had a weaker effect on employees, for whom choosing the private sector is more restricted. The unisex mandate had no effect on civil servants, for whom employer subsidies have always made private health insurance financially more attractive.

The changes induced by the unisex reform in the pools of private compared to public insurees imply a worsening of the private sector risk pool and an improvement of the public sector risk pool, as women have on average higher health expenses than men. The study’s findings also demonstrate that regulatory changes for targeting only one sector, like the unisex mandate for the private sector, can have unintended consequences on the degree of risk segmentation across the entire health insurance market.


The full paper “The Effect of a Ban on Gender-Based Pricing on Risk Selection in the German Health Insurance Market” is published in Health Economics.

This text is jointly published by BCCP News and BSE Insights.

Photo Credit: DIW Berlin/Florian Schuh


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