Comment by aleph_minus_one | Hacker News Reader

Comment by aleph_minus_one | Hacker News Reader

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aleph_minus_one

> Health insurance companies don't have no steenkin "actuarial reserve". Inventing one is an act of rhetorical desperation on your part.

This is how private health insurance companies work in Germany and many other countries (more precisely for Germany "private Krankenversicherung nach Art der Lebensversicherung" (Google Translate: private health insurance in the form of life insurance); formally, in Germany there also exists "private Krankenversicherung nach Art der Schadenversicherung" (Google Translate: private health insurance according to the type of indemnity insurance)).

Facts:

- I have already worked with certified actuaries, and I am thus very certain that building an actuarial reserve which is then phased out when you get older [in German: Auf- und Abbau der Deckungsrückstellung (for life insurance) und Altersrückstellung (for health insurance) (in English, the term "actuarial reserve" is used for both kinds of reserves)]) is how the mathematics of life and private health insurance companies works (OK, formally only for the kind of health insurance that in German is called "private Krankenversicherung nach Art der Lebensversicherung" (Google Translate: private health insurance in the form of life insurance))

- if you still don't believe my claims, just read a good textbook about insurance of persons

The key difference seems to be German private health insurance contracts are long-term affairs. Multi-year, or perhaps even lifetime? US health insurance contracts are typically a year at a time. So German companies have to reserve for costs projected to occur far in the future because they are liable for them, while US companies have no idea if their customer will still be around in 20 years.

My guess would be there's a healthy dollop of regulation pushing the German insurance market into that shape, otherwise you would probably see short-term insurers outcompeting long-term insurers since they wouldn't have to do old-age reserves and could therefore charge lower premiums. Consumers tend not to be nearly as good at rationally planning for long term expenditures as are actuaries.

There exist both types of health insurances in Germany:

"Krankenversicherung nach Art der Lebensversicherung" (health insurance in the form of life insurance) and "Krankenversicherung nach Art der Schadenversicherung" (health insurance in the form of indemnity insurance).

The first one is basically an alternative to the state-mandated health insurance, while the latter one is mostly intended for more specialized health services like for example dental replacement.

There is a regulation that once you are in a "Krankenversicherung nach Art der Lebensversicherung", the health insurance company is not allowed to cancel the contract with you, but on the other hand for this restriction the health insurance company is allowed to "adjust" premiums (nearly always that means "increase premiums") if the medical costs for the agreed treatments rise (which they commonly do).

Thus having a (near-certain) cashflow over the lifetime of the whole insured person (who can only under very special circumstances get out of the insurance treaty) is quite attractive for the insurance company.

> otherwise you would probably see short-term insurers outcompeting long-term insurers since they wouldn't have to do old-age reserves and could therefore charge lower premiums

You must not compare the current premiums, but the amount of premiums that you will pay over the whole lifetime. Here, the situation is completely different.

I think considering the huge amount of money (for premiums and medical costs) that is involved here, it can only be explained with stupidity to just compare current premiums in the young age: it is very well-known that the whole actuarial reserve that the insurance company built up from the premiums of a huge part of your lifetime will be spent for medical costs in just the last few years of your life.

It is thus a really macabre truth that if we would just let patients with cancer or another expensive disease die instead of giving them expensive treatments for just few additional years it would save an insane amount of money in the health system.

I don’t think that really exists in a literal sense of “your policy has a reserve of money to pay out for you”.

I think it exists in the same way social security does: money from people who pay in but don’t withdraw goes to people who do withdraw. There’s probably some reserve, but I’d guess it’s thin because withdrawals should be fairly predictable for large insurers.

> There’s probably some reserve, but I’d guess it’s thin because withdrawals should be fairly predictable for large insurers.

At least in the EU, by Solvency II, insurance companies are obliged to fulfill prescribed solvency ratios (i.e. have sufficient capital resources available). I would strongly assume that there exist similar regulations in the USA.

There are, but I would consider them fairly thin. If I'm reading right, and I may not be, the US only requires a solvency ratio of 1.45. I never worked in health insurance, but I did work for a P&C insurance company and I believe we had assets far in excess of that but kept close to the minimum in liquid assets (returns on investing premiums we hadn't paid out yet was the majority of our profit).

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