Why do PKV premiums rise if they build ageing reserves?

“If my private health insurer puts money aside for old age, why does my premium still increase?”

It is a reasonable question. The answer becomes clearer when you separate two developments: healthcare needs change as we get older, and healthcare itself can become more expensive.

Your premium helps pay for today and prepare for later life

In younger years, expected healthcare costs are generally lower than in older years. In a standard private health insurance tariff that builds ageing reserves, part of the premium is therefore set aside to help finance higher expected costs later.

The orange curve shows expected healthcare costs. The horizontal green line illustrates the original calculated premium if the underlying assumptions remain unchanged.

Early reserves help finance the gap when expected healthcare costs are higher later in life.

Higher healthcare needs in old age are considered from the beginning.

Investment income is also part of the plan

These reserves are called Alterungsrückstellungen. They are invested, and the premium calculation includes an assumed interest rate, known as the Rechnungszins.

Future benefits are financed through premiums, accumulated reserves and investment income. Actual calculations also consider factors such as mortality, expenses and the tariff’s benefit structure.

The shaded areas simplify the financing principle. They should not be read as exact or equal cash amounts.

Needing more care is different from paying more for the same care

As an insured group gets older, it will generally need more healthcare. The original calculation anticipates this age-related pattern.

Medical inflation is a separate effect: the same treatment, medicine or hospital service can become more expensive. The original calculation cannot fix all future healthcare prices.

In the illustration, a treatment originally assumed to cost €100 later costs €130. These are not figures for a particular treatment or a forecast.

Higher expected costs can require a new premium calculation

If expected healthcare expenditure changes sufficiently, the premium calculation may need to be updated under the applicable adjustment rules.

Reserves continue to help finance future care. However, a higher cost level can also increase the funding needed for later years.

The dashed orange curve represents originally expected costs. The solid orange curve illustrates higher costs. The green lines distinguish the original premium from an illustrative recalculated premium.

PKV premiums are not automatically increased each year by the consumer inflation rate. Adjustments depend on the relevant tariff and legal conditions, with an independent trustee involved.

Medical expenditure is one factor. Changes in mortality assumptions and the recalculation of other factors can also matter.

A premium adjustment is not an individual penalty for having claimed or having become ill. The calculation concerns the relevant insured group.

Guaranteed benefits do not mean a guaranteed premium

In private health insurance, the agreed benefits are generally protected by your contract. An insurer cannot simply remove a promised benefit because it has become more expensive to provide.

That promise applies within your policy’s terms, reimbursement limits and exclusions. A limited benefit does not become unlimited just because it is contractually agreed.

Special statutory tariffs and legally permitted changes require separate consideration.

A statutory health fund cannot simply remove mandatory benefits at will. Equally, a PKV benefit guarantee does not mean that every tariff covers every treatment.

What inflation and the pandemic help explain

Healthcare providers face rising costs too

Higher wages, energy costs and material prices can increase the cost of running hospitals and medical practices. More expensive medicines and changing treatment patterns can add further pressure.

The effect on insured expenditure differs between services. It does not mirror consumer inflation one for one.

This is why inflation is a useful example: even with unchanged contractual benefits, the cost of fulfilling those benefits can rise.

The pandemic shows that expenditure is not a smooth line

COVID-19 changed healthcare demand and the timing of treatment. However, it is too simplistic to claim that total PKV expenditure immediately surged throughout the pandemic.

The PKV Association reports that benefit expenditure grew less strongly during the pandemic than in preceding years.

The pandemic is therefore an example of changing healthcare utilisation, rather than a universal explanation for a particular premium increase. To understand an individual adjustment, review the insurer’s tariff-specific information.

Compare the long-term commitment, not just the starting price

Before choosing private health insurance, consider these questions alongside your personal circumstances:

• Benefits: What does the tariff cover, and where are its limits?
• Long-term affordability: Can your budget accommodate future adjustments and retirement?
• Family plans: How could children or parental leave affect household costs?
• Income protection: Is suitable sickness allowance included for periods without salary?
• Your plans for Germany: What happens if your employment, residence or future country changes?

Contractual benefit protection can be valuable. It does not make PKV the right choice for everyone. A sound comparison considers both public and private insurance and your longer-term plans.

Common questions