Disclaimer due to legal implications: The following is not to be understood as legal or tax advice. I just document what I found out by my own research for myself, not intending that you try to do it likewise. There is no warranty for adequacy, correctness, or anything else.
As a practicioner of a voluntary simplicity lifestyle (and yes, I love tech), I am troubled with the German health insurance legislation. Self-employed people like me pay public health insurance fees for a so-called “fictional minimum income” even if they don’t earn that or (like me) don’t even want to earn that. So my propoportional pay for health insurance was way higher than the regular percentage. I have to do something about this, and here’s the list of possible solutions I found. It’s a complex issue, like everything in German society
The problem for self-employed people really started in 2009-01-01, when a law came into effect that required plain everybody living in Germany to have health insurance [§ 193 Abs. 3 S. 1 VVG], which depending on ones job type and status would be public or private health insurance [source]. Simply having no health insurance is no longer possible – you can only cancel health insurance when showing that you just switch the insurer, and an insurer will require you to also pay aftwerwards for your uninsured times when taking you in.
The problem gets even more severe because the public health insurers have a rigid and merciless scheme of encashment, some essentially threatening legal enforcement when being 9 days behind the payment’s due date, and even sending toll collectors for seizing. They tell such people they can always apply to German Jobcenter for the Hartz IV public benefit money, but as you all know, your life (life quality) is over once you enter into that … . So this kind of health insurance is essentially a humiliating and stressing experience, which is another reason why I find ways to work around this.
Normal health-insurance fees for self-employed in Germany
The normal fees for self-employed persons, from 2015 on, are:
- 14.6% normal health insurance rate
- + 0.9% additional health insurance rate (de: “Zusatzbeitrag”) – in principle charging this or not can differ between health insurers based on competition, but in reality it does rather not …
- + 2.35% for old-age care insurance [source]; was 2.05% in 2014
- + 0.25% for old-age care insurance when not having children [source]
- = 18.1%
When being self-employed, they have to be paid from a fictional minimum income of at least 1417.50 EUR as of 2015, even if not making that (so called “Mindestbemessungsgrundlade”, earlier called “fiktives Mindesteinkommen” or “virtual minimum income”, regulated in SGB V §240 (4); you calculate it for every year as 0.5 × Monatliche Bezugsgröße, using the value for West Germany). And even this is a variant “for self-employed persons in need”. This fictional minimum income tends to be increased by 40-50 EUR a year, or about 3%: much higher than current inflation or wage increase, making the situation even worse year by year. Now on to solutions:
Ways to reduce health-insurance fees for self-employed in Germany
As of 2014-11, sorted by adequacy, the best solution first.
- Side-job self-employment without other income. As of 2015, this results in health insurance and old-age care insurance minimum fees of (combined) 171.05 EUR/month (calculated as 945 EUR × 0.181, which assumes the 0.9% Zusatzbeitrag and a childless person). It is the same rate as for all other “voluntary” members of German public health insurance, which is a way to look up the current fee for this category, which is often not published elsewhere. The 945 EUR is the “virtual minimum income”, itself calculated as (1/3) × Monatliche Bezugsgröße [source], in 2015: (1/3) × 2835 EUR = 945 EUR. When exceeding this virtual minimum income (also called “Allgemeine Mindestbemessungsgrundlage” – source), the insurance fees increase proportionally.
Since a change in the self-imposed rules of health insurers (“Gemeinsames Rundschreiben der Träger der gesetzlichen Sozialversicherung vom 11.06.2013: Grundsätzliche Hinweise zum Begriff der hauptberuflich selbstständigen Tätigkeit“) to determine the self-employment status of people, which became effective 2013-07-01, this setup is quite simple and reliably to achieve and is the preferred option.
This status and fee is granted if the self-employment is not considered as ones main job. As per the rules referenced above, this required a second major source of income that is at least 83.33% (100 of 120 parts) of the income from self-employment [source, section 3.2.3]. However, starting around 2015 some health insurers started to regularly accept people as side-job self-employed without them having a different “main source of income”, simply because they were reporting to work part-time (it worked this way at least up to 30 hours weekly). I assume this is the new official regulation now, so there is no need to look for another “main source of income”.
- Side-job self-employment while listing a different main source of income. In case the previous proposal of not listing any other income does not work out for you to be considered side-job self-employed, you may read on about this proposal for creative ideas to have the required different “main source of income”. (It’s simpler to just try another health insurer though, most should now use the guidelines on which the first proposal above is based).
So: If you need to show a different “main source of income”, this requires a second major source of income that is at least 83.33% (100 of 120 parts) of the income from self-employment [source, section 3.2.3]. This figure is however just for orientation, so it’s better to err on the safe side and have a second source of income that is larger than ones income from self-employment – which we’ll use below. The simplest and safest way to prove such a second source of income is if it is contained in ones income tax statement under “other income”. So if possible with no or minimal income tax implications, it makes sense to “voluntarily” list all other sources of income in ones income tax declaration, even if not required as they are income tax exempt (like fees below the 720 EUR honorary office exemption limit, profit from Bitcoin speculation after a holding period of a year etc.). In addition, ones income from self-employment should not exceed 673.75 monthly (25% of monatliche Bezugsgröße – source) if taking >30 hours weekly, or more relaxed values for less time invested, or else the health insurer will regularly assume that ones self-employment is the main source of ones income. This can be challenged as per these rules (section 3.2.3) by proving that ones second source of income is the major one, but again, it’s simpler and better to err on the safe side.
Now how to have that “major source of income” beyond your self-employment? Here are some creative options, and there are many more:
- Donations for private projects. This is quite a wild construction, but sounds reasonable to me. Here is how it works: if you do a non-commercial hobby project, making carefully sure that it does not make a gain, this is not a company, but a private project. So if you collect donations for this, for example via crowdfunding, they are private income, to be stated under “other income” in your income tax statement. You just have to make sure that you don’t profit personally (by buying food etc.), as that would make the project profit oriented, part of your company. Use all the donations for the project itself, and collect receipts to prove it. It is not difficult to collect a few thousand Euros a year in donations for a project with collective benefits that you would have liked to work on anyway. Think open source, open content, open hardare etc.. Even better, since in-kind donations have to be stated with their monetary value in an income tax statement, you can also use moneyless crowdfunding (like on Makerfox). Collecting donations in-kind should be even much simpler than collecting monetary donations, as money is always scarce for the 99%. In effect, you would add donation income on top of your monetary income, and the effect is both reducing your health insurance, increasing your spendable monetary income, and enabling you to work on what you love to do anyway (with the donations).
- Profit from private sales. As a solo entrepreneur, it is still possible to sell private goods at the same time, also with a profit [source]. It must be in the scale of private wealh management, not a professional activity itself though. Profit from this would be stated in the “other income” section of your income tax statement, and that is what we want. See Wikipedia on Privates Veräußerungsgeschäft for details. To increase your “other income”, you may want to report even profits that are income exempt due to a holding period of a year or longer (of your Bitcoins etc.). The benefit with here is that one can realize any desirable amount of gain on demand, depending on how much other income one needs, and under the condition that one holds profitable assets.
- Honorary office fees offset by donations. I did not fully think this through, but there is an option (called Aufwandsspende) how people in a honorary office can make donations from what they would be entitled to get (expense remuneration, honorary office fee etc.). So no money has to flow, as it increases your income and your expenses at the same time, but the recipient organization legally must have the liquidity to pay the fees. The expenses are even tax-deductible donations up to 20% of the stated income.
- Personal gifts. This is quite an elegany solution if you know a donor 🙂 Because donations have high income tax exemption limits [source] and would be in your “other income” section. They must be unconnected to your business activity, of course, and not require something in compensation from you. (So unfortunately, it is not legally permissive to agree to “gift back” every other year.)
- Mini job. A mini job (≤450 EUR/month) does not come with its own health insurance, but can still serve as your other major sourcee of income to prove that your self-employment is not your main job.
- Spouse’s income. [source, example]
- Housewife as a job. Stating that ones main job is “housewife” [discussion]. It would be quite similar to stating that ones other major income is support from ones spouse.
- Credit. A credit from somebody; just an unproven wild idea though.
- Proof by necessity. Or maybe you can try to explain to your insurer that you get these by getting non-cash benefits from friends and relatives or other supporters (like free food & stay for volunteer services) or that you get these means of subsistence by being modest and forgoing them – just say that they have to assume that the majority of means has to come from another source because nobody can live from what you live 😉 But that’s just a wild guess, you’d have to try.
Grants, awards, prize money. This is not a workable option because: all grants, award and prize money that are connected to what you do professionally as a self-employed person have to be entered into your income tax statement as business turnover [source]. So they won’t appear under “other income”. Only if the award is paid for ones personality, it would be non-business income. But for example all awards that have an application process are usually assumed to be connected to professional activity [source]. So they are income-taxable business income even though most awards are not VAT taxable [source].
- Go abroad and use a travel health insurance. For this to work, it seems one has to leave the European Union and also cannot go to several other countries with which Germany has some health insurance related association agreement. Because when staying there and still having the regular residence inside Germany, one still has to pay German health insurance fees and will not be “let out” of German compulsory health insurance. The list of the countries where such an agreement exists is here – it is for pensioners’ health insurance, but probably applies also to other cases (to be confirmed, though).
- Emigrate to a country with a national health system. This simply means, go abroad and also have your registered permanent residence there abroad. Then, one has nothing to do any more with the German health insurance system, instead paying into the one at ones location. And by selecting a country with a national (that is, tax subsidized) health system, this is much cheaper. For example, Italy or UK. It can be a bit complicated still to leave German compulsory health insurance since you will have to show a follow-up insurance (b/c you still reside in the EU) and the new insurance may require a confirmation of canceling your old one (which you cannot get before getting the new one …), but it can be worked out somwhow.
- Foreign national health insurance while in Germany. This is possible if that public or private foreign health insurance covers your medical needs while you are in Germany. Because then, you have fulfilled the need to have a health insurance within Germany.
- Foreign national health insurance abroad. This may be a public or private insurance scheme. Some countries like Spain have astonishing low fees for private health insurance, compared to German levels.
- Midi-job plus mini-job plus side-job self-employment. This is the ultimate way of low health insurance fees when living inside Germany and being self-employed. Namely, for 7.6% of 450.01 EUR (which is the employee’s part of the 14.9% rate without sick pay). Which is 34.20 EUR per month, and the employer will pay approx. the same again. The monthly earnings possible with this scheme are: ca. 412 EUR net income from the midi job (2013 numbers), 400 EUR net income from the mini job, and 800 EUR net income from side-job self-employment. Because if your self-employment is a side job, you don’t have to pay health insurance for that part of your work, but for your midi job employment instead. The incom from self-employment is calculated from a yearly average, and only 18 hours per week of worktime are allowed for it to be a side job (to-do: source for this).
- Employee job plus side-job self-employment. As an employee, you pay no additional health-insurance fee at all for a side-job self-employment (see however the conditions for this above). So in most cases, this will result in lower total fees, even when including the other social security fees you’ll pay then.
- Self-employed with bulking up by public benefits (“Aufstocker”). This is done by approx. 1.4 million people in Germany, see Wikipedia on Aufstocker. In general, public benefits will bulk up what people do not earn in a month to secure their minimum for existence. It can include to have the health insurance paid by the state benefits, and in pratice can be a kind of “unconditional basic income”. But like all kinds of public benefits, this is really the last variant to choose.
- Self-employed person “in need”. In German, “bedürftiger Selbständiger”. Self-employment can be your main job then. This rate is the one I mentioned above: 14.9% of 1347.50 EUR virtual minimum income for health insurance, 2.3% of that for pension care insurance. Taken together, ca. 232 EUR as of 2013. This rate was introduced 2007-04-01, and was a progress at that time as before that the minimum fee was about 300 EUR.
- Sue the government for the law that calculates health insurance fee based on a virtual minimum income. You’d sue against SGB V §240 (4). This has, in my view, no or very little chance for success because this case was basically decided by the highest court in Germany (BVerfG) in their decision of 2001-05-22 – 1 BvL 4/96. I read through that court decision, and newer changes in law seem to not affect their reasoning.
- Time-series combination of these solutions. The most flexible way is, of course, to use the solution from the above list that is most adequaate for you at any given time. Note that you can switch between rates of the same public health insurer as often as you like – switching insurers is only possible every 18 months though.
Keywords (for Germans searching in German): Krankenversicherung als Selbständiger, Krankenversicherung nebenberuflich selbständig, günstige Krankenversicherung selbständig