Long-term health insurance: Theory meets evidence

Atal, Juan Pablo ; Fang, Hanming ; Karlsson, Martin ; Ziebarth, Nicolas R.

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URL: https://madoc.bib.uni-mannheim.de/61210
URN: urn:nbn:de:bsz:180-madoc-612103
Document Type: Working paper
Year of publication: 2021
The title of a journal, publication series: ZEW Discussion Papers
Volume: 21-094
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
School of Law and Economics > Arbeitsmärkte und Sozialversicherungen (Ziebarth 2022-)
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: G22 , I11 , I18,
Keywords (English): long-term health insurance , individual private health insurance , reclassification risk , intertemporal incentives , ACG scores , health transitions
Abstract: To insure policyholders against contemporaneous health expenditure shocks and future reclassification risk, long-term health insurance constitutes an alternative to community-rated short-term contracts with an individual mandate. In this paper, we study the German long-term health insurance (GLTHI) from a life-cycle perspective. The GLTHI is one of the few real-world long-term health insurance markets. We first present and discuss insurer regulation, premium setting, and the main market principles of the GLTHI. Then, using unique claims panel data from 620 thousand policyholders over 7 years, we propose a new method to classify and model health transitions. Feeding the empirical inputs into our theoretical model, we assess the welfare effects of the GLTHI over policyholders’ lifecycle. We find that GLTHI achieves a high level of welfare against several benchmarks. Finally, we conduct counterfactual policy simulations to illustrate the welfare consequences of integrating GLTHI into a hybrid insurance system similar to the current system in the United States.

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