Working Paper: CEPR ID: DP17568
Authors: Arthur Seibold; Sebastian Seitz; Sebastian Siegloch
Abstract: Public disability insurance (DI) programs in many countries are under pressure to reduce spending to maintain fiscal sustainability. In this paper, we investigate the welfare effects of expanding the role of private insurance markets in the face of public DI cuts. We exploit a reform that abolished one part of German public DI and use unique data from a larger insurer. We document modest crowding-out effects of the reform, such that private DI take-up remains incomplete. We find no adverse selection in the private DI market. Instead, private DI tends to attract individuals with high income, high education, and low disability risk. Using a revealed preference approach, we estimate individual insurance valuations. Our welfare analysis finds that partial DI provision via the voluntary private market can improve welfare. However, distributional concerns may justify a full public DI mandate.
Keywords: disability insurance; social insurance; mandate; privatization; risk-based selection; welfare
JEL Codes: H55; G22; G52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Private DI takeup (G52) | Concentration among high-income, high-education, and low-risk individuals (G52) |
| Willingness-to-pay for private DI (G52) | Low (Y10) |
| Net value of a full public DI mandate (H40) | Exceeds its costs (D61) |
| Individuals in higher-risk groups (I14) | Underestimate their disability risk (J14) |
| Reform of 2001 (E69) | Increase in private disability insurance takeup (G52) |
| Reform of 2001 (E69) | Private insurance purchases (G52) |
| Reform of 2001 (E69) | Crowding-in effect of private DI (F21) |