Working Paper: NBER ID: w26870
Authors: Juan Pablo Atal; Hanming Fang; Martin Karlsson; Nicolas R. Ziebarth
Abstract: By insuring policyholders against contemporaneous health expenditure shocks and future reclassification risk, long-term health insurance contracts are a viable alternative to community-rated short-term contracts with an individual mandate. German long-term health insurance (GLTHI) is the largest market for private long-term health insurance contracts in the world. It features a simple design with initial risk-rating followed by guaranteed-renewable constant premiums over the lifecycle. We estimate the key ingredients of a life-cycle model to assess the welfare effects of the GLTHI contract and compare them to the optimal contract. This comparison provides further lessons about the trade-offs of long-term health insurance design.
Keywords: long-term health insurance; welfare effects; German health insurance; dynamic contracts
JEL Codes: G22; I11; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| GLTHI contracts (G19) | welfare benefits (I38) |
| GLTHI contracts (G19) | reclassification risk (D80) |
| Optimal contracts (D86) | welfare benefits (I38) |
| Higher premiums under GLTHI contracts (G52) | consumption smoothing (D15) |
| GLTHI contracts coincide with optimal dynamic contracts (D86) | income is flat (E25) |
| Welfare losses from using GLTHI design (D69) | lower reclassification risk (D80) |
| Performance of optimal long-term contracts (D86) | managing large reclassification risks (C55) |