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Long-Term Health Insurance: Theory Meets Evidence

Author

Listed:
  • Juan Pablo Atal

    () (University of Pennsylvania)

  • Hanming Fang

    () (University of Pennsylvania)

  • Martin Karlsson

    () (CINCH, University of Duisburg-Essen)

  • Nicolas R. Ziebarth

    () (Cornell University)

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. Relying on unique claims panel data from a large private insurer in Germany, we study a real-world long-term health insurance application with a life-cycle perspective. We show that German long-term health insurance (GLTHI) achieves substantial welfare gains compared to a series of risk-rated short-term contracts. Although, by its simple design, the premium setting of GLTHI contract departs significantly from the optimal dynamic contract, surprisingly we only find modest welfare differences between the two. Finally, we conduct counterfactual policy experiments to illustrate the welfare consequences of integrating GLTHI into a system with a “Medicare-like†public insurance that covers people above 65.

Suggested Citation

  • Juan Pablo Atal & Hanming Fang & Martin Karlsson & Nicolas R. Ziebarth, 2020. "Long-Term Health Insurance: Theory Meets Evidence," CINCH Working Paper Series 2001, Universitaet Duisburg-Essen, Competent in Competition and Health.
  • Handle: RePEc:duh:wpaper:2001
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    References listed on IDEAS

    as
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    Keywords

    Long-Term Health Insurance; Individual Private Health Insurance; Health Care Reform;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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