Long-Term Health Insurance: Theory Meets Evidence

75 Pages Posted: 13 Mar 2020

See all articles by Juan Pablo Atal

Juan Pablo Atal

University of Pennsylvania

Hanming Fang

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Martin Karlsson

University of Duisburg-Essen - CINCH

Nicolas R. Ziebarth

Cornell University

Multiple version iconThere are 2 versions of this paper

Date Written: March 12, 2020

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.

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

JEL Classification: G22; I11; I18

Suggested Citation

Atal, Juan Pablo and Fang, Hanming and Karlsson, Martin and Ziebarth, Nicolas R., Long-Term Health Insurance: Theory Meets Evidence (March 12, 2020). PIER Working Paper No. 20-009, Available at SSRN: https://ssrn.com/abstract=3553867 or http://dx.doi.org/10.2139/ssrn.3553867

Juan Pablo Atal

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

Hanming Fang (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Martin Karlsson

University of Duisburg-Essen - CINCH ( email )

Universitätsstraße 2
Essen, 45141
Germany

Nicolas R. Ziebarth

Cornell University ( email )

Ithaca, NY
United States

HOME PAGE: http://www.human.cornell.edu/bio.cfm?netid=nrz2

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
21
Abstract Views
169
PlumX Metrics