German Long-Term Health Insurance: Theory Meets Evidence
83 Pages Posted: 23 Mar 2020 Last revised: 3 Jun 2023
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Long-Term Health Insurance: Theory Meets Evidence
Long-Term Health Insurance: Theory Meets Evidence
Date Written: March 2020
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.
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