Long-Term Health Insurance: Theory Meets Evidence

76 Pages Posted: 23 Mar 2020 Last revised: 4 Dec 2022

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 3 versions of this paper

Date Written: March 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. In this paper, we study the German long-term health insurance (GLTHI) from a life-cycle perspective. The GLTHI is one of the few real-world long-term health insurance markets. We first present and discuss insurer regulation, premium setting, and the main market principles of the GLTHI. Then, using unique claims panel data from 620 thousand policyholders over 7 years, we propose a new method to classify and model health transitions. Feeding the empirical inputs into our theoretical model, we assess the welfare effects of the GLTHI over policyholders’ lifecycle. We find that GLTHI achieves a high level of welfare against several benchmarks. Finally, we conduct counterfactual policy simulations to illustrate the welfare consequences of integrating GLTHI into a hybrid insurance system similar to the current system in the United States.

Suggested Citation

Atal, Juan Pablo and Fang, Hanming and Karlsson, Martin and Ziebarth, Nicolas R., Long-Term Health Insurance: Theory Meets Evidence (March 2020). NBER Working Paper No. w26870, Available at SSRN: https://ssrn.com/abstract=3559159

Juan Pablo Atal (Contact Author)

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

Hanming Fang

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

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