NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Long-Term Health Insurance: Theory Meets Evidence

Juan Pablo Atal, Hanming Fang, Martin Karlsson, Nicolas R. Ziebarth

NBER Working Paper No. 26870
Issued in March 2020
NBER Program(s):Health Care, Health Economics, Industrial Organization, Public Economics

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.

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Document Object Identifier (DOI): 10.3386/w26870

 
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