We are pleased to share the news that a paper co-authored by Martin Karlsson, along with Juan Pablo Atal (University of Pennsylvania), Hanming Fang (University of Pennsylvania) and Nicolas R. Ziebarth (ZEW, University of Mannheim), has been accepted for publication in the Journal of Political Economy. The paper, titled “German Long-Term Health Insurance: Theory Meets Evidence”, explores the welfare implications of various health insurance contract types.

Abstract

German long-term health insurance (GLTHI) represents the largest market for private long-term health insurance contracts in the world. We show that GLTHI’s contract design coincides with the optimal dynamic contract for individuals with constant lifetime income profiles. After estimating the key ingredients of a life-cycle model, we find that, under a variety of assumptions, GLTHI achieves welfare that is at most 4% lower than for the optimal contract. Relative to the gains of replacing short-term contracts with either long-term contract, this welfare gap is smallest when reclassification risk is high.

Link to working paper version.