Privatizing Disability Insurance

Estimating the Moral Hazard Cost of Private Disability Insurance and its Welfare Consequences

“…Finally, my analysis abstracts from adverse selection as all variation in risk is captured by the observable risk groups and there is no (unobserved) within risk group variation. In general, my model can accommodate adverse selection as well, but Seibold et al (2021) show that in the German private DI market all selection is on observable (priced) risk, i.e. the risk groups, despite some remaining disability risk heterogeneity within each risk group.…”

“…7 Both of these features are included in the model in section 3. 8 See Seibold et al (2021) for a discussion of priced (risk groups) vs. non-priced risk in private DI.…”

“…Controlling for the risk group in the income process is important to link income to risk and selection into private DI coverage (Seibold et al, 2021), which has relevant welfare effects as shown in section 7. As most individuals do not change the risk group over their working life 18 , I cannot simultaneously allow for risk groups and individual fixed effects.…”

“…I complement their analysis by relating the moral hazard response from private DI to the design of public DI schedules. In contrast, Seibold et al (2021) use the abolition of own-occupation public DI in Germany and the subsequent increase in private DI take-up, to estimate the willingness-to-pay for public own-occupation DI. Their results show that while privatizing own-occupation DI can be optimal for rational agents, equity concerns and behavioral frictions can still call for a public mandate.…”

Differential Exposure to Climate Change? Evidence from the 2021 Floods in Germany

“…The vast majority of the German population is subject to the public social insurance system when it comes to pension, health, or disability insurance. Using private health care insurances or buying additional insurance offered by private pension funds and disability insurance providers is typically concentrated among richer households (see, e.g., Seibold et al, 2022). The RWI-GEO-GRID data set reports indices for households' take-up of various private insurances at the neighborhood level.…”