Privatizing Disability Insurance

Arthur Seibold (), Sebastian Seitz () and Sebastian Siegloch ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Public disability insurance (DI) programs in many countries are under pressure to reduce spending to maintain fiscal sustainability. In this paper, we investigate the welfare effects of expanding the role of private insurance markets in the face of public DI cuts. We exploit a reform that abolished one part of German public DI and use unique data from a larger insurer. We document modest crowding-out effects of the reform, such that private DI take-up remains incomplete. We find no adverse selection in the private DI market. Instead, private DI tends to attract individuals with high income, high education, and low disability risk. Using a revealed preference approach, we estimate individual insurance valuations. Our welfare analysis finds that partial DI provision via the voluntary private market can improve welfare. However, distributional concerns may justify a full public DI mandate.

Keywords: disability insurance; social insurance; mandate; privatization; risk-based selection; welfare (search for similar items in EconPapers)
JEL-codes: G22 G52 H55 (search for similar items in EconPapers)
Pages: 96
Date: 2025-01
New Economics Papers: this item is included in nep-ene
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2025_640

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