Fundamentally Reforming the DI System: Evidence from Germany

Yaming Cao, Björn Fischer-Weckemann, Johannes Geyer and Nicolas Ziebarth ()

No 2157, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: In 2001, Germany abolished public occupational disability insurance (ODI)—the second tier of its public DI system—for cohorts born after 1960. Using administrative data, we first document that, in the long run, overall DI inflows declined by roughly one-third. Second, using representative survey data, we document at best modest ODI insurance take-up responses in the private individual, risk-rated market, which lacks guaranteed issue. Third, an equilibrium model incorporating interactions between the public safety net, the first-tier public DI, and the private market reveals that coverage denials and weak insurance demand, driven by complementary social insurance, can explain the modest private ODI take-up response. Coverage gradients by income and health are thus substantial. Finally, counterfactual simulations highlight the limited scope of incremental reforms.

Keywords: Occupational disability insurance; individual private DI; coverage denials; risk rating; private information; adverse selection; social safety net (search for similar items in EconPapers)
JEL-codes: D14 D82 H53 H55 I14 I18 J14 J26 (search for similar items in EconPapers)
Pages: 44 , Anh. p.
Date: 2026
New Economics Papers: this item is included in nep-eur, nep-hea and nep-lma
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Working Paper: Fundamentally reforming the DI system: Evidence from Germany (2026)
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