Christopher Schreckenberger

Asymmetric Information in the Market for Private Supplementary Health Insurance in Germany

As health expenditure have risen, out-of-pocket expenses from copayments and standard benefit exclusions have recently been increasing in the German statutory health insurance (SHI). Hence, private supplementary health insurance policies which enable individuals to reduce or close the widening coverage gaps in the SHI become more and more important. For instance, the demand for supplementary dental and long-term care insurance has increased significantly in recent years. However, a potential problem of this shifting to private supplementary health insurance markets is asymmetric information between the insurance company and the policyholders. If insurers are not able, or not allowed, to fully adjust premiums for individual risk type, adverse selection might occur on the one hand. Thus, particularly high-risk individuals demand policies with comprehensive insurance coverage. On the other hand, multidimensional private information may lead to an advantageous selection for the insurance companies, i.e. comprehensive insurance coverage is particularly demanded by low-risk individuals due to their relatively high risk aversion, for instance. Recent studies provide empirical evidence for the presence of both selection effects in the same insurance market. However, it is important to note that both selection effects may lead to inefficiencies in insurance markets even if they offset each other.

This research project tests for the existence of asymmetric information in the German market for supplementary dental and long-term care insurance. Additionally, it will be examined to what extent there is empirical evidence for the different selection effects (adverse and advantageous selection) in these markets. For this purpose, the relationship between insurance coverage and risk in the respective insurance market will be analysed.