nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒03‒10
eleven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Is Drug Coverage a Free Lunch? Cross-Price Elasticities and the Design of Prescription Drug Benefits By Martin Gaynor; Jian Li; William B. Vogt
  2. Worker Sorting, Compensating Differentials and Health Insurance: Evidence from Displaced Workers By Steven F. Lehrer; Nuno Sousa Periera
  3. Extending health insurance to the rural population : an impact evaluation of China ' s new cooperative medical scheme By Wagstaff, Adam; Lindelow, Magnus; Gao Jun; Xu Ling; Qian Juncheng
  4. Effects of Changes in the Unemployment Insurance Eligibility Requirements on Job Duration - Swedish Evidence By Hägglund, Pathric
  5. The Truth about Moral Hazard and Adverse Selection. Eighteenth Annual Herbert Lourie Memorial Lecture on Health Policy. By Mark V. Pauly
  6. The use of derivatives to hedge embedded options : the case of pension institutions in Denmark By Ladekarl, Jeppe; Ladekarl, Regitze; Andersen, Erik Brink; Vittas, Dimitri
  7. Social Interaction Effects in Disability Pension Participation. Evidence from Plant Downsizing By Mari Rege, Kjetil Telle and Mark Votruba
  8. China’s Trade and Growth: Impact on Selected OECD Countries By Malory Greene; Nora Dihel; Przemyslaw Kowalski; Douglas C. Lippoldt
  9. Cross-Cohort Differences in Health on the Verge of Retirement By Beth J. Soldo; Olivia S. Mitchell; Rania Tfaily; John F. McCabe
  10. Is It Time to Redesign Hospice? End-of-Life Care at the User Interface. Syracuse Seminar on Aging. By David J. Casarett
  11. Sharing Liability Between Banks and Firms: The Case of Industrial Safety Risk By Marcel Boyer; Donatella Porrini

  1. By: Martin Gaynor; Jian Li; William B. Vogt
    Abstract: Recently, many US employers have adopted less generous prescription drug benefits. In addition, the U.S. began to offer prescription drug insurance to approximately 42 million Medicare beneficiaries in 2006. We use data on individual health insurance claims and benefit data from 1997-2003 to study the effects of changing consumers’ co-payments for prescription drugs on the quantity demanded and expenditure on prescription drugs, inpatient care and outpatient care. We allow for effects both in the year of the co-payment change and in the year following the change. Our results show that increases in prescription drug prices reduce both the use of and spending on prescription drugs. However, consumers substitute the use of outpatient care and inpatient care for prescription drug use, and the expenditure reductions on prescription drugs are largely offset by the increases in outpatient spending.
    Keywords: drugs, elasticity, substitution, cost-sharing, insurance
    JEL: D12 I10 M52
    Date: 2006–11
  2. By: Steven F. Lehrer; Nuno Sousa Periera
    Abstract: This article introduces an empirical strategy to the compensating differentials literature that i) allows both individual observed and unobserved characteristics to be rewarded differently in firms based on health insurance provision, and ii) selection to jobs that provide benefits to operate on both sides of the labor market. Estimates of this model are used to directly test empirical assumptions that are made with popular econometric strategies in the health economics literature. Our estimates reject the assumptions underlying numerous cross sectional and longitudinal estimators. We find that the provision of health insurance has influenced wage inequality. Finally, our results suggest there have been substantial changes in how displaced workers sort to firms that offer health insurance benefits over the past two decades. We discuss the implications of our findings for the compensating differentials literature.
    JEL: I11 J30
    Date: 2007–03
  3. By: Wagstaff, Adam; Lindelow, Magnus; Gao Jun; Xu Ling; Qian Juncheng
    Abstract: In 2003, after over 20 years of minimal health insurance coverage in rural areas, China launched a heavily subsidized voluntary health insurance program for rural residents. The authors use program and household survey data, as well as health facility census data, to analyze factors affecting enrollment into the program and to estimate its impact on households and health facilities. They obtain estimates by combining differences-in-differences with matching methods. The authors find some evidence of lower enrollment rates among poor households, holding other factors constant, and higher enrollment rates among households with chronically sick members. The household and facility data point to the scheme significantly increasing both outpatient and inpatient utilization (by 20-30 percent), but they find no impact on utilization in the poorest decile. For the sample as a whole, the authors find no statistically significant effects on average out-of-pocket spending, but they do find some-albeit weak-evidence of increased catastrophic health spending. For the poorest decile, by contrast, they find that the scheme increased average out-of-pocket spending but reduced the incidence of catastrophic health spending. They find evidence that the program has increased ownership of expensive equipment among central township health centers but had no impact on cost per case.
    Keywords: Health Monitoring & Evaluation,Housing & Human Habitats,Small Area Estimation Poverty Mapping,Regional Rural Development,Health Economics & Finance
    Date: 2007–03–01
  4. By: Hägglund, Pathric (Swedish Institute for Social Research, Stockholm University)
    Abstract: This paper investigates the impact of the unemployment insurance (UI) entrance re-quirement on employment duration among earlier unemployed in Sweden. I exploit changes in the rules taking place in 1994 and 1997 to study behavioural adjustments in the timing of job separation in 1992, 1996, and 1998 respectively. Performing across-year analyses with years involving different working requirements, I find evi-dence of clustering of job exits at the time of UI qualification. By using predicted hazard rates for each week, I calculate an approximate 2.9-week extension in average employment duration between 1996 and 1998, due to the 5-week prolonging of the entrance requirement.
    Keywords: -
    JEL: J22 J65 J68
    Date: 2007–02–22
  5. By: Mark V. Pauly (The Wharton School, University of Pennsylvania)
    Abstract: This brief is actually going to have two levels. One level will go with the advertised title, and I’ll tell you my current views on the truth about moral hazard and adverse selection. Adverse selection will serve as somewhat of a handmaid of moral hazard, as you will see. That’s one level. The other level, though, which continues to surprise me, is that these two topics—they’re two buzzwords from insurance theory—have generated an enormous amount of policy interest and, yes, passion. Some people passionately believe some things about moral hazard that others passionately disbelieve. And so as part of this second level I will draw back a bit from the actual subject matter to ask a kind of positive public policy question: Why is it that some people can get so passionate about a subject that seems fairly esoteric?
    Keywords: health insurance, adverse selection, moral hazard
    JEL: D80 G18 G22 I10
    Date: 2007–03
  6. By: Ladekarl, Jeppe; Ladekarl, Regitze; Andersen, Erik Brink; Vittas, Dimitri
    Abstract: The main purpose of this paper is to examine the growing use of derivatives by Danish pension institutions as a risk management tool to hedge embedded options on their balance sheets. Throughout the 1980s and 1990s it was a widespread practice for Danish pension institutions to guarantee a minimum interest rate on new pension policies. With the new millennium global interest rates declined steeply and equity markets came crashing down. Suddenly the guarantees on pension contracts were in the money. The policies already written could not be changed, leaving liabilities and assets mismatched, profits in the red, and capital reserves drained. Out of necessity, and in some cases virtue, Danish pension institutions turned in scale to derivatives, allowing for a more active approach to hedging, asset and liability management, and even profit generation. Through the use of derivatives, pension institutions have avoided the need to renegotiate their guaranteed contracts with policy holders. They have succeeded as an industry in transforming their pay-off curves and have emerged with better matched asset/liability positions and lower exposure to interest rate risk. But the expanded use of derivatives also raises some risk management and regulatory issues, such as operational and counterparty risks as well as effective internal control systems and regulatory oversight.
    Keywords: Investment and Investment Climate,Economic Theory & Research,Insurance & Risk Mitigation,Non Bank Financial Institutions,Settlement of Investment Disputes
    Date: 2007–03–01
  7. By: Mari Rege, Kjetil Telle and Mark Votruba (Statistics Norway)
    Abstract: We estimate the magnitude of social interaction effects in disability pension participation among older workers in Norway. Specifically, we investigate how a worker’s propensity to draw disability benefits is affected by a plausibly exogenous shock to the disability entry rate of similarly-aged workers in his or her neighborhood. The problem of omitted variable bias is addressed by employing a novel instrumental variable (IV) strategy, using plant downsizing at neighbors’ plants of employment as an instrument for the disability entry rate among one’s previously employed neighbors. Our IV estimates suggest that a one percentage point increase in the participation rate of previously employed neighbors increased the subsequent 4-year entry rate of workers by about one-half a percentage point. Numerous robustness and specification tests appear to support the validity of the identifying assumption in our IV strategy.
    Keywords: disability; downsizing; layoffs; plant closings; social insurance; social interaction; welfare norms
    JEL: H55 I12 I38 J63 J65
    Date: 2007–03
  8. By: Malory Greene; Nora Dihel; Przemyslaw Kowalski; Douglas C. Lippoldt
    Abstract: This paper examines China's emergence as a global player in international markets over the last few decades. It provides an overview of China's trade policy environment following the country's process of market opening and joining the WTO. The report analyses China’s role in international processing activities and moving up the global value chain. It also examines China’s impact on world prices and the deterioration of its own terms of trade. The paper looks at China's two-pronged export...
    Keywords: telecommunications, investment, trade and growth, trade policy, insurance, banking, intellectual property rights, computable general equilibrium, value chain, China, services trade, trade restrictiveness index
    Date: 2006–11–28
  9. By: Beth J. Soldo; Olivia S. Mitchell; Rania Tfaily; John F. McCabe
    Abstract: Baby Boomers have left a unique imprint on US culture and society in the last 60 years, and it might be anticipated that they will also put their own stamp on retirement, the last phase of the life cycle. Yet because Boomers have not all fully retired, we cannot yet judge how they will fare as retirees. Instead, we focus on how this group compares with prior groups on the verge of retirement, that is, at ages 51-56. Accordingly, this chapter evaluates the stock of health which Early Boomers bring to retirement and compare these to the circumstances of two prior cohorts at the same point in their life cycles. Using three sets of responses from the Health and Retirement Study, we find some interesting patterns. Overall, the raw evidence indicates that Boomers on the verge of retirement are in poorer health their counterparts 12 years ago. Using a summary health index designed for this study, we find that those born 1948 to 1953 share health risks with the War Baby cohort. This suggests that most of the health decline instead began before the late 1940's. A more complex set of health conclusions emerges from the specific self-reported health measures. Boomers indicate they have relatively more difficulty with a range of everyday physical tasks, but they also report having more pain, more chronic conditions, more drinking and psychiatric problems, than their HRS earlier counterparts. This trend portends poorly for the future health of Boomers as they age and incur increasing costs associated with health care and medications. Using our health index, only those at the 75th percentile or higher are likely to be characterized as having good or better health.
    JEL: I1 J1 J26
    Date: 2006–12
  10. By: David J. Casarett (Division of Geriatrics, University of Pennsylvania, and the VA Center for Health Equity Research and Promotion.)
    Abstract: Hospice is a system of end-of-life care that’s not used to its full potential. That is, hospice is not used in the way that would benefit patients and families as much as it could. My argument is that this is an issue of usability, or ergonomics—the science of design. I illustrate how to take what we have learned from the science of usability to make hospice more accessible and approachable, and to increase hospice use among those who would benefit from it. Underneath this discussion, though, there is a more fundamental question: Can we make hospice more usable or do we need to think about redesigning hospice entirely?
    Keywords: nursing home, Medicare, Medicaid, long-term care, elderly, social welfare.
    JEL: I11 I23 I28 J14
    Date: 2007–02
  11. By: Marcel Boyer; Donatella Porrini
    Abstract: We characterize the distortions in environmental liability sharing between firms and banks that the imperfect implementation of government policies implies. These distortions stem from three factors: the presence of moral hazard, the use of objective functions by firms and banks that differs from the social welfare function, and the difficulty for the court to assess the safety care level exerted by the firms. We characterize cases where the liability sharing factor is above or below its full information perfect implementation level. We derive comparative statics results indicating the sensitivity of the liability sharing factor to changes in some parameters relevant for characterizing the optimal policy toward environmental protection or the prevention of industrial accidents. <P>Nous caractérisons les distortions dans le partage de responsabilités entre banques et firmes qu'implique l'implémentation imparfaite des politiques gouvernementales. Ces distortions découlent de la présence de risque moral et de sélection adverse, de l'utilisation de fonctions-objectifs par les firmes et les banques diffèrentes de la fonction de bien-être social, et de la difficulté des cours de justice d'évaluer le niveau de précaution exercé par les firmes. Nous montrons l'existence de divers cas où le partage de responsabilités est supérieur ou inférieur au partage optimal en information et implémentation parfaites. Nous obtenons des résultats de statique comparée illustrant la sensibilité du partage des responsabilités aux paramètres pertinents à la détermination d'une politique optimale de protection environnementale ou de prévention d'accidents industriels.
    Keywords: liability sharing, industrial/environmental liability, safety care, moral hazard, principal-agent, partage de responsabilités, environnement, prévention, risque moral, sélection adverse, principal-agent
    JEL: D82 G32 K13 K32 Q28
    Date: 2007–03–01

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