nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒04‒28
ten papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Men With Health Insurance and the Women Who Love Them: the Effect of a Husband's Retirement on His Wife's Health Insurance Coverage By Jody Schimmel
  2. The Responsiveness of Private Savings to Medicaid Long Term Care Policies By Purvi Sevak; Lina Walker
  3. Local elections and consumption insurance : evidence from Chinese villages By Yang Yao; Lixin Colin Xu; Li Gan
  4. Does Signaling Work in Markets for Information Services? An Empirical Investigation for Insurance Intermediaries in Germany By Martina Eckardt
  5. Crowd-out, Adverse Selection and Information in Annuity Markets: Evidence from a New Retrospective Data Set in Chile By Alejandra Cox Edwards; Estelle James
  6. The Impact of Health Insurance Availability on Retirement Decision Reversals By Joshua Congdon-Hohman
  7. Value Based Cost Sharing Meets the Theory of Moral Hazard: Medical Effectiveness in Insurance Benefits Design By Mark V. Pauly; Fredric E. Blavin
  8. Life-Cycle Asset Allocation with Annuity Markets: Is Longevity Insurance a Good Deal? By Wolfram J. Horneff; Raimond H. Maurer; Michael Z. Stamos
  9. Money in Motion: Dynamic Portfolio Choice in Retirement By Wolfram J. Horneff; Raimond H. Maurer; Olivia S. Mitchell; Michael Z. Stamos
  10. Giving the ageing of the population how can countries afford pay-as-you-go social insurance pensions? By Gugushvili, Alexi

  1. By: Jody Schimmel (Mathematica Policy Research, Inc.)
    Abstract: Health insurance coverage in the years prior to retirement is particularly important because it protects the household from the financial risks of uninsurance as well as the health consequences of delaying care while uninsured. While results from the retirement "job lock" literature show that those who would lack coverage after retirement continue to work to maintain benefits, little work has explored the types of health insurance choices made by couples after retirement. It may be difficult for a married man to coordinate continuous coverage for a younger wife whose primary source of coverage has been from the husband, and thus households may pay more for non-group coverage or be exposed to the risks of uninsurance. This paper studies a panel of married couples from the 1992-2004 waves of the Health and Retirement Study (HRS) to study the types of health insurance decisions households make around the time of retirement. Results indicate that households seem to do well at avoiding uninsurance at the time of retirement, but may make high cost choices in order to insure the wife. Men switch into Medicare or coverage from their wife at retirement if they lose their own coverage, but a large fraction of women take-up privately purchased coverage. In fact, the transition from husband’s coverage to privately purchased coverage is twice as large in periods when the husband retires than otherwise. Transitions to uninsurance are lower in periods of retirement than at other times, suggesting that men continue to work if either spouse would lose coverage. Though less risky, insurance purchased in the non-group market is expensive relative to employer-sponsored coverage. Thus, married households may need to increase savings to pay for health insurance that bridges the gap until the wife can claim Medicare at age 65.
    Date: 2006–09
  2. By: Purvi Sevak (Hunter College); Lina Walker (Congressional Budget Office)
    Abstract: This paper examines the extent to which private savings responds to the availability of a social insurance program. We focus on the Medicaid nursing home assistance program and uses variation in state Medicaid policies in the 1960s and 1990s to identify whether household wealth correlates negatively with access to public insurance coverage. We use data from the 1962 and 1970 Survey of Consumer Finances and the 1992 through 2002 Health and Retirement Study. We find that household savings in 1970 was substantially lower in states with easier access to Medicaid assistance and that household savings in the 1990s was lower when access to the Medicaid program was lower.
    Date: 2007–01
  3. By: Yang Yao; Lixin Colin Xu; Li Gan
    Abstract: While the literature on consumption insurance is growing fast, little research has been conducted on how rural consumption insurance is affected by democracy. In this paper the authors examine how consumption insurance of Chinese rural residents is affected if the local leader is democratically elected. Exploring a unique panel data set of 1,400 households from 1987 to 2002, they find that consumption insurance is more complete when the households are in villages with elected village leaders. Furthermore, democracy improves consumption insurance only for the poor and middle-income farmers, but not for the rich. These findings underline the imp ortance of democratic governance for ensuring better rural consumption insurance and poverty reduction.
    Keywords: Rural Poverty Reduction,Consumption,Inequality,Services & Transfers to Poor,Economic Theory & Research
    Date: 2007–04–01
  4. By: Martina Eckardt (Witten/Herdecke University)
    Abstract: Insurance intermediation services are information services which exhibit strong information asymmetries. We empirically analyze whether signaling works in the German market for insurance intermediation services. For this a signal must increase service quality and be easily identifiable by consumers so that it pays for intermediaries to spend the related costs. By using OLS and logit estimations we test whether intermediary type, reputational activities and a variety of signaling instruments work as credible signals. Our findings confirm the main hypotheses derived from signaling theory as to the poor working of market forces in markets for information services. Accordingly, public policy regulation is necessary to mitigate the resulting problems.
    Keywords: signaling, insurance intermediation, information services
    JEL: D82 G22 L15 L86
    Date: 2006
  5. By: Alejandra Cox Edwards (California State University, Long Beach); Estelle James (SUNY Stony Brook)
    Abstract: Annuitization is often considered a socially desirable payout mode from pension plans, because it provides a lifelong income stream and therefore ensures that retirees will not run out of money. However, annuitization is rare in most countries. This project examines workers’ choices during the payout stage in Chile, the only country that has had mandatory personal accounts long enough to have had substantial experience with payouts. Upon retirement, workers in Chile have limited options for payouts: they must either annuitize or take gradual withdrawal. Two-thirds have annuitized. We expect that retirees are less likely to annuitize if their accumulation finances a pension in the vicinity of the minimum pension, whose value is guaranteed by the state. In that case, publiclyfinanced longevity insurance is likely to crowd out private annuity insurance. We expect that retirees with health problems are also less likely to annuitize, possibly leading to adverse selection. Finally, we expect that individuals with greater risk aversion, smaller time preference and better knowledge about the system are more likely to annuitize. A new retrospective data set from Chile yields evidence that is broadly consistent with these hypotheses.
    Date: 2006–12
  6. By: Joshua Congdon-Hohman (University of Michigan)
    Abstract: This paper uses the longitudinal aspect of the Health and Retirement Survey to explore the characteristics associated with reversals in retirement (referred to here as "unretirement"). Through the use of survival time analysis, this paper show that health insurance plays a significant role in unretirement decisions. This role is underestimated when a static probit analysis is used alone. The results hold up for a number of different retirement identifiers that are based both on self-reports of retirement and actual work levels. The results are also robust to various definitions of retirement prompted by the difficult question of how to classify partial retirements. The importance of health insurance provision in a retiree’s decision also remains significant when other "shocks" and the prospect of planned unretirement are introduced.
    Date: 2006–10
  7. By: Mark V. Pauly; Fredric E. Blavin
    Abstract: The conventional theory of optimal coinsurance rates in health insurance in the presence of moral hazard indicates that, in situations of equal risk characteristics, coinsurance should vary if the price-responsiveness or price-elasticity of demand for different medical services varies, and should be larger for the more price responsive services. An alternative theory called "value-based cost sharing" indicates that coinsurance should be lower for services with higher (marginal) benefits relative to costs. This paper reconciles the two views. It shows that, if patient demands are based on correct information on benefits and costs, the conclusion of the conventional view is identical to the conclusion from the value-based approach. If patient demands differ from correct demands, it is shown that optimal coinsurance depends both on the extent and direction of information imperfection and on price-responsiveness or price elasticity. The paper also shows, as an alternative to adjusting coinsurance to deal with information imperfection, that providing better information which affects patient demands can be superior if uninformed patient demands exceed informed patient demands, but value based cost sharing can be superior to providing information (even if the cost of information is minimal) when patient demands fall short of informed demands. An extended numerical example illustrates these points.
    JEL: I11
    Date: 2007–04
  8. By: Wolfram J. Horneff (Johann Wolfgang Goethe-University of Frankfort); Raimond H. Maurer (Johann Wolfgang Goethe-University of Frankfort); Michael Z. Stamos (Johann Wolfgang Goethe-University of Frankfort)
    Abstract: We derive the optimal portfolio choice over the life-cycle for households facing labor income, capital market, and mortality risk. In addition to stocks and bonds, households also have access to incomplete annuity markets offering a hedge against mortality risk. We show that a considerable fraction of wealth should be annuitized to skim the return enhancing mortality credit. The remaining liquid wealth (stocks and bonds) is used to hedge labor income risk during work life, to earn the equity premium, and to ensure estate for the heirs. Furthermore, we assess the importance of common explanations for limited participation in annuity markets.
    Date: 2006–12
  9. By: Wolfram J. Horneff (Goethe University); Raimond H. Maurer (Goethe University); Olivia S. Mitchell (The Wharton School); Michael Z. Stamos (Goethe University)
    Abstract: Retirees confront the difficult problem of how to manage their money in retirement so as to not outlive their funds while continuing to invest in capital markets. We posit a dynamic utility maximizer who makes both asset location and allocation decisions when managing her retirement financial wealth and annuities, and we prove that she can benefit from both the equity premium and longevity insurance in her retirement portfolio. Even without bequests, she will not fully annuitize; rather, her optimal stock allocation amounts initially to more than half of her financial wealth and declines with age. Welfare gains from this strategy can amount to 40 percent of financial wealth (depending on risk parameters and other resources). In practice, it turns out that many retirees will do almost as well by purchasing a variable annuity invested 60/40 in stocks/bonds.
    Date: 2007–03
  10. By: Gugushvili, Alexi
    Abstract: The paper examines formation and sustainability of Pay-As-You-Go pension systems within the consequences of the ageing of population. Parametric reforms rather than institutional transformation of Pay-As-You-Go systems into funded pension schemes are advocated. Following the modern theories of family economics and contrary to the mainstream works on the issue, reciprocal causation between pension systems and ageing is stressed. The paper concludes that the World Bank’s first pillar adjustment for maintaining the Pay-As-You-Go schemes achieves its objectives only if it is focused on all elements of the Pay-As-You-Go system.
    Keywords: Pensions; Pay-As-You-Go; Ageing
    JEL: J26 J11 P11 J18 H55
    Date: 2007–03

This nep-ias issue is ©2007 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
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