nep-ias New Economics Papers
on Insurance Economics
Issue of 2007‒12‒08
four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. The influence of supplementary health insurance on switching behaviour: evidence on Swiss data By Brigitte Dormont; Pierre-Yves Geoffard; Karine Lamiraud
  2. Cream-Skimming And Risk Adjustment in Colombian Health Insurance System:: The Public Insurer Case By Ronald Eduardo Gómez Suárez
  3. Coordinating to Eradicate Animal Disease, and the Role of Insurance Markets By Hennessy, David A.
  4. Consumption Risk-sharing in Social Networks By Attila Ambrus; Markus Mobius; Adam Szeidl

  1. By: Brigitte Dormont; Pierre-Yves Geoffard; Karine Lamiraud
    Abstract: This paper focuses on the switching behaviour of sickness fund enrolees in the Swiss health insurance system. Even though the new Federal Law on Social Health Insurance (LAMal) was implemented in 1996 to promote competition among health insurers in basic insurance, there still remains large premium variations within cantons. This indicates that competition has not been able so far to lead to a single price, and reveals some inertia among consumers who seem reluctant to switch to less expensive funds. We investigate one possible barrier to switching behaviour, namely the influence of the supplementary insurance. Our aim is to analyse two decisions (switching decision in basic insurance, subscription to supplementary insurance contracts). We use survey data on health plan choice and import some market data related to the sickness funds (number of enrollees, premiums). The decision to switch and the decision to subscribe to a supplementary contract are estimated both separately and jointly. The results suggest that holding a supplementary insurance contract substantially decreases the propensity to switch. However the impact of supplementary insurance is not significant when the individual assesses his/her health as "very good" ; to the contrary, holding a supplementary contract significantly reduces the propensity to switch when the indivual's subjective health status deteriorates. Futhermore, the switching decision is positively influenced by the expected gain of switching. In comparison with the range of the premium difference, the limitations to switch due to the supplementary insurance is moderate, though non negligible. As for the decision to subscribe a supplementary contract, the results show that the income level has a direct positive influence on the propensity to buy a supplementary insurance. Our results suggest that a major mechanism is going on in relation to supplementary insurance: holding a supplementary contract might stop individuals from switching when the individual thinks that she/he could be regarded as a bad risk due to the selection practices that are allowed in supplementary insurance markets. This result bears major policy implications concerning the regulation of basic and supplementary insurance markets.
    Date: 2007
  2. By: Ronald Eduardo Gómez Suárez
    Abstract: This paper analyses the particular case of the bankruptcy of the biggest public insurer in the Colombian Health insurance system (contributory regime) in order to identify some selection atterns within such an insurance market. Using both cross-section and built-in panel data from DANE Quality of Life Survey in two waves (1997 and 2003) and applying an empirical approach based on binary choice models, the paper tries to solve two main questions. The first one is whether exists empirical evidence about advantageous selection in the contributory scheme of Colombian health insurance system. Secondly, I tried to establish whether cream-skimming (if existed) had real influence in the bankruptcy of the Colombian public insurer, which also would imply failures in the risk-adjustment formula. In the final section the principles of a good riskadjustment system suitable for the local scenario are drafted. The results show a strong evidence of dynamic selection from 1997 to 2003, which could take place by favoring both favorable “age load” and good socio economic status (income, education, work type and location) for private insurers. No evidence of selection based on household analysis was found, which reinforces the idea of an individual appraisal before enrollment. This situation affected the financial performance of the public insurance, but by no means was the definitive factor of the bankruptcy. On the other hand, the risk adjustment formula used in the Colombian system presents some theoretical flaws and still is established upon information from fifteen years ago. However, without updated information on morbidity and health care usage (not available) is not possible to measure the quantitative extent of such failures in an accurate manner
    Date: 2007–10–30
  3. By: Hennessy, David A.
    Abstract: Farmed animal production has traditionally been a dispersed sector. Biosecurity actions relevant to eradicating infectious diseases are generally non-contractible, and might involve inordinately high transactions costs if they were contractible. If an endemic disease is to be eradicated within a region, synchronized actions need to be taken to reduce incidence below a critical mass so that spread can be contained. Using a global game model of coordination under public and private information concerning the critical mass required, this paper characterizes the success probability in an eradication campaign. As is standard in global games, heterogeneity in private signals can support a unique equilibrium. Partly because of strategic interactions, concentrated production is found to facilitate eradication whenever unit participation costs are decreasing. Policies to manipulate the critical mass have both a direct effect and a strategic coordination effect. Policies to manipulate information can have subtle and non-intuitive consequences. A program to keep disease out can be modeled similarly. It is shown, too, that coordination problems may lead to multiple equilibria in animal disease insurance markets, so that these markets may complicate a disease eradication program by creating opportunities for multiple inefficient equilibria. The presence of private insurance markets may facilitate coordination and, for good or ill, can seal the fate of a program.
    Keywords: biosecurity, coordination failure, disease insurance, endemic disease, global games, market access, public information, veterinary public health.
    Date: 2007–11–30
  4. By: Attila Ambrus (Harvard University); Markus Mobius (Harvard University); Adam Szeidl (University of California, Berkeley)
    Abstract: We build a model of informal risk-sharing among agents organized in a social network. A connection between individuals serves as collateral that can be used to enforce insurance payments. We characterize incentive compatible risk-sharing arrangements for any network structure, and develop two main results. (1) Expansive networks, where every group of agents have a large number of links with the rest of the community relative to the size of the group, facilitate better risk-sharing. In particular, “two-dimensional” village networks organized by geography are sufficiently expansive to allow very good risk-sharing. (2) In second-best arrangements, agents organize in endogenous “risksharing islands” in the network, where shocks are shared fully within but imperfectly across islands. As a result, risk-sharing in second-best arrangements is local: socially closer agents insure each other more. In an application of the model, we explore the spillover effect of development aid on the consumption of non-treated individuals.
    Date: 2007–11

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