nep-ias New Economics Papers
on Insurance Economics
Issue of 2008‒01‒26
twelve papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Preference Heterogeneity and Insurance Markets: Explaining a Puzzle of Insurance By David M. Cutler; Amy Finkelstein; Kathleen McGarry
  2. The Effects of Health Insurance and Self-Insurance on Retirement Behavior By Eric French; John Bailey Jones
  3. Offshoring, economic insecurity, and the demand for social insurance By Richard G. Anderson; Charles S. Gascon
  4. The Effect of Retirement Incentives on Retirement Behavior: Evidence from the Self-Employed in the United States and England By Julie Zissimopoulos; Nicole Maestas; Lynn Karoly
  5. The Impact of Private Participation on Disability Costs: Evidence from Chile By Estelle James; Alejandra Cox Edwards; Augusto Iglesias
  6. Indian law with emphasis on commercial legal insurance within the scope of a project business in India By Muller, Nichole
  7. Managed Care and Medical Expenditures of Medicare Beneficiaries By Michael Chernew; Philip DeCicca; Robert Town
  8. Take-Up of Medicare Part D and the SSA Subsidy: Early Results from the Health and Retirement Study By Helen Levy; David R. Weir
  9. Health, Economic Resources and the Work Decisions of Older Men By John Bound; Todd Stinebrickner; Timothy Waidmann
  10. Improved Health System Performance through better Care Coordination By Maria M. Hofmarcher; Howard Oxley; Elena Rusticelli
  12. Validity, reliability and responsiveness of the EORTC QLQ-C30 and the EORTC QLQ-LC13 in Australians with early stage non-small cell lung cancer, CHERE Working Paper 2007/13 By Madeleine King; Julie Winstanley; Patsy Kenny; Rosalie Viney; Siggi Zapart; Michael Boyer

  1. By: David M. Cutler; Amy Finkelstein; Kathleen McGarry
    Abstract: Standard theories of insurance, dating from Rothschild and Stiglitz (1976), stress the role of adverse selection in explaining the decision to purchase insurance. In these models, higher risk people buy full or near-full insurance, while lower risk people buy less complete coverage, if they buy at all. While this prediction appears to hold in some real world insurance markets, in many others, it is the lower risk individuals who have more insurance coverage. If the standard model is extended to allow individuals to vary in their risk tolerance as well as their risk type, this could explain why the relationship between insurance coverage and risk occurrence can be of any sign, even if the standard asymmetric information effects also exist. We present empirical evidence in five difference insurance markets in the United States that is consistent with this potential role for risk tolerance. Specifically, we show that individuals who engage in risky behavior or who do not engage in risk reducing behavior are systematically less likely to hold life insurance, acute private health insurance, annuities, long-term care insurance, and Medigap. Moreover, we show that the sign of this preference effect differs across markets, tending to induce lower risk individuals to purchase insurance in some of these markets, but higher risk individuals to purchase insurance in others. These findings suggest that preference heterogeneity may be important in explaining the differential patterns of insurance coverage in various insurance markets.
    JEL: G22 I11
    Date: 2008–01
  2. By: Eric French (Federal Reserve Bank of Chicago); John Bailey Jones (SUNY-Albany)
    Abstract: This paper provides an empirical analysis of the effect of employer-provided health insurance and Medicare in determining retirement behavior. Using data from the Health and Retirement Study, we estimate the first dynamic programming model of retirement that accounts for both saving and uncertain medical expenses. Our results suggest that uncertainty and saving are both important. We find that workers value health insurance well in excess of its actuarial cost, and that access to health insurance has a significant effect on retirement behavior, which is consistent with the empirical evidence. As a result, shifting the Medicare eligibility age to 67 would cause a significant retirement delay--as large as the delay from shifting the Social Security normal retirement age from 65 to 67.
    Date: 2007–10
  3. By: Richard G. Anderson; Charles S. Gascon
    Abstract: The fear of offshoring, particularly in services since 2000, has raised workers economic insecurity and heightened concerns over future economic globalization. Many have argued that globalization has exacerbated labor market turbulence increasing the demand for social insurance programs. The authors present a simple theoretical model establishing a connection between the threat of offshoring, economic insecurity, and the demand for social insurance. Data from the 1972-2006 General Social Survey to provides supporting empirical evidence.
    Keywords: Globalization ; International economic integration
    Date: 2008
  4. By: Julie Zissimopoulos (RAND); Nicole Maestas (RAND); Lynn Karoly (RAND)
    Abstract: In this paper, we examine how public and private pension and health insurance systems affect the retirement transitions. In many countries, public and private pension eligibility, as well as access to health insurance varies between self-employed and wage and salary workers, and these differences are likely to cause differential retirement patterns both within and across countries. We use the variation in these institutional features within and across the United States and England to analyze retirement patterns. Based on longitudinal data from the Health and Retirement Study (HRS) in the United States and the English Longitudinal Survey of Ageing (ELSA) we find that the higher labor force exit rate of wage and salary workers compared to self-employed workers is due to defined benefit pension incentives created by the public and private pension systems. Higher rates of labor force exit at ages 55 and older in England compared to the United States are due in part to the availability of publicly provided health insurance.
    Date: 2007–09
  5. By: Estelle James (Urban Institute); Alejandra Cox Edwards (California State University, Long Beach); Augusto Iglesias (Urban Institute)
    Abstract: Social security systems in many countries face problems of high and escalating disability costs. This paper analyzes how disability costs have been controlled in Chile. The disability insurance system in Chile is much less well-known than the pension part, but it is equally innovative. It differs from traditional public disability insurance in two important ways: 1) it is largely pre-funded, sufficient to cover a lifetime disability annuity and 2) the disability assessment procedure includes participation by private pension funds (AFPs) and insurance companies, who finance the benefit and have a direct pecuniary interest in controlling costs. We hypothesize that these procedures and incentives will keep system costs low, by cutting the incidence of successful disability claims. Using the Cox proportional hazard model based on a retrospective sample of new and old system affiliates (ESP 2002), we conclude that observed behavior is broadly consistent with this hypothesis. Disability hazard rates are only 20-35% as high in the new system as in the old, after controlling for other co-variates. Furthermore, analysis of mortality rates among disabled pensioners (using probit and proportional hazard models) suggests that the new system has accurately targeted those with more severe medical problems.
    Date: 2007–10
  6. By: Muller, Nichole
    Abstract: Till recently the investment policy of India was overtly nationalistic. Today however everything seems to be changing. The change is enormous. India is becoming very open to foreign investors. Governmental procedures have been simplified and for most of the enterprises no government permission is necessary.
    Keywords: investment; liberalization; taxes; VAT.
    JEL: K0 L52 K23 L53
    Date: 2007
  7. By: Michael Chernew; Philip DeCicca; Robert Town
    Abstract: This paper investigates the impact of Medicare HMO penetration on the medical care expenditures incurred by Medicare fee-for-service enrollees. We find that increasing penetration leads to reduced health care spending on fee-for-service beneficiaries. In particular, a one percentage point increase in Medicare HMO penetration reduces such spending by .9 percent. We estimate similar models for various measures of health care utilization and find penetration-induced reductions, consistent with our spending estimates. Finally, we present evidence that suggests our estimated spending reductions are driven by beneficiaries who have at least one chronic condition.
    JEL: I11 I18
    Date: 2008–01
  8. By: Helen Levy (University of Michigan); David R. Weir (University of Michigan)
    Abstract: We analyze newly available data from the Health and Retirement Study on senior citizens’ take-up of Medicare Part D and the associated SSA Low-Income Subsidy. We find that economic factors ­ specifically, demand for prescription drugs ­ drove the decision to enroll in Part D. For the most part, individuals with employer-sponsored coverage in 2004 kept that coverage, as they should have. Individuals with no prescription drug coverage in 2004 mostly enrolled in Part D or obtained other coverage; many of those who remained without coverage reported that they do not use prescribed medicines. Take-up of the SSA "Extra Help" subsidy seems to have been more problematic, with many Part D beneficiaries unaware of the subsidy program or unsure about their eligibility. There is apparent under-reporting in the HRS of participation in the subsidy program, suggesting that some who profess to be unaware of the program may actually be participating in it. In terms of respondents’ subjective experiences of decision-making, the majority report having had little or no difficulty with the Part D enrollment decision and being confident that they made the right decision. Thus, for the most part, despite the complexity of the program, Medicare beneficiaries seem to have been able to make economically rational decisions in which they had confidence, although additional intervention for low-income beneficiaries may be desirable.
    Date: 2007–10
  9. By: John Bound (University of Michigan); Todd Stinebrickner (University of Western Ontario); Timothy Waidmann (The Urban Institute)
    Abstract: In this paper, we specify a dynamic programming model that addresses the interplay among health, financial resources, and the labor market behavior of men in the later part of their working lives. Unlike previous work which has typically used self reported health or disability status as a proxy for health status, we model health as a latent variable, using self reported disability status as an indicator of this latent construct. Our model is explicitly designed to account for the possibility that the reporting of disability may be endogenous to the labor market behavior we are studying. The model is estimated using data from the Health and Retirement Study. We compare results based on our model to results based on models that treat health in the typical way, and find large differences in the estimated effect of health on behavior. While estimates based on our model suggest that health has a large impact on behavior, the estimates suggest a substantially smaller role for health than we find when using standard techniques. We use our model to simulate the impact on behavior of raising the normal retirement age, eliminating early retirement altogether and eliminating the Social Security Disability Insurance program.
    Keywords: retirement behavior; disability insurance; social security; dynamic programming, latent Variable models
    JEL: C15 C61 H55 J14 J26
    Date: 2007
  10. By: Maria M. Hofmarcher; Howard Oxley; Elena Rusticelli
    Abstract: This report attempts to assess whether -- and to what degree - better care coordination can improve health system performance in terms of quality and cost-efficiency. Coordination of care refers to policies that help create patient-centred care that is more coherent both within and across care settings and over time. Broadly speaking, it means making health-care systems more attentive to the needs of individual patients and ensuring they get the appropriate care for acute episodes as well as care aimed at stabilising their health over long periods in less costly environments. These issues are of particular interest to patients with chronic conditions and the elderly who may find it difficult to "navigate" fragmented health-care systems that are often found in OECD countries. Interest in coordination of care issues is increasing Growing interest in these issues has reflected a shift in the demands placed on health-care services. Chronic conditions have become progressively more important and are absorbing a growing share of health-care budgets. Since most of the chronically ill are elderly, this share can be expected to rise as populations age over coming decades. At the same time, many reports suggest that the quality of care that the chronically ill receive may need improvement. With these developments occurring in a context of tight public finance, some countries have been attempting to improve both the quality of care provided to the chronically ill and reduce cost pressures via changes to the architecture of health-care systems that encourage greater care coordination... <BR>L'objet de ce rapport est de tenter d'apprécier si - et, le cas échéant, dans quelle mesure - une meilleure coordination des soins est susceptible d'améliorer la performance des systèmes de santé en termes de qualité et d'efficience au regard du coût. Par coordination des soins on entend les mesures de nature à aider à instaurer une prise en charge centrée sur le patient qui soit plus cohérente aussi bien à l'intérieur d'un même cadre de soins qu'entre différents cadres de soins, et dans le temps. Plus généralement, il s'agit de faire en sorte que les systèmes de santé soient plus attentifs aux besoins individuels des patients et de faire en sorte que ceux-ci reçoivent les soins appropriés à l'occasion d'épisodes aigus, ainsi que des soins destinés à stabiliser leur état de santé, dans une perspective à long terme, dans un environnement moins coûteux. Ces questions revêtent une importance toute particulière pour les malades chroniques et pour les personnes âgées qui trouveront sans doute difficile de « naviguer » à l'intérieur de systèmes de santé fragmentés comme c'est souvent le cas dans les pays de l'OCDE. On s'intéresse de plus en plus à la problématique de la coordination des soins L'intérêt croissant pour cette question reflète un déplacement des attentes à l'égard des services de santé. Les maladies chroniques sont de plus en plus fréquentes et absorbent une part croissante des budgets de santé. Les maladies chroniques concernant, le plus souvent, les personnes âgées, on peut penser, la population vieillissant, que c'est un aspect des systèmes de santé qui prendra de plus en plus d?importance au cours des décennies à venir. Dans le même temps, de nombreux rapports signalent que la qualité des soins dispensés aux malades chroniques pourrait sans doute être améliorée. Ces évolutions intervenant dans un contexte difficile pour les finances publiques, certains pays s'efforcent d'améliorer la qualité des soins dispensés aux malades chroniques et de réduire la pression sur les coûts en repensant complètement l'architecture de leur système de santé, de façon à encourager une plus grande coordination des soins...
    Date: 2007–12–12
  11. By: Eda UNAL; Susan E. CHEN; Brigitte S. WALDORF (Department of Agricultural Economics, College of Agriculture, Purdue University)
    Abstract: Healthy populations and access to health care services are significant factors influencing economic development and prosperity. Since geographic access is an essential feature of an overall health system, it is important for health service researchers to develop accurate measures of physical access to health. In this paper we develop a series of gravity-based health care accessibility measures for all the counties in Indiana. The measures go beyond local availability of health care services within a county and account for travel impedance via distance-discounted health care services accessible throughout the state. When applied to Indiana counties, the results show sharp disparities in health care accessibility with extensive pockets of poor accessibility in rural and peripheral areas. The research concludes with a demonstration of how spatial accessibility measures can be beneficially used to evaluate of policies indicative of changes in the provision of health services.
    Keywords: spatial accessibility, health care, geographic information systems (GIS),
    JEL: I12
    Date: 2007
  12. By: Madeleine King (CHERE, University of Technology, Sydney); Julie Winstanley; Patsy Kenny (CHERE, University of Technology, Sydney); Rosalie Viney (CHERE, University of Technology, Sydney); Siggi Zapart; Michael Boyer
    Abstract: Aim: To assess the validity, reliability and responsiveness of two questionnaires, the QLQ-C30 and LC-13, as measures of health-related quality of life (HRQOL) in an Australian sample of people with early stage non-small cell lung cancer. Background: These two questionnaires are complementary components of the European Organisation for Research and Treatment of Cancer?s (EORTC?s) modular approach to measuring HRQOL: the QLQ-C30 is the core questionnaire, containing 30 items relevant to all cancers; the QLQ-LC13 contains 13 items specific to lung cancer. Methods: These two complementary questionnaires were assessed with data obtained from 183 participants of a randomised control trial investigating the use of Positron Emission Tomography in the management of stage I or II non-small cell lung cancer. A cohort of 173 participants, were treated by surgery and then followed for two years. Participants completed HRQOL questionnaires before the PET scan, before and after surgery, one month after surgery, and then four monthly for two years. Construct validity was tested with confirmatory factor analysis and correlation analysis was used to test for convergent/divergent validity. Discriminant validity was tested by assessing the sensitivity of the scales to the effects of moving from early to late stage disease, asymptomatic to mildly symptomatic, and to the effects of age, gender and number of comorbitities. Mean differences (standardized response means (SRM)) and effect sizes were estimated for: patients with Stage 1/11 and metastatic disease; ECOG score 0 and ECOG score 1; older and younger patients; men and women; patients with no comorbidities and those with 1 or more comorbidities. Reliability was assessed in terms of internal consistency and test-retest reliability. Responsiveness to the effects of major thoracic surgery, adjuvant radiotherapy, and disease recurrence was assessed by estimating mean differences (standardized response meansSRM?s and effect sizes for patients who underwent surgery, radiotherapy and whose disease recurred, respectively. Results: The factor structure reported previously was replicated in this sample, confirming the questionnaires? construct validity. Most scales demonstrated good to excellent internal consistency (Cronbach?s alpha range: 0.86 ? 0.94); the exceptions were the cognitive function (0.68) and nausea/vomiting scales (0.67). Test-retest reliability was generally good (intraclass correlation (ICC) range: 0.70 ? 0.81); the exceptions were the pain and nausea/vomiting scales (ICC 0.56 and 0.42). Most scales were sensitive to the large effect of moving from early to later stage disease with (SRM range: 21.3 ? 54.0; effect size range:1.14 ? 1.97 (except for emotional functioning: 13.7; 0.60)). The scales were also sensitive to small effects, detecting small to moderate differences for age (large for social functioning) and comorbidities, and small differences for moving from asymptomatic to mildly symptomatic disease, and for age. Responsiveness was also confirmed with most scales responsive to the large expected effects of surgery and disease progression ( SRM range: 21.6 ? 41.4; effect size range: 0.94 ? 1.89 (emotional functioning: 5.5; 0.19)). Conclusions: The QLQ-C30 and QLQ-LC13, when used together, provide a valid, reliable and responsive measure of HRQOL in Australians with early stage non-small cell lung cancer.
    Keywords: Questionnaires, validity, reliability, responsiveness, QOL, lung cancer
    JEL: I10

This nep-ias issue is ©2008 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.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.