nep-ias New Economics Papers
on Insurance Economics
Issue of 2008‒02‒23
fourteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Health Insurance and the Labor Supply Decisions of Older Workers: Evidence from the U.S. Department of Veterans Affairs By Melissa Boyle; Joanna N. Lahey
  2. Corporate Management of Highly Dynamic Risks: The Case of Terrorism Insurance in Germany By Thomann, Christian; Pascalau, Razvan; von der Schulenburg, J.-Matthias Graf; Gas, Bruno
  3. Insurance Coverage and the Treatment of Mental Illness: Effect on Medication and Provider Use in Canada By Gillian Mulvale; Jeremiah Hurley
  4. Public and Private Health Care Financing with Alternate Public Rationing Rules By Katherin Cuff; Jeremiah Hurley; Stuart Mestelman; Andrew Muller; Robert Nuscheler
  5. Risk, Informational Asymmetry and Product Liability -- An enquiry into conflicting objectives By Ram Singh
  6. Prospects for the Welfare State By Lindbeck, Assar
  7. Parallel Payers and Preferred Access: How Canada's Workers' Compensation Boards Expedite Care for Injured and Ill Workers By Jeremiah Hurley; Dianna Pasic; John Lavis; Tony Culyer; Cameron Mustard; William Gnam
  8. Informal Insurance and Income Inequality By Laczó, Sarolta
  9. Mental Health Service Delivery in Ontario, Canada: How Do Policy Legacies Shape Prospects for Reform? By Gillian Mulvale; Julia Abelson; Paula Goering
  10. Publicly Funded Medical Savings Accounts: Expenditures and Distributional Impacts By Jeremiah Hurley; G. Emmanuel Guindon; Vicky Rynard; Steve Morgan
  11. The Private Value of Public Pensions By Konstantin Petrichev; Susan Thorp
  12. Parallel Lines do Intersect: Interactions between the Workers’ Compensation and Provincial Publicly Financed Health Care Systems in Canada By Jeremiah Hurley; Diana Pasic; John Lavis; Cameron Mustard; Tony Culyer; William Gnam
  13. Le secteur privé dans un système de santé public : France et Pays Nordiques By Marcel Boyer
  14. Optimal life cycle investment with pay-as-you-go pension schemes: a portfolio approach By Willem Heeringa

  1. By: Melissa Boyle (Department of Economics, College of the Holy Cross); Joanna N. Lahey (Texas A&M University)
    Abstract: This paper exploits a major mid-1990s expansion in the U.S. Department of Veterans Affairs health care system to provide evidence on the labor market effects of expanding health insurance availability. Using data from the Current Population Survey, we compare the labor market behavior of older veterans and non-veterans before and after the VA health benefits expansion to test the impact of public health insurance on labor supply. We find that older workers are significantly more likely to decrease work both on the extensive and intensive margins after receiving access to non-employer based insurance. Older workers are also more likely to leave self-employment, a result inconsistent with "job-lock" effects of employer-based insurance, but consistent with a positive income effect from new access to public insurance. Some relatively disadvantaged subpopulations, however, may increase their labor supply after gaining greater access to public insurance, consistent with complementary positive health effects of health care access for these groups. We conclude that this reform has affected employment and retirement decisions, and suggest that future moves toward universal coverage or expansions of Medicare are likely to have significant labor market effects. To illustrate, we calculate that as much as 10% of the difference in retirement rates in the US and Canada may be due to Canada's provision of universal health care.
    Keywords: labor supply, job-lock, retirement, older workers, health insurance, VA, Medicare, veteran
    JEL: J2 I18
    Date: 2008–01
  2. By: Thomann, Christian; Pascalau, Razvan; von der Schulenburg, J.-Matthias Graf; Gas, Bruno
    Abstract: This article extends the theory of corporate risk management to encompass highly dynamic risks. Taking Viscusi's (1989) prospective reference from the context of individual decision making and applying it to a corporate context we propose a theory of how corporations process new information. Using unique data on all terrorism insurance policies sold in Germany we find support for this concept of risk-updating by showing that the demand for terrorism insurance is strongly determined by the recent occurrence of terrorist attacks.
    Keywords: Corporate Insurance; Risk Management; Terrorism Insurance; Expected Utility; Prospect Theory.
    JEL: D81 D83 G32
    Date: 2007–12–13
  3. By: Gillian Mulvale (Centre for Health Economics and Policy Analysis, Department of Clinical Epidemiology and Biostatistics, McMaster University); Jeremiah Hurley (Centre for Health Economics and Policy Analysis, Department of Clinical Epidemiology and Biostatistics, Department of Economics, McMaster University)
    Abstract: Background- Canada’s public health insurance system fully covers medically necessary hospital and physician services, but does not cover community-based non-physician mental health provider services or prescription drugs. Almost 2/3 of Canadians have private supplemental insurance for extended health benefits, typically through their employer, so its distribution is skewed to higherincome, employed Canadians, and typically features substantial cost-sharing and coverage limits. A recent national survey suggests only one-third of Canadians with selected mental disorders talked to a health professional during the previous 12 months and only a minority (19.3%) receive drug treatment. Financial barriers to care constitute a potentially important contributor to this under-use of mental health treatments. Aims of the Study- The objective is to understand how private supplemental insurance status affects the utilization of prescription medication and four types of community-based providers for mental health problems in Canada. Methods- The data derive from a special mental health supplement to the nationally representative Canadian Community Health Survey. Utilization of five types of prescribed medications (sleep, anxiety, mood stabilizers, anti-depressants and anti-psychotics) is measured dichotomously as use/no-use in the previous 12 months. Utilization of community-based provider services (family physician, psychiatrist, psychologist and social worker) is measured as (i) use/no-use and (ii) conditional on use, number of contacts in the previous 12 months. We employ multivariate regression methods appropriate to the binary and count nature of the dependent variable to measure the impact of supplemental private insurance status on utilization, controlling for health, demographic and socio-economic characteristics. We test for endogeneity of insurance status using instrumental variable techniques. Results- Having private supplemental insurance significantly increases the odds of using medications for mental illness, with particularly large increases for anti-psychotic and mood-stabilizer medications. Private supplemental insurance coverage does not significantly determine use of provider services. We find little evidence of endogeneity of private insurance. Discussion- Lack of supplemental insurance for prescription medication is a potentially important financial barrier to mental health treatment in Canada. The estimated effect is likely understated because the utilization measure does not capture quantity of use. It is not surprising that no significant relationship between private insurance status and utilization of provider services is found for publicly-covered family physician and psychiatry services, where the link between supplemental insurance and use is indirect, through the need to visit a physician to obtain a prescription. The result is surprising for psychologists and social workers, and may reflect limits to private coverage which are not fully captured here. Implications for Health Care Provision and Use Insurance coverage has an important relative impact on the likelihood of drug use for mental illness. Implications for Health Policies A program that offers insurance coverage for anti-psychotic and mood-stabilizing medication could reduce the high personal and societal burden associated with serious mental illness, without a large overall budgetary impact. Implications for Future Research Future research should incorporate insurance measures which capture details of coverage among all survey respondents. Linking survey to utilization data will help to overcome issues of recall bias.
    Date: 2007
  4. By: Katherin Cuff (Department of Economics, McMaster University); Jeremiah Hurley (Department of Economics, Centre for Health Economics and Policy Analysis, Department of Clinical Epidemiology and Biostatistics, McMaster University); Stuart Mestelman; Andrew Muller (Department of Economics, McMaster University); Robert Nuscheler (Department of Economics, University of Waterloo)
    Abstract: We develop a model to analyze alternative health care financing arrangements. Health care is demanded by individuals varying in income and severity of illness. There is a limited supply of health care resources used to treat individuals, causing some individuals to go untreated. We examine outcomes under full public finance, full private finance, and mixed, parallel public and private finance under two rationing rules for the public sector: needs-based rationing and random rationing. Insurers (both public and private) must bid to obtain the necessary health care resources to treat their beneficiaries. While public insurer's ability-to-pay is limited by its (fixed) budget; the private insurers willingness-to-pay reflects the individuals' willingness-to-pay for care. When permitted, the private sector supplies supplementary health care to those willing and able to pay. We find that the introduction of a private sector diverts treatment from relatively poor to relatively rich individuals. Moreover, if the public system allocates care according to need, then the average severity of the untreated is higher in a mixed system than in a pure public system. While we can unambiguously sign most comparative static effects for a general set of distribution functions, an analysis of the relationship between public sector rationing and the scope for a private health insurance market requires distributional assumptions. For a bivariate uniform distribution function we find that the private health insurance market is smaller when the public sector rations according to need as compared to random allocation of health care.
    Keywords: health care financing, rationing rules
    JEL: I11 I18
    Date: 2007
  5. By: Ram Singh (Department of Economics, Delhi School of Economics, Delhi, India)
    Abstract: Risky products cause two types of costs for society; the accident costs and the insurance costs. Liability rules allocate these costs between the parties involved. The expansion in the scope of product liability over the past thirty years has increased the cost of third-party liability insurance. However, the economic analysis of product liability rules has, generally, focused on only the accident costs. Some recent works have suggested that there is a strict trade-off involved when it comes to minimizing the accident costs and the insurance costs. In this paper, we have extended the economic analysis by considering both types of costs. An efficiency characterization of product liability rules has been provided by assuming that consumers lack in the knowledge about the risk. We have shown that even when consumers misperceive the product risk, it possible to achieve efficiency with respect to the insurance costs as well as the care levels.
    Keywords: Product liability, informational asymmetry, accident costs, insurance costs, Nash equilibrium, economic efficiency
    Date: 2008–02
  6. By: Lindbeck, Assar (Institute for International Economic Studies, Stockholm University)
    Abstract: It is useful to distinguish between exogenous and endogenous factors behind contemporary and expected future problems for the welfare state. This paper tries to identify major problems of both types and to indicate alternative reform possibilities to deal with them. At the same time as several governments struggle with such reforms, new demands on the welfare state emerge. Although the basic structure of today’s welfare-state arrangements certainly can be kept, the reforms required are sufficiently large to create considerable conflicts across interest groups.
    Keywords: Welfare state; Social insurance; Human services
    JEL: H40 H50 I38
    Date: 2008–02–18
  7. By: Jeremiah Hurley (Department of Economics, Centre for Health Economics and Policy Analysis, Department of Clinical Epidemiology and Biostatistics, McMaster University); Dianna Pasic; John Lavis (Centre for Health Economics and Policy Analysis, Department of Clinical Epidemiology and Biostatistics, McMaster University); Tony Culyer (Institute of Work and Health, Toronto, Department of Economics and Related Studies, University of York, UK, Cancer Care Ontario, Department of Health Policy, Management and Evaluation, University of Toronto); Cameron Mustard (Institute of Work and Health, Toronto, Department of Public Health Sciences, University of Toronto); William Gnam (Institute of Work and Health, Toronto, Department of Psychiatry, University of Toronto)
    Abstract: Canada’s Workers’ Compensation Boards (WCBs) finance health care for injured and ill workers in parallel to provincial health insurance plans. Parallel systems of health care finance can create preferred access for some. WCBs have in recent years pursued a number of strategies to expedite or improve the quality of care for injured or ill workers, including in-house provision in WCB-owned facilities, contracting with private, for-profit clinics, contracting with publicly funded hospitals and clinics for use of facilities “off-hours”, and supporting specialized clinics within publicly funded hospitals. Many of these strategies incorporate incentive payments to physicians and facilities for treating WCB cases more quickly than patients covered by provincial plans. In this paper we both document the development of these strategies and discuss their implications for physicians, patients, government, and the provincial public insurance plans.
    Date: 2007
  8. By: Laczó, Sarolta
    Abstract: This paper examines the effects of income inequality in a risk sharing model with limited commitment, that is, when insurance agreements have to be self-enforcing. In this context, numerical dynamic programming is used to examine three questions. First, I consider heterogeneity in mean income, and study the welfare effects when inequality together with aggregate income increases. Second, subsistence consumption is introduced to see how it affects consumption smoothing. Finally, income is endogenized by allowing households to choose between two production technologies, to look at the importance of consumption insurance for income smoothing.
    Keywords: risk sharing, limited commitment, inequality, technology choice, developing countries
    JEL: I30 D80 O12
    Date: 2008–02
  9. By: Gillian Mulvale; Julia Abelson (Centre for Health Economics and Policy Analysis, Department of Clinical Epidemiology and Biostatistics, McMaster University); Paula Goering (Health Systems Research and Consulting Unit, Centre for Addictions and Mental Health, University of Toronto)
    Abstract: Mental health policy-making in Ontario has a long history of frustrated attempts to move from a hospital and physician-based tradition to a coordinated system with greater emphasis on community-based mental health care. This study examines policy legacies associated with the introduction of psychiatric hospitals in the 1850s and the introduction of public health insurance (medicare) in the 1960s in Ontario; and their effect on subsequent mental health reform initiatives using a qualitative case study approach. Following Pierson (1993) we capture the resource/incentive and interpretive effects of prior policies on three groups of actors: government elites, interests and mass publics. Data is drawn from academic and policy literature, and key informant interviews. The findings suggest that psychiatric hospital policy resulted in important policy legacies which were reinforced by medicare. These legacies explain the traditional difficulty in achieving mental health reform, but are less helpful in explaining recent promising developments that support community-based care. Current reform of the Ontario health system features the introduction of regionalized service delivery and new models of interdisciplinary team-based primary care delivery and presents an opportunity to overcome several of these legacies. The analysis suggests a pressing need to link these two initiatives to overcome system fragmentation.
    Date: 2007
  10. By: Jeremiah Hurley (Department of Economics, Centre for Health Economics and Policy Analysis, Department of Clinical Epidemiology and Biostatistics, McMaster University); G. Emmanuel Guindon (Centre for Health Economics and Policy Analysis, McMaster University); Vicky Rynard; Steve Morgan (Centre for Health Services and Policy Research, University of British Columbia)
    Abstract: This paper presents the findings from simulations of the introduction of publicly funded Medical Savings Accounts in the province of Ontario, Canada. The analysis exploits a unique data set linking population-based health survey information with individual-level information on all physician services and hospital services utilization over a four year period. The analysis provides greater detail than have previous analyses regarding: the distributional impacts of publicly funded MSAs across individuals of differing health statuses, incomes, ages and current expenditures; the impact of differing degrees of risk-adjustment for MSA contributions; and the impact of MSA funding over multiple years, incorporating year-to-year variation in spending at the individual level. In addition, it analyses designs for publicly funded MSAs than existing studies. Government uses information available from period t-1 to allocate its budget for year t between MSA contributions and catastrophic insurance in a manner that is actuarially fair for the public sector: the government first withholds funds equal to expected catastrophic insurance payments under the MSA plan, and then allocates only the balance to individual MSA accounts. The government captures the savings associated with reduced health care utilization under MSAs and we examine deductibles that vary by income rather than current health care expenditures. The impacts on public expenditures under these designs are more modest than existing studies and under plausible assumptions MSAs are predicted to decrease public expenditures. MSAs, however, are predicted to have unavoidable negative distributional consequences with respect to both public expenditures and out-of-pocket spending.
    Keywords: Medical Savings Accounts, Health Care Financing, Health Care Funding, Costsharing
    JEL: I10 I11 I18
    Date: 2007–04–11
  11. By: Konstantin Petrichev (School of Finance and Economics, University of Technology, Sydney); Susan Thorp (School of Finance and Economics, University of Technology, Sydney)
    Abstract: Individual retirement savings accounts are replacing or supplementing public basic pensions. However at decumulation, replacing the public pension with an equivalent private sector income stream may be costly. We value the Australian basic pension by calculating the wealth needed to generate an equivalent payment stream using commercial annuities or phased withdrawals, but still accounting for investment and longevity risks. At age 65, a retiree needs an accumulation of about 8.5 years earnings to match the public pension in real value and insurance features. Increasing management fees by 1% raises required wealth by about one year's earnings. Delaying retirement by 5 years lowers required wealth by about one half year's earnings. Phased withdrawals have money's worth ratios close to 0.5 suggesting that private replacement costs are high.
    Keywords: social security; longevity risk; phased withdrawal; stochastic present value
    JEL: H55 J14 G11
    Date: 2007–12–01
  12. By: Jeremiah Hurley (Department of Economics, Centre for Health Economics and Policy Analysis, Department of Clinical Epidemiology and Biostatistics, McMaster University); Diana Pasic; John Lavis (Centre for Health Economics and Policy Analysis, Department of Clinical Epidemiology and Biostatistics, McMaster University); Cameron Mustard (Institute of Work and Health, Toronto, Department of Public Health Sciences, University of Toronto); Tony Culyer (Institute of Work and Health, Toronto, Department of Economics and Related Studies, University of York, UK, Cancer Care Ontario, Department of Health Policy, Management, and Evaluation, University of Toronto); William Gnam (Institute of Work and Health, Department of Pschiatry, University of Toronto)
    Abstract: This paper uses a case study approach to document and analyze the interactions that arise between two health care payers in Canada: the provincial public health care insurance plans and the provincial Workers Compensation Boards. Through a documentary review and semistructured key-respondent interviews, the study identified a set of policy events and decisions undertaken by each payer that had consequences for the other. These events, which included changes to governance, funding, and service delivery within each system, generated interactions transmitted through the political environment, the institutional environment , the economic environment (primarily through competition for the same resources) and cross-system learning. The two payers currently lack a formalized process by which to consider such spillover effects and to coordinate policy between them. These interactions and their associated consequences for both payers raise important policy challenges and provide insight into the dynamics of a parallel system of health care finance more generally.
    Date: 2007
  13. By: Marcel Boyer
    Abstract: We present in this paper some characteristics of the interactions between the private and public sectors in health systems in four countries, with a particular emphasis on the case of France. The objective is simply to contribute to overcoming the most important impediment to a betterment of the health system in Québec and Canada, namely the irrational opposition of numerous political and special interest groups to a significant presence of private health care insurers and providers in our health system. We will document the significant presence of the private for profit sector in the French health care and hospital care system. <P>Nous présentons dans ce cahier quelques caractéristiques des interactions entre le privé et le public dans les systèmes de santé de quatre pays, avec une emphase particulière sur le cas de la France. L’objectif poursuivi est tout simplement de contribuer à crever et guérir l’abcès le plus important empêchant l’amélioration du système de santé québécois et canadien, à savoir l’opposition irrationnelle de plusieurs groupes politiques et groupes de pression à une présence significative et intégrée d’établissements et d’entreprises de soins de santé, d’assurance ou de fourniture directe, à but lucratif ou non, dans notre système de santé. Nous documenterons ici la présence très importante du secteur privé à but lucratif dans le système de santé en France, en particulier dans le secteur des soins hospitaliers.
    Keywords: Health, Private sector, Santé, secteur privé.
    Date: 2008–02–01
  14. By: Willem Heeringa
    Abstract: In this paper we show how pay-as-you-go pension schemes impact on the individual.s optimal investment portfolio. Introducing a pay-as-you-go pension scheme implies that human wealth of young generations is transferred to retired generations. As a consequence, individuals will in general invest less conservatively. These portfolio effects gradually disappear at the end of life.
    Keywords: Social security; Risk sharing; Portfolio choice
    JEL: H55 D91 G11
    Date: 2008–02

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