nep-ias New Economics Papers
on Insurance Economics
Issue of 2008‒05‒05
three papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Adverse selection in the U.S. health insurance markets: Evidence from the MEPS By Di Novi, Cinzia
  2. Leonid Hurwicz, Eric S. Maskin and Roger B. Myerson: Asymmetric Information and Economic Institutions By Committee, Nobel Prize
  3. The simple economics of risk-sharing agreements between the NHS and the pharmaceutical industry By Barros, Pedro Pita

  1. By: Di Novi, Cinzia
    Abstract: We use the 2003/2004 Medical Expenditure Panel Survey in conjunctions with the 2002 National Health Interview Survey to test for adverse selection in the U.S. private health insurance market. The key idea is to test whether the individuals who are more exposed to health risks also buy insurance contracts with more coverage or higher expected payments. The critical statistical problem is that the extension of insurance is only measured for those who are insured and face positive health care expenditure. So there is a possible sample selection bias effect. The procedure used is based on a method suggested by Wooldridge (1995). The method also accounts for heterogeneity across individuals. The simultaneous account taken of both possible sources of bias is new for this kind of application.
    Keywords: adverse selection, health insurance, risk profile
    JEL: I11 I18 D82
    Date: 2008–04
  2. By: Committee, Nobel Prize (Nobel Prize Committee)
    Abstract: Information for the Public, The Prize in Economic Sciences 2007. Buyers and sellers sometimes haggle too hard and therefore fail to trade. Desirable joint projects are sometimes not undertaken because the projects' beneficiaries fail to agree how the costs should be shared. Sickness insurance, for example, is typically criticized either for offering too little coverage or for inviting misuse. In either case, the basic problem is that people have an incentive to economize with their private information: some insurancy-policy sellers claim that their costs are high in order to increase the price; some beneficiaries of joint projects such as insurance-policy holders claim that their benefits are low in order to reduce their own contributions to the project; some well-insured workers claim that they are sick, in order to reduce their workload.
    Keywords: asymmetric information; mechanism design
    JEL: D02
    Date: 2007–10–15
  3. By: Barros, Pedro Pita
    Abstract: The Janssen-Cilag proposal for a risk-sharing agreement regarding bortezomib received a welcome signal from NICE. The Office of Fair Trading report included risk-sharing agreements as an available tool for the National Health Service. Nonetheless, recent discussions have somewhat neglected the economic fundamentals underlying risk-sharing agreements. We argue here that risk-sharing agreements, although attractive due to the principle of paying by results, also entail risks. Too many patients may be put under treatment even with a low success probability. Prices are likely to be adjusted upward, in anticipation of future risk-sharing agreements between the pharmaceutical company and the third-party payer. An available instrument is a verification cost per patient treated, which allows obtaining the first-best allocation of patients to the new treatment, under the risk sharing agreement. Overall, the welfare effects of risk-sharing agreements are ambiguous, and care must be taken with their use.
    Keywords: risk sharing agreements; pharmaceutical prices
    JEL: I11 I18
    Date: 2007–12

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