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on Insurance Economics |
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Issue of 2008‒06‒27
seven papers chosen by Soumitra K Mallick Indian Institute of Social Welfare and Bussiness Management |
| By: | Thomas Buchmueller (University of Michigan); Denzil Fiebig (University of NSW); Glenn Jones (Macquarie University); Elizabeth Savage (CHERE, University of Technology, Sydney) |
| Abstract: | When consumers have private information about risk of suffering a loss, or equivalently, if insurers are prohibited from using observable information on risk in underwriting, theoretical models of insurance predict adverse selection. Yet the most common finding in empirical studies is that of no positive correlation between risk and insurance coverage. This is found for different types of insurance (e.g. car, health, life) and in different countries (e.g. France, US, UK, Israel) suggesting a fundamental relationship involving private information and consumer preferences. In this paper, we investigate the nature of risk selection in the Australian market for private health insurance in which community rated private health insurance complements a universal public health care system. We use National Health Survey data on hospital utilisation and individual characteristics to construct an empirical analogue for the risk variable in the Rothschild and Stiglitz model. Estimating the relationship between insurance and risk semi-parametrically, we find robust evidence of favourable selection. To explore the extent to which underlying risk preferences rather than risk drives the decision to purchase health insurance, we use Household Expenditure Survey data to model decisions to purchase a range of insurance products (health, life, accident, home, car) and to engage in risky behaviours (smoking and various forms of gambling). Correlations between residuals in the model suggest that advantageous selection is driven by risk aversion, which theoretical models do not typically capture. |
| Keywords: | health insurance, adverse selection, Australia |
| JEL: | I10 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:her:chewps:2008/2&r=ias |
| By: | Mark Pauly; Fredric E. Blavin; Sudha Meghan |
| Abstract: | In many developing countries the proportion of health care spending paid out of pocket is about half of all spending or more. This study examines the distribution of such spending by income and care type, and the variation in spending about its expected value, in order to see whether voluntary private health insurance that reduces variation in spending might be able to be supplied. Using data from the World Health Survey for 14 developing countries, we find that out of pocket spending varies by income but that most spending usually occurs in income quintiles below the topmost quintile. We use estimates of the variance of total spending, hospital spending, physician spending, and outpatient drug spending about their means to generate estimates of the risk premia risk averse consumers might pay for insurance coverage. For hospital spending and total spending, these risk premia as a percent of expenses are generally larger than reasonable estimates of private health insurer loading as a percent of expenses, suggesting that voluntary insurance might be feasible. However, the strong relationship between spending and income suggests that insurance markets may need to be segmented by income. |
| JEL: | I11 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14095&r=ias |
| By: | Claudio Agostini (ILADES-Georgetown University, Universidad Alberto Hurtado); Eduardo Saavedra (ILADES-Georgetown University, Universidad Alberto Hurtado); Manuel Willington (ILADES-Georgetown University, Universidad Alberto Hurtado) |
| Abstract: | In September 2005, the Chilean Competition Authority filed a complaint against the 5 largest private health insurance providers for violation of antitrust laws. The 5 providers were accused of colluding to reduce the coverage of the plans offered to customers between March 2002 and March 2003. The main fact is that during that period these 5 providers reduced the coverage offered from 100% for hospitalization and 80% for ambulatory care to 90% and 70% respectively. As usual the observation of parallel conduct is not enough to infer collusion and it is required to observe additional factors that allow us to reject the hypothesis of providers behaving competitively. In this paper, we show that some specific characteristics of the health insurance markets generate barriers to entry and switching costs that allow the possibility of a collusive agreement. Then, we adapt an imperfect competition model of product differentiation to derive some testable propositions that allow us to distinguish between competition and collusion outcomes in the health insurance market in Chile. Finally, we show econometric evidence consistent with a collusive agreement among the 5 largest providers and inconsistent with a competitive equilibrium. . In particular, by comparing the prosecuted and non-prosecuted open Isapres before and during the collusive period, we show that sales efforts of the accused Isapres were reduced during the transition period toward lower-quality plans, that the profitability of the two groups of Isapres increased, and that the rate of transfers within the group of accused Isapres fell during the transition period. |
| Keywords: | Tacit Collusion, Isapres, Health Insurance, Conscious Parallelism, Plus Factors. |
| JEL: | L41 D43 I11 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ila:ilades:inv206&r=ias |
| By: | David Ripplinger; Dermot J. Hayes (Center for Agricultural and Rural Development (CARD); Food and Agricultural Policy Research Institute (FAPRI)); A. Susana Goggi; Kendall Lamkey |
| Abstract: | Concerns about the risk of food supply contamination and the resulting financial losses have limited the development and commercialization of certain pharmaceutical plants. This article develops an insurance pricing model that helps translate these concerns into a cost-benefit analysis. The model first estimates the physical dispersal of maize pollen subject to a number of weather parameters. This distribution is then validated with the limited amount of currently available field trial data. The physical distribution is then used to calculate the premium for a fair-valued insurance policy that would fund the destruction of possibly contaminated fields. The flexible framework can be readily adapted to other crops, management practices, and regions. |
| Keywords: | contemporaneous fertility, costs and benefits, insurance, pharmaceutical maize, pollen dispersal, risks and benefits, stochastic model. |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:ias:cpaper:08-wp470&r=ias |
| By: | Ripplinger, David; Hayes, Dermot J.; Goggi, Susana; Lamkey, Kendall |
| Abstract: | Concerns about the risk of food supply contamination and the resulting financial losses have limited the development and commercialization of certain pharmaceutical plants. This article develops an insurance pricing model that helps translate these concerns into a cost-benefit analysis. The model first estimates the physical dispersal of maize pollen subject to a number of weather parameters. This distribution is then validated with the limited amount of currently available field trial data. The physical distribution is then used to calculate the premium for a fair-valued insurance policy that would fund the destruction of possibly contaminated fields. The flexible framework can be readily adapted to other crops, management practices, and regions. |
| Keywords: | contemporaneous fertility, costs and benefits, insurance, pharmaceutical maize, pollen dispersal, risks and benefits, stochastic model. |
| Date: | 2008–06–20 |
| URL: | http://d.repec.org/n?u=RePEc:isu:genres:12957&r=ias |
| By: | Sergi Jiménez-Martín; Cristina Vilaplana Prieto |
| Abstract: | The remarkable growth of older population has moved long term care to the front ranks of the social policy agenda. Understanding the factors that determine the type and amount of formal care is important for predicting use in the future and developing long-term policy. In this context we jointly analyze the choice of care (formal, informal, both together or none) as well as the number of hours of care received. Given that the number of hours of care is not independent of the type of care received, we estimate, for the first time in this area of research, a sample selection model with the particularity that the first step is a multinomial logit model. With regard to the debate about complementarity or substitutability between formal and informal care, our results indicate that formal care acts as a reinforcement of the family care in certain cases: for very old care receivers, in those cases in which the individual has multiple disabilities, when many care hours are provided, and in case of mental illness and/or dementia. There exist substantial differences in long term care addressed to younger and older dependent people and dependent women are in risk of becoming more vulnerable to the shortage of informal caregivers in the future. Finally, we have documented that there are great disparities in the availability of public social care across regions. |
| Keywords: | Formal care, informal care, caregiver, dependent |
| JEL: | I1 J14 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:upf:upfgen:1096&r=ias |
| By: | Jimenez-Martin, S; Prieto, C. V |
| Abstract: | The remarkable growth of older population has moved long term care to the front ranks of the social policy agenda. Understanding the factors that determine the type and amount of formal care is important for predicting use in the future and developing long-term policy. In this context we jointly analyze the choice of care (formal, informal, both together or none) as well as the number of hours of care received. Given that the number of hours of care is not independent of the type of care received, we estimate, for the first time in this area of research, a sample selection model with the particularity that the first step is a multinomial logit model. With regard to the debate about complementarity or substitutability between formal and informal care, our results indicate that formal care acts as a reinforcement of the family care in certain cases: for very old care receivers, in those cases in which the individual has multiple disabilities, when many care hours are provided, and in case of mental illness and/or dementia. There exist substantial differences in long term care addressed to younger and older dependent people and dependent women are in risk of becoming more vulnerable to the shortage of informal caregivers in the future. Finally, we have documented that there are great disparities in the availability of public social care across regions. |
| Keywords: | formal care, informal care, caregiver, dependent. |
| JEL: | I1 J14 |
| Date: | 2008–06 |
| URL: | http://d.repec.org/n?u=RePEc:yor:hectdg:08/13&r=ias |