nep-ias New Economics Papers
on Insurance Economics
Issue of 2009‒07‒03
fifteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. The effect of employer incentives in social insurance on individual wages By Vikström, Johan
  2. Public Policy, Health Insurance and the Transition to Adulthood By Phillip B. Levine; Robin McKnight; Samantha Heep
  3. Pension Risk, Retirement Saving and Insurance By Luigi Guiso; Tullio Jappelli; Mario Padula
  4. Taxes, Health Insurance and Women’s Self-Employment By Velamuri, Malathi
  5. Measuring Unemployment Insurance Generosity By Stéphane Pallage; Lyle Scruggs; Christian Zimmermann
  6. Is Employer-Based Health Insurance a Barrier to Entrepreneurship? By Robert W Fairlie; Kanika Kapur; Susan Gates
  7. Business Cycle Dependent Unemployment Insurance By Andersen, Torben M; Svarer, Michael
  8. On the Long-Run Equilibrium Relationship among Health Care Expenditures, Public Pension and Social Insurance Burden Rate in Japan By Kumagai, Narimasa
  9. Risk-Based Pricing and Risk-Reducing Effort: Does the Private Insurance Market Reduce Environmental Accidents? By Haitao Yin; Howard Kunreuther; Matthew White
  10. Censored Quantile Instrumental Variable Estimates of the Price Elasticity of Expenditure on Medical Care By Amanda E. Kowalski
  11. Getting Off the Rollercoaster: A Stable Funding Framework for the EI Program - EI Reform Part I By Colin Busby; Alexandre Laurin
  12. Bancassurance - present and future By Dobrin, Marinica
  13. A Positive Theory of Unemployment Insurance and Employment Protection By Anesi, Vincent; De Donder, Philippe
  14. Household Responses to Individual Shocks: Disability and Labour Supply By Gallipoli, Giovanni; Turner, Laura
  15. Individual and household value of mortality reductions with intrahousehold bargaining By Strand, Jon

  1. By: Vikström, Johan (IFAU - Institute for Labour Market policy Evaluation)
    Abstract: Several studies have documented that employer incentives, in form of experience rating, co-insurance or deductibles, could decrease the social insurance usage. Such employer incentives may though have unintended side effects, as it gives employers incentives to transfer the costs to their workers, affecting individual wages and inducing cream skimming. Side effects which have been given limited attention. This paper aims to fill one part of this gap in the literature. The effect off employer incentives on individual wages is estimated using a reform in January 1992, which introduced an employer co-insurance system into the Swedish sickness absence insurance. The analysis based on a long population panel database, including survey information on hourly wages, gives no support of any important individual wage effects from the co-insurance reform. This is not a result of lack of variation in individual wage increases, nor is it a result of large standard errors.
    Keywords: Wage; employer incentives; co-insurance; sickness absence; work absence; social insurance
    JEL: C23 H55 I18 J39
    Date: 2009–06–04
  2. By: Phillip B. Levine; Robin McKnight; Samantha Heep
    Abstract: This paper assesses the impact of two recent policies designed to increase insurance coverage for older teens and young adults. The introduction of SCHIP in 1997 enabled low and moderate income teens up to age 19 to gain access to public health insurance. More recent policies adopted by a number of states have enabled young adults between the ages of 19 and (typically) 24 to remain covered under their parents’ health insurance. We take advantage of the discrete break in coverage at age 19 to evaluate the impact of SCHIP. We also use quasi-experimental variation across states and years along with the targeted nature of eligibility to evaluate the impact of these “extended parental coverage†laws. Our results suggest that both types of policies were effective at increasing health insurance coverage, especially among their respective target populations. Overall, SCHIP increases insurance coverage by 3 percentage points; those with incomes under 150 percent of poverty are found to experience a 7 percentage point increase. We find little evidence of crowd-out associated with the introduction of SCHIP. Extended parental coverage laws have minimal aggregate effects on coverage, but they increase coverage by up to 5 percentage points for select groups. These laws may generate reverse crowd-out, as individuals leave public insurance coverage to take advantage of the private coverage now available to them.
    JEL: I18
    Date: 2009–06
  3. By: Luigi Guiso; Tullio Jappelli; Mario Padula
    Abstract: Using a representative sample of Italian investors, we estimate the risk associated with pension benefits by eliciting for each individual the subjective distribution of the replacement rate as a summary indicator of social security wealth. We find substantial heterogeneity of pension risk and show that it is consistently related to observable features in the pension system that have different effects on individuals with different characteristics. We then relate subjective pension risk to individuals’ financial decisions. We find that people try to attenuate the adverse consequences of pension wealth uncertainty by increasing demand for targeted retirement saving and for insurance. Individuals facing more pension wealth risk tend to enroll more often in private pension funds, invest more in life insurance and buy more private health insurance. These effects are consistent with people becoming more risk-averse when pension wealth becomes less predictable, leading them to search for greater financial security.
    Keywords: Pension Risk, Retirement Saving, Insurance
    JEL: H55 E21
    Date: 2009
  4. By: Velamuri, Malathi
    Abstract: I examine whether the availability of health coverage through the spouse’s health plan influences a married woman’s decision to become self-employed. The Tax Reform Act of 1986 (TRA86) introduced a tax subsidy for the self-employed to purchase their own health insurance. I test whether this ‘natural’ experiment induced more women without spousal health insurance cov-erage to select into self-employment. The difference-in-difference estimates based on an analysis of employed women indicate that the incidence of self-employment among women who did not enjoy spousal health benefits rose significantly - between 14% and 25% - in the post-TRA86 pe- riod, while a multinomial specification based on a sample of both employed and non-employed women suggests that the increase was around 9%.
    Keywords: Health Insurance; Self-Employment
    JEL: J3 J0 I1
    Date: 2009
  5. By: Stéphane Pallage; Lyle Scruggs; Christian Zimmermann
    Abstract: Unemployment insurance policies are multidimensional objects. They are typically defined by waiting periods, eligibility duration, benefit levels and asset tests when eligible, which make intertemporal or international comparisons difficult. To make things worse, labor market conditions, such as the likelihood and duration of unemployment matter when assessing the generosity of different policies. In this paper, we develop a methodology to measure the generosity of unemployment insurance programs with a single metric. We build a first model with such complex characteristics. Our model features heterogeneous agents that are liquidity constrained but can self-insure. We then build a second model that is similar, except that the unemployment insurance is simpler: it is deprived of waiting periods and agents are eligible forever with constant benefits. We then determine which level of benefits in this second model makes agents indifferent between both unemployment insurance policies. We apply this strategy to the unemployment insurance program of the United Kingdom and study how its generosity evolved over time.
    Keywords: Social policy, generosity, unemployment insurance, measurement
    JEL: E24 J65
    Date: 2009
  6. By: Robert W Fairlie (University of California); Kanika Kapur (University College Dublin); Susan Gates (RAND)
    Abstract: The focus on employer-provided health insurance in the United States may restrict business creation. We address the limited research on the topic of “entrepreneurship lock” by using recent panel data from matched Current Population Surveys. We use difference-indifference models to estimate the interaction between having a spouse with employer-based health insurance and potential demand for health care. We find evidence of a larger negative effect of health insurance demand on the entrepreneurship probability for those without spousal coverage than for those with spousal coverage. We also take a new approach in the literature to examine the question of whether employer-based health insurance discourages entrepreneurship by exploiting the discontinuity created at age 65 through the qualification for Medicare. Using a novel procedure of identifying age in months from matched monthly CPS data, we compare the probability of business ownership among male workers in the months just before turning age 65 and in the months just after turning age 65. We find that business ownership rates increase from just under age 65 to just over age 65, whereas we find no change in business ownership rates from just before to just after for other ages 55-75. Our estimates provide some evidence that "entrepreneurship lock" exists, which raises concerns that the bundling of health insurance and employment may create an inefficient allocation of which or when workers start businesses.
    Date: 2009–01–19
  7. By: Andersen, Torben M; Svarer, Michael
    Abstract: The consequences of business cycle contingencies in unemployment insurance systems are considered in a search-matching model allowing for shifts between "good" and "bad" states of nature. We show that not only is there an insurance argument for such contingencies, but also an incentive argument. If benefits are less distortionary in a recession than a boom, it follows that countercyclical benefits reduce average distortions compared to state independent benefits. We show that optimal benefits are state contingent and tend to reduce the structural (average) unemployment rate, although the variability of unemployment may increase.
    Keywords: business cycle; incentives; insurance; unemployment benefits,
    JEL: H4 J6
    Date: 2009–06
  8. By: Kumagai, Narimasa
    Abstract: Despite a decrease in the number of working generations supporting Japan's social security system, the relationship between public pension benefits and health care expenditures since the inception of universal health insurance system has not been explored. We obtained one stable long-run equilibrium relationship among those three variables over the period from 1966 to 2002. We employed the forecast error variance decomposition to examine the determination of social insurance burden rate. It is found that health care shock was important for the long-run determination of social insurance burden rate. Because it appears that a free health service system for the elderly (health care shock) caused the increase in the doctor's consultation, we estimated the health care function to analyze price policy in the health care sector. We finally accepted the dynamic OLS model with lead lags as an aggregated health care function. The price elasticity of health care has declined in absolute value since the universal health insurance system started, and it has been around 0.6 since the early 1980s. The policy which eliminated health care fees for the elderly in the 1970s was a mistake since the elderly increased their health care expenditures. The out-of-pocket expenses for health care of the elderly should have been raised in the 1970s.
    Keywords: cointegration, dynamic OLS, price elasticity of health care, variance decomposition, vector error correction model
    Date: 2009–02
  9. By: Haitao Yin; Howard Kunreuther; Matthew White
    Abstract: This paper examines whether risk-based pricing promotes risk-reducing effort. Such mechanisms are common in private insurance markets, but are rarely incorporated in government assurance programs. We analyze accidental underground fuel tank leaks--a source of environmental damage to water supplies--over a fourteen-year period, using disaggregate (facility-level) data and policy variation in financing the cleanup of tank leaks over time. The data suggest that eliminating a state-level government assurance program and switching to private insurance markets to finance cleanups reduced the frequency of costly underground fuel tank leaks by more than 20 percent. This corresponds to more than 3,000 avoided fuel-tank release accidents over eight years in one state alone, a benefit in avoided cleanup costs and environmental harm exceeding $400 million. These benefits arise because private insurers mitigate moral hazard by providing financial incentives for tank owners to close or replace leak-prone tanks prior to costly accidents.
    JEL: D8 H23 K32
    Date: 2009–06
  10. By: Amanda E. Kowalski
    Abstract: The extent to which consumers respond to marginal prices for medical care is important for policy. Using recent data and a new censored quantile instrumental variable (CQIV) estimator, I estimate the price elasticity of expenditure on medical care. The CQIV estimator allows the estimates to vary across the skewed expenditure distribution, it allows for censoring at zero expenditure nonparametrically, and it allows for the insurance-induced endogenous relationship between price and expenditure. For identification, I rely on cost sharing provisions that generate marginal price differences between individuals who have injured family members and individuals who do not. I estimate the price elasticity of expenditure on medical care to be stable at -2.3 across the .65 to .95 conditional quantiles of the expenditure distribution. These quantile estimates are an order of magnitude larger than previous mean estimates. I consider several explanations for why price responsiveness is larger than previous estimates would suggest.
    JEL: I1
    Date: 2009–06
  11. By: Colin Busby (C.D. Howe Institute); Alexandre Laurin (C.D. Howe Institute)
    Abstract: While the public debate over reforms to Employment Insurance centres on regional fairness in eligibility requirements, it is critical that the EI program remain affordable in good times and bad. To avoid pro-cyclical EI premium decreases during booms and harmful premium increases during downturns, the challenge is to create a rate-setting mechanism that would balance the books over the ebbs and flows of economic cycles, and permit yearly EI account balances to vary. Ottawa also needs to introduce reforms that insulate the EI fund’s management from political interference – and protect that fund from governments that would dip into EI surpluses for general spending. One model is the Canada Pension Plan Investment Board.
    Keywords: employment insurance reform
    JEL: E24 J65 J68
    Date: 2009–06
  12. By: Dobrin, Marinica (Universitatea Spiru Haret, Facultatea de Finante si Banci)
    Abstract: The concept of bancassurance has French origin but can be seen in German as Allfinanz and in English as Financial Services. The emergence of bancassurance concept can not be primarily attributed to any banks or insurance institutions. Approaching the two sectors was due to mutations occurring in the supply and demand of financial services. Convergence bankers and insurers to common platforms are determined for each country's local, and influence supervisors and reforms at the central level. Enlargement of the Euro and the proliferation of distribution channels with the Internet as a catalyst, causes pressure on the selling price of financial services. Thus, the combination of banks and insurance companies aimed primarily reducing costs and making activities. In the future there will not insurance companies or banks, but only unit complex to deal with the sale of financial products to customer needs. A step in strengthening relations between the two entities is the bancassurance which is one of the most effective ways of attraction and loyalty of customers, said Peter Schmidt, Event Producer of the Conference The Future of bancassurance, the Assurbanking & Affinity Business, place between 25-26 September 2008 in Prague.
    Keywords: Bancassurance; Financial integrated services; TAR system; Joint Ventures; Insurance Company; Holding; In-house banking; Loan portfolio; Life and non-life insurance; Bank deposits
    JEL: G22
    Date: 2009–06–16
  13. By: Anesi, Vincent; De Donder, Philippe
    Abstract: The objective of this paper is to provide a political economy explanation of the empirically observed negative correlation between employment protection and insurance. We study an economy composed of four groups of agents (capitalists, unemployed people, low- and high-skilled workers), each one represented by a politician. Politicians first form political parties and then compete in a winner-takes-all election by simultaneously proposing policy bundles composed of an employment protection level and an unemployment benefit. We first show that, in the absence of parties (i.e., in a citizen-candidate model), low-skilled workers are decisive and support a maximum employment protection level together with some unemployment benefit. We then obtain that, under some conditions, allowing for party formation results in all policy equilibria being in the Pareto set of the coalition formed by high-skilled workers together with unemployed people. Policies in this Pareto set exhibit a negative correlation between employment protection and unemployment benefit.
    Keywords: bidimensional voting; citizen-candidate; flexicurity; labor market rigidities; party competition
    JEL: D72 J65 J68
    Date: 2009–06
  14. By: Gallipoli, Giovanni; Turner, Laura
    Abstract: What are idiosyncratic shocks and how do people respond to them? This paper starts from the observation that idiosyncratic shocks are experienced at the individual level, but responses to shocks can encompass the whole household. Understanding and accurately modeling these responses is essential to the analysis of intra-household allocations, especially labour supply. Using longitudinal data from the Canadian Survey of Labour and Income Dynamics (SLID) we exploit information about disability and health status to develop a life-cycle framework which rationalizes observed responses of household members to idiosyncratic shocks. Two puzzling findings associated to disability onset motivate our work: (1) the almost complete absence of ‘added worker’ effects within households and, (2) the fact that single agents’ labour supply responses to disability shocks are larger and more persistent than those of married agents. We show that a first-pass, basic model of the household has predictions about dynamic labour supply responses which are at odds with these facts; despite such failure, we argue that these facts are consistent with optimal household behaviour when we account for two simple mechanisms: the first mechanism relates to selection into and out of marriage, while the second hinges on insurance transfers taking place within households. We show that these mechanisms arise naturally when we allow for three features: a linkage between human capital accumulation and life-cycle labour supply, endogenous marriage contracts and the possibility of time transfers between partners. We also report evidence that the extended model with endogenous marriage contracts can fit divorce patterns observed in Canadian data, as well as correlations between disability prevalence and marital status, providing an ideal framework to study intra-household risk-sharing with limited commitment.
    Keywords: Idiosyncratic Risk, Disability, Household Behaviour, Marriage, Insurance
    JEL: E20 I10 H31 J12
    Date: 2009–06–22
  15. By: Strand, Jon (Department of Economics)
    Abstract: I derive alternative measures of maximum willingness to pay (WTP) and value of statistical life (VSL) related to changes in the supply of a public good affecting mortality for both members of two-person households, when members are selfish, live for at most two periods, and strike efficient Nash bargains over consumption of individual and household goods. I find no systematic bias in letting one household member conduct the (WTP or VSL) valuation on behalf of the household. Publicgood VSL may exceed private-good VSL due to each member attaching (purely selfish) preferences to the event that the other member survives or dies, and to a possible net income potential of the other member when surviving in period 2. When period 2 is a retirement period and household members’ incomes are then fixed, interview surveys tend to overvalue VSL due to ignored negative effects of own survival on government pension budgets.
    Keywords: Value of statistical life; household bargaining; intertemporal allocation models; optimal life insurance
    JEL: I18
    Date: 2009–06–14

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