nep-ias New Economics Papers
on Insurance Economics
Issue of 2009‒07‒11
fourteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Bussiness Management

  1. Deductibles in Health Insurance: Pay or Pain? By Asheim, Geir B.; Nilssen, Tore; Emblem, Anne Wenche
  2. Private Insurance Against Systemic Crises? By Gersbach, Hans
  3. Private long term care insurance: Theoretical approach and results applied to the Spanish case By Pablo Alonso González; Irene Albarrán Lozano
  4. Health Insurance: Treatment vs. Compensation By Asheim, Geir; Nilssen, Tore; Emblem, Anne Wenche
  5. Impact of the public/private mix of health insurance on genetic testing By Hoel, Michael; Iversen, Tor
  6. Supplier Density and At-home Care Use in Japan: Evidence from a Micro-level Survey on Long Term Care Receivers By Noguchi, Haruko; Shimizutani, Satoshi
  7. Genetic testing and repulsion from chance By Hoel, Michael; Nilssen, Tore; Vislie, Jon; Iversen, Tor
  8. Barriers to household risk management: evidence from India By Shawn Cole; Xavier Giné; Jeremy Tobacman; Petia Topalova; Robert Townsend; James Vickery
  9. Redistribution at the hospital By Emblem, Anne Wenche
  10. Household welfare, precautionary saving, and social insurance under multiple sources of risk By Ivan Vidangos
  11. Why do the Elderly Save? The Role of Medical Expenses By Mariacristina De Nardi; Eric French; John Bailey Jones
  12. Absenteeism, Health Insurance, and Business Cycles By Nordberg, Morten; Kverndokk, Snorre
  13. The impact of accessibility on the use of specialist health care in Norway By Iversen, Tor; Kopperud, Gry Stine
  14. Should risky firms offer risk-free DB pensions? By David A. Love; Paul A. Smith; David Wilcox

  1. By: Asheim, Geir B. (Department of Economics); Nilssen, Tore (Department of Economics); Emblem, Anne Wenche (School of Management)
    Abstract: We study a health-insurance market where individuals are offered coverage against both medical expenditures and losses in income. Individuals vary in their level of innate ability. If there is private information about the probability of illness and an individual’s innate ability is sufficiently low, we find that competitive insurance contracts yield screening partly in the form of co-payment, i.e., a deductible in pay, and partly in the form of reduced medical treatment, i.e., a deductible in pain.
    Keywords: Health insurance; adverse selection; deductibles
    JEL: D82 I11
    Date: 2009–06–29
  2. By: Gersbach, Hans
    Abstract: Insurance contracts contingent on macroeconomic shocks or on average bank capital could be a way of insuring against systemic crises. With insurance, banks are recapitalized when negative events would otherwise cause a write down of capital or even bank insolvency. In a simple model we illustrate the working of these contracts and how insurance could be achieved. We identify the main pitfalls of this approach: the insurance capacity of an economy may be too limited, insurance must be mandatory, insurance does not curb excessive risk taking (unobservable or observable), the insurers may go bankrupt in crises, and managerial restrictions on a rising bank equity capital limit insurance. Finally we discuss some complementary regulatory measures to foster the effectiveness of crisis insurance. In particular, we suggest mandatory purchase of insurance contracts against systemic crises by managers of large banks.
    Keywords: automatic recapitalization; banking crises; banking regulation; financial intermediation; insurance contracts
    JEL: D41 E4 G2
    Date: 2009–06
  3. By: Pablo Alonso González (Departamento de Estadística, Estructura y O.E.I. Universidad de Alcalá.); Irene Albarrán Lozano (Departamento de Estadística, Universidad Carlos III de Madrid.)
    Abstract: The passing of the Law 39/2006 has given to Spanish insurance companies the chance of offering products that cover the expenses associated to the risk of dependence. However, due to the lack of reliable statistic information about dependent population, it is extremely difficult to evaluate not only the frequency but also the cost. These two items make the pricing process with a big cloud of uncertainty. This paper proposes a methodology for premium calculation taking into account not only the availability of the data but also the current legal framework in Spain. Together to the theoretical approach, premium calculations for two possible versions are included. Finally, it is introduced a simulation model that pretends to evaluate the impact that a portfolio with these kind of contracts would have on the solvency of an insurance company.
    Keywords: Long term care insurance, Pricing, Multi-state model, Simulation, Solvency.
    JEL: G22 C39 C15 C63
    Date: 2009
  4. By: Asheim, Geir (Department of Economics); Nilssen, Tore (Department of Economics); Emblem, Anne Wenche (Agder University)
    Abstract: In this paper, we view health insurance as a combined hedge against the two consequences of falling ill: treatment expenditures and loss in income. We discuss how an individual’s ability when healthy affects her decision on whether to buy health insurance with treatment to full recovery if ill or with partial treatment combined with cash compensation for the resulting loss in income. We find that a highability individual demands full recovery and is fully insured, while a low-ability individual demands partial treatment and cash compensation and is only partly insured.
    Keywords: Health Insurance; Treatment; Compensation
    JEL: D81 G22 I11
    Date: 2009–06–30
  5. By: Hoel, Michael (Department of Economics); Iversen, Tor (Institute of Health Management and Health Economics)
    Abstract: Privacy of information is a central concern in the debate about genetic testing. Two types of social inefficiencies may occur when information about prevention and test status is private; genetic testing may not be done when it is socially efficient and genetic testing may be done although it is socially inefficient. The first type of inefficiency is shown to be likely for consumers with public insurance only, while the second type of inefficiency is likely for those with a mix of public/private insurance. This second type of inefficiency is shown to be more important the less effective prevention is.
    Keywords: Health insurance; genetic testing
    JEL: I11
    Date: 2009–07–01
  6. By: Noguchi, Haruko; Shimizutani, Satoshi
    Abstract: Following the introduction of the long-term care insurance scheme and deregulation of the market for at-home care services, Japan experienced a substantial increase in expenditure on care for the elderly. Using household-level survey data, we empirically examine whether the increase in care expenditure is associated with supplier density springing from the rise in the number of care providers following deregulation. We provide weak evidence that supplier density in the at-home care market is positively correlated with probability to use care or expenditure on care. Moreover, we find no link between the share of for-profit providers and the demand for at-home care services.
    Keywords: supplier density, at-home care, long-term care insurance
    JEL: I11
    Date: 2009–06
  7. By: Hoel, Michael (Department of Economics); Nilssen, Tore (Department of Economics); Vislie, Jon (Department of Economics); Iversen, Tor (Institute of Health Management and Health Economics)
    Abstract: A central theme in the international debate on genetic testing concerns the extent to which insurance companies should be allowed to use genetic information in their design of insurance contracts. This issue is analysed within a model with the following important feature: A person's well-being depends on the perceived probability of becoming ill in the future in a way that varies among individuals. <p><p> The authors show that both tested high-risks and untested individuals are equally well off whether or not test results can be used by insurers. Individuals who test for being low-risks, on the other hand, are made worse off by not being able to verify this to insurers. This implies that verifiability dominates non-verifiability in an ex-ante sense.
    Keywords: Health insurance; isurance contracts; genetic testing; genetic information
    JEL: D82 I11 I18
    Date: 2009–06–29
  8. By: Shawn Cole; Xavier Giné; Jeremy Tobacman; Petia Topalova; Robert Townsend; James Vickery
    Abstract: Financial engineering offers the potential to significantly reduce the consumption fluctuations faced by individuals, households, and firms. Yet much of this potential remains unfulfilled. This paper studies the adoption of an innovative rainfall insurance product designed to compensate low-income Indian farmers in the event of insufficient rainfall during the primary monsoon season. We first document relatively low adoption of this new risk management product: Only 5-10 percent of households purchase the insurance, even though they overwhelmingly cite rainfall variability as their most significant source of risk. We then conduct a series of randomized field experiments to test theories of why product adoption is so low. Insurance purchase is sensitive to price, with an estimated extensive price elasticity of demand ranging between -.66 and -0.88. Credit constraints, identified through the provision of random liquidity shocks, are a key barrier to participation, a result also consistent with household self-reports. Several experiments find that trust plays an important role in the decision to purchase insurance. We find mixed evidence that subtle psychological manipulations affect purchases and no evidence that modest attempts at financial education change households' decisions to participate. Based on our experimental results, we suggest preliminary lessons for improving the design of household risk management contracts.
    Keywords: Households - Economic aspects ; Insurance ; Risk management
    Date: 2009
  9. By: Emblem, Anne Wenche (Faculty of Economics and Social Science)
    Abstract: This paper studies redistribution by means of a public supply of medical treatment. We show that the government can redistribute income towards low-ability individuals in a world of asymmetric information by offering bundles of medical treatment and redistributive payment. If self-selection is a problem, then the separating scheme offers high-ability individuals complete treatment against a high payment, and low-ability individuals partial treatment against a low payment. In particular, the level of treatment offered low-ability individuals is distorted downwards.
    Keywords: health; medical treatment; insurance; redistribution; self-selection
    JEL: D81 H42 I18
    Date: 2009–06–29
  10. By: Ivan Vidangos
    Abstract: This paper assesses the quantitative importance of a number of sources of income risk for household welfare and precautionary saving. To that end I construct a lifecycle consumption model in which household income is subject to shocks associated with disability, health, unemployment, job changes, wages, work hours, and a residual component of household income. I use PSID data to estimate the key processes that drive and affect household income, and then use the consumption model to: (i) quantify the welfare value to consumers of providing full, actuarially fair insurance against each source of risk and (ii) measure the contribution of each type of shock to the accumulation of precautionary savings. I find that the value of fully insuring disability, health, and unemployment shocks is extremely small (well below 1/10 of 1 percent of lifetime consumption in the baseline model). The gains from insuring shocks to the wage and to the residual component of household income are significantly larger (above 1% and 2% of lifetime consumption, respectively). These two shocks account for more than 60% of precautionary wealth.
    Date: 2009
  11. By: Mariacristina De Nardi; Eric French; John Bailey Jones
    Abstract: This paper constructs a rich model of saving for retired single people. Our framework allows for bequest motives and heterogeneity in medical expenses and life expectancies. We estimate the model using AHEAD data and the method of simulated moments. The data show that out-of-pocket medical expenses rise quickly with both age and permanent income. For many elderly people the risk of living long and requiring expensive medical care is a more important driver of old age saving than the desire to leave bequests. Social insurance programs such as Medicaid rationalize the low asset holdings of the poorest. These government programs, however, also benefit the rich because they insure them against their worst nightmares about their very old age: either not being able to afford the medical care that they need, or being left destitute by huge medical bills.
    JEL: D91 E21 H31
    Date: 2009–07
  12. By: Nordberg, Morten (The Ragnar Frisch Centre for Economic); Kverndokk, Snorre (The Ragnar Frisch Centre for Economic)
    Abstract: We use a dependent competing risks hazard rate model to investigate individual sickness absence behaviour in Norway, on the basis of register data covering more than 2 million absence spells. Our findings are: i) that business cycle improvements yield lower work-resumption rates for persons who are absent, and higher relapse rates for persons who have already resumed work; ii) that absence sometimes represents a health investment, in the sense that longer absence ‘now’ reduces the subsequent relapse propensity; and iii) that the work-resumption rate increases when sickness benefits are exhausted, but that work-resumptions at this point tend to be short-lived.
    Keywords: Absenteeism; Dependent risks
    JEL: C41 J22
    Date: 2009–06–22
  13. By: Iversen, Tor (Institute of Health Management and Health Economics); Kopperud, Gry Stine (Institute of Health Management and Health Economics)
    Abstract: What factors contribute to the utilization of specialist health care in Norway, and to what extent is the policy goal of allocating health care according to peoples medical need fulfilled? With this scope the authors analyse the impact of a person's health relative to the impact of access to specialist care. It is distinguished between services provided by public hospitals and services provided by private specialists financed by the National Insurance Scheme. The data allow to consider individual patient characteristics since Survey of Living Conditions data are merged with data on capacity and access to general practice and specialist care. <p> The estimation of logit models and negative binomial models show significant differences between the factors that influence contacts with private specialists and contacts with hospitals. While a person's self-assessed health plays a major role in the utilization of hospitals, there is no significant effect of this variable on the utilization of private specialists. The supply-side variables measured by GP density and the accessibility indices for specialist care have significant effects on the utilization of private specialists, but not on hospital visits and inpatient stays. <p> A preliminary conclusion is that the utilization of hospital services is rationed according to patients' health status, and not influenced by patients' access. Hence, the utilization of hospital services seems to be in accordance with officially stated health policy. On the other hand, private specialists seem to function as an alternative to general practice. Moreover, the significant effect of chronic conditions on the utilization of private specialists suggests that regular check-ups of chronic patients are an important part of the services provided by private specialists. The challenge to policy makers is to consider measures that bring the utilization of publicly funded private specialists in accordance with national health policy.
    Keywords: Specialist health care; capacity; access to general practice
    JEL: I18
    Date: 2009–06–29
  14. By: David A. Love; Paul A. Smith; David Wilcox
    Abstract: We develop a simple model of pension financing to study the effects of pension risk on shareholder value. In the model, firms minimize costs, total compensation must clear the labor market, and a government pension insurer guarantees a portion of promised benefits. We find that in the absence of mispriced pension insurance, the optimal pension strategy under most specifications is to immunize all sources of market risk. Mispriced pension insurance, however, gives firms the incentive to introduce risk into their pension promises, offering an explanation for some of the observed prevalence of risky pensions in the real world.
    Date: 2009

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