nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒08‒09
five papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Health Insurance without Single Crossing: why healthy people have high coverage By Boone, Jan; Schottmüller, Christoph
  2. The impact of private hospital insurance on utilization of hospital care in Australia: Evidence from the national health survey By Eldridge, Damien; Koç, Cagatay; Onur, Ilke; Velamuri, Malathi
  3. Trade-Offs in Means Tested Pension Design By Chung Tran; Alan Woodland
  4. Severance Pay Mandates: Firing Costs, Hiring Costs, and Firm Avoidance Behaviors By Parsons, Donald O.

  1. By: Boone, Jan; Schottmüller, Christoph
    Abstract: Standard insurance models predict that people with high (health) risks have high insurance coverage. It is empirically documented that people with high income have lower health risks and are better insured. We show that income differences between risk types lead to a violation of single crossing in the standard insurance model. If insurers have some market power, this can explain the empirically observed outcome. This observation has also policy implications: While risk adjustment is traditionally viewed as an intervention which increases efficiency and raises the utility of low health agents, we show that with a violation of single crossing a trade off between efficiency and solidarity emerges.
    Keywords: health insurance; risk adjustment; single crossing
    JEL: D82 I11
    Date: 2011–08
  2. By: Eldridge, Damien; Koç, Cagatay; Onur, Ilke; Velamuri, Malathi
    Abstract: We estimate the impact of private hospital insurance on utilization of hospital care services in Australia. We employ the two-stage residual inclusion approach to address the endogeneity of private insurance. We calculate moral hazard based on a difference-of-means estimator. Our three-stage estimation framework provides evidence of selection into private hospital insurance. We find strong evidence of moral hazard when we treat hospital insurance as exogenous. After controlling for the endogeneity of hospital insurance, we find robust evidence of substitution from public to private hospital care but no evidence of ex-post moral hazard in the number of nights spent in hospital.
    Keywords: Health Insurance, Health Care Consumption, Moral Hazard,
    Date: 2011–06–24
  3. By: Chung Tran; Alan Woodland
    Abstract: Inclusion of means testing into age pension programs allows governments to better direct benefits to those most in need and to control funding costs by providing flexibility to control the participation rate (extensive margin) and the benefit level (intensive margin). The former is aimed at mitigating adverse effects on incentives and to strengthen the insurance function of an age pension system. In this paper, we investigate how means tests alter the trade-off between these insurance and incentive effects and the consequent welfare outcomes. Our contribution is twofold. First, we show that the means test effect via the intensive margin potentially improves the insurance aspect but introduces two opposing impacts on incentives, the final welfare outcome depending upon the interaction between the two margins. Second, conditioning on the compulsory existence of pension systems, we find that the introduction of a means test results in nonlinear welfare effects that depend on the level of maximum pension benefits. More specifically, when the maximum pension benefit is relatively low, an increase in the taper rate always leads to a welfare gain, since the insurance and the positive incentive effects are always dominant. However, when maximum pension benefits are relatively more generous the negative incentive effect becomes dominant and welfare declines.
    JEL: D9 E2 E6 H3 H5 J1
    Date: 2011–08
  4. By: Parsons, Donald O. (George Washington University)
    Abstract: The potentially adverse labor market effects of severance pay mandates are a continuing source of policy concern. In a seminal study, Lazear (1990) found that contract avoidance of severance pay firing costs was theoretically simple – a bonding scheme would do – but that empirically the labor market distortions were large. Subsequent empirical work resolved the apparent paradox – firing cost effects are modest even without firm avoidance activities. To explore why that should be so, formal measures of severance-induced firing costs and hiring costs are derived. Firing costs are, it turns out, systematically less than benefit generosity alone would imply. Moreover their interrelationship with hiring costs, often employed in empirical studies as a substitute measure, is complex, with co-movements varying in sign and magnitude across policy parameters and the economic environment. Although the analysis assumes a fixed benefit mandate, the cost measures are easily extended to assess the impact of service-linked severance benefits on age-specific employment levels. The model permits design of a cohort-neutral severance mandate – which is not a flat rate structure.
    Keywords: severance pay, firing costs, hiring costs, layoff, employment, insurance, savings, moral hazard
    JEL: J65 J41 J33
    Date: 2011–07
  5. By: Dr. Abdussalam Ismail Onagun (Islamic Financial Services Board (IFSB), Kuala Lumpur, Malaysia)
    Abstract: There are two elements important in formulating the solvency requirements of a Takaful undertaking namely the Takaful fund and Qard facility. It has been seen in some regulatory frameworks that the regulator puts a requirement on the Takaful operators to show that they are providing some financial support towards the solvency of the Takaful funds. This paper attempts to explain the measures involve the Takaful operator using their shareholders’ funds to provide financial back\ing to support the solvency of Takaful funds through the practices of Qard facility, injection of assets into the Takaful funds and assignment or allocation of assets in the shareholders in the Takaful funds. The paper will focus on the nature of Qard and its basis in the primary sources of Shariah. Is it acceptable legally to subordinate Qard in the case of deficit, deficiency or drawn down of Takaful fund? Finally, the paper will analyze the legal ruling related to Qard and how it is different to conventional insurance practices
    Keywords: Takaful fund, Qard facility, Takaful participants, Solvency, Subordinated Qard
    JEL: M0
    Date: 2011–03

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