nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒10‒01
fourteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Health Insurance and Mortality in US Adults: A Cautionary Tale By Jeffrey Milyo; Jenny Kim
  2. Extending Health Insurance: Effects of the National Health Insurance Scheme in Ghana By Agar Brugiavini; Noemi Pace
  3. Adverse Selection and Switching Costs in Health Insurance Markets: When Nudging Hurts By Benjamin R. Handel
  4. Demand for Hospital Care and Private Health Insurance in a Mixed Public–Private System: Empirical Evidence Using a Simultaneous Equation Modeling Approach By Terence Chai Cheng; Farshid Vahid
  5. Does Expanding Health Insurance Beyond Formal-Sector Workers Encourage Informality? Measuring the Impact of Mexico's Seguro Popular By Aterido, Reyes; Hallward-Driemeier, Mary; Pagés, Carmen
  6. Optimal Unemployment Insurance Over the Business Cycle By Camille Landais; Pascal Michaillat; Emmanuel Saez
  7. A dynamic model of extreme risk coverage : resilience and efficiency in the global reinsurance market By Lemoyne de Forges, Sabine; Bibas, Ruben; Hallegatte, Stephane
  8. Cost Incentives for Doctors: A Double-Edged Sword By Schottmuller, C.
  9. Stratégie optimale pour la réduction de la variance de la prime ajustée. application en assurance automobile By Kmar Fersi; Kamel Boukhetala; Samir Ben Ammou
  10. Firms' Moral Hazard in Sickness Absences By René Böheim; Thomas Leoni
  11. Health Care System Reform in China: Issues, Challenges and Options By Rong Hu; Chunli Shen; Heng-fu Zou
  12. On Wealth, Unemployment Benefits and Unemployment Duration: some Evidence from Italy By Lorenzo Corsini
  13. Insuring Long Term Care In the US By Jeffrey Brown; Amy Finkelstein
  14. Does Widowhood Explain Gender Differences in Out-of-Pocket Medical Spending Among the Elderly? By Gopi Shah Goda; John B. Shoven; Sita Nataraj Slavov

  1. By: Jeffrey Milyo (Department of Economics, University of Missouri-Columbia); Jenny Kim
    Abstract: A 2009 observational study reported that private insurance status is associated with decreased mortality risk compared to no insurance. Employing the same statistical model but with more recent data, we observe a weaker and statistically insignificant relationship. However, Medicaid coverage is associated with increased mortality risk; the adjusted hazard ratio for Medicaid compared to no insurance is 1.32 (95% CI = 1.01, 1.72). These findings bolster concerns about using observational studies to understand the health consequences of insurance.
    Keywords: Health, Insurance, Mortality
    JEL: D78 H75
    Date: 2011–09–17
  2. By: Agar Brugiavini; Noemi Pace
    Abstract: There is considerable interest in exploring the potential of health insurance to increase the access to, and the affordability of, health care in Africa. We focus on the recent experience of Ghana, where a National Health Insurance Scheme (NHIS) became law in 2003 and fully implemented from late 2005. Even though there is some evidence of large coverage levels, the effect of the NHIS on health care demand and out-of-pocket expenditures has still not been fully examined. This paper is an attempt to close this gap. Using nationally-representative household data from the Ghana Demographic and Health Survey, we find that the introduction of the NHIS has a positive and significant effect on the utilisation of health care services, although it does have only a weak effect on out-of-pocket expenditure.
    Keywords: Health insurance; out-of-pocket expenses; maternity care demand
    Date: 2011–05–13
  3. By: Benjamin R. Handel
    Abstract: This paper investigates consumer switching costs in the context of health insurance markets, where adverse selection is a potential concern. Though previous work has studied these phenomena in isolation, they interact in a way that directly impacts market outcomes and consumer welfare. Our identification strategy leverages a unique natural experiment that occurred at a large firm where we also observe individual-level panel data on health insurance choices and medical claims. We present descriptive results to show that (i) switching costs are large and (ii) adverse selection is present. To formalize this analysis we develop and estimate a choice model that jointly quantifies switching costs, risk preferences, and ex ante health risk. We use these estimates to study the welfare impact of an information provision policy that nudges consumers toward better decisions by reducing switching costs. This policy increases welfare in a naive setting where insurance plan prices are held fixed. However, when insurance prices change endogenously to reflect updated enrollee risk pools, the same policy substantially exacerbates adverse selection and reduces consumer welfare, doubling the existing welfare loss from adverse selection.
    JEL: D81 D82 D83 G22 I11 I18
    Date: 2011–09
  4. By: Terence Chai Cheng (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne); Farshid Vahid (Department of Econometrics and Business Statistics, Monash University)
    Abstract: This paper examines the determinants of hospital stay intensity, the decision to seek hospital care as a public or private patient and the decision to purchase private hospital insurance. We describe a theoretical model to motivate the simultaneous nature of these decisions. For the empirical analysis, we develop a simultaneous equation econometric model that accommodates the count data nature of length of stay and the binary nature of the patient type and insurance decisions. The model also accounts for the endogeneity of the patient type and insurance binary variables. The results indicate that there is no evidence of endogeneity between the decision to purchase insurance on the type and intensity of hospital care use. We find some evidence of moral hazard effects of private hospital insurance on the intensity of private hospital care. The results also indicate that the length of hospital stay for private patients is shorter than for public patients.
    Keywords: Simultaneous equation models, count data, demand for hospital care, moral hazard, public–private mix
    JEL: I11 H42 C31 C15
    Date: 2011–09
  5. By: Aterido, Reyes (World Bank); Hallward-Driemeier, Mary (World Bank); Pagés, Carmen (Inter-American Development Bank)
    Abstract: Seguro Popular (SP) was introduced in 2002 to provide health insurance to the 50 million Mexicans without Social Security. This paper tests whether the program has had unintended consequences, distorting workers' incentives to operate in the informal sector. The analysis examines the impact of SP on disaggregated labor market decisions, taking into account that program coverage depends not only on the individual's employment status, but also on that of other household members. The identification strategy relies on the variation in SP's rollout across municipalities and time, with the difference-in-difference estimation controlling for household fixed effects. The paper finds that SP lowers formality by 0.4-0.7 percentage points, with adjustments largely occurring within a few years of the program's introduction. Rather than encouraging exit from the formal sector, SP is associated with a 3.1 percentage point reduction (a 20 percent decline) in the inflow of workers into formality. Income effects are also apparent, with significantly decreased flows out of unemployment and lower labor force participation. The impact is larger for those with less education, in larger households, and with somebody else in the household guaranteeing Social Security coverage. However, workers pay for part of these benefits with lower wages in the informal sector.
    Keywords: informality, Seguro Popular, Mexico, non-contributory social programs, social assistance
    JEL: J08 J62 I38
    Date: 2011–09
  6. By: Camille Landais; Pascal Michaillat; Emmanuel Saez
    Abstract: This paper characterizes optimal unemployment insurance (UI) over the business cycle using a model of equilibrium unemployment in which jobs are rationed in recession. It offers a simple optimal UI formula that can be applied to a broad class of equilibrium unemployment models. In addition to the usual statistics (risk aversion and micro-elasticity of unemployment with respect to UI), a macro-elasticity appears in the formula to capture the macroeconomic impact of UI on unemployment. In a model with job rationing, the formula implies that optimal UI is countercyclical. This result arises because in recession, jobs are lacking irrespective of job search. Therefore (1) a higher aggregate search effort cannot reduce aggregate unemployment much; and (2) individual search effort creates a negative externality by reducing other jobseekers' probability of finding a job as in a rat race. Hence the social benefits of job search are low. In a calibrated model, optimal UI increases significantly in recession. This quantitative result holds whether the government adjusts the level or duration of benefits; whether it balances its budget each period or uses deficit spending.
    Keywords: Unemployment insurance, business cycle, job rationing, matching frictions
    JEL: E24 E32 H21 H23
    Date: 2011–09
  7. By: Lemoyne de Forges, Sabine; Bibas, Ruben; Hallegatte, Stephane
    Abstract: This paper presents a dynamic model of the reinsurance market for catastrophe risks. The model is based on the classical capacity-constraint assumption. Reinsurers choose every year the quantity of risk they cover and the level of external capital they raise to cover these risks. The model exhibits time dependency and reproduces a market dynamics that shares many features with the real market. In particular, market price increases and reinsurance coverage decreases after large shocks, and a series of smaller losses may have a deeper impact than one larger loss. There is a significant oligopoly effect reducing reinsurance supply, and the market is segregated into strategic large actors that influence market prices and price-taker smaller firms. A regulation trade-off between market efficiency and resilience is identified and quantified: improving the ability of the market to cope with exceptional events increases the cost of reinsurance. This model provides an interesting basis to analyze further capacity needs for the insurance industry in view of growing worldwide exposure to catastrophic risks and climate change.
    Keywords: Markets and Market Access,Insurance&Risk Mitigation,Climate Change Economics,Debt Markets,Emerging Markets
    Date: 2011–09–01
  8. By: Schottmuller, C. (Tilburg University, Center for Economic Research)
    Abstract: Incentivicing doctors to take the costs of treatment into account in their prescription decision could lead to lower health care expenditures and higher welfare. This paper shows that also the opposite effects can result. The reason is a misalignment of doctor and patient incentives: Because of health insurance, the patient does not take the costs of treatment fully into account. This misalignment hampers communication between patient and doctor, e.g. the patient may overstate the intensity of symptoms. It is shown that cost incentives for doctors increase welfare if (i) the doctor's examination technology is sufficiently good or (ii) (marginal) costs of treatment are high enough. Optimal health care systems should implement different degrees of cost incentives depending on type of disease and/or doctor.
    Keywords: cheap talk;communication;health insurance;market design.
    JEL: D82 D83 I10
    Date: 2011
  9. By: Kmar Fersi (Computational Mathematics Laboratory Faculté des Sciences de Monastir - Faculté des Sciences de Monastir); Kamel Boukhetala (Faculté des Mathématiques - Université des Sciences et de la Technologie Houari Boumediène); Samir Ben Ammou (Computational Mathematics Laboratory Faculté des Sciences de Monastir - Faculté des Sciences de Monastir)
    Abstract: The estimator of the adjusted premium developed by Necir and Boukhetala (2004) is considered. The problem of reducing the variance of this estimator is formulated as an optimization program with nonlinear stochastic constraints. An hybrid genetic algorithm is used for finding global optimal solutions, statistically explicable. An application to automobile insurance is developed.
    Date: 2011–09–22
  10. By: René Böheim (WIFO); Thomas Leoni (WIFO)
    Abstract: Sick workers in many countries receive sick pay during their illness-related absences from the workplace. In several countries, the social security system insures firms against their workers' sickness absences. However, this insurance may create moral hazard problems for firms, leading to the inefficient monitoring of absences or to an underinvestment in their prevention. In the present paper, we investigate firms' moral hazard problems in sickness absences by analysing a legislative change that took place in Austria in 2000. In September 2000, an insurance fund that refunded firms for the costs of their blue-collar workers' sickness absences was abolished (firms did not receive a similar refund for their white-collar workers' sickness absences). Before that time, small firms were fully refunded for the wage costs of blue-collar workers' sickness absences. Large firms, by contrast, were refunded only 70 percent of the wages paid to sick blue-collar workers. Using a difference-in-differences-in-differences approach, we estimate the causal impact of refunding firms for their workers' sickness absences. Our results indicate that the incidences of blue-collar workers' sicknesses dropped by approximately 8 percent and sickness absences were almost 11 percent shorter following the removal of the refund. Several robustness checks confirm these results.
    Keywords: Absenteeism Moral Hazard Sickness Insurance
  11. By: Rong Hu; Chunli Shen; Heng-fu Zou
    Abstract: This paper examines health care reform in urban and rural China. Before health care reform, Chinese health service facilities were run entirely by the state and basically they performed a social welfare function. This health care system greatly improved the population health conditions but many problems started to emerge in 1980s when the economic reform started. Since then, the government has been struggling to maintain a balance between meeting people¡¯s health care needs and develop the health care "industry". Problems and their contribution factors in organization, financing and performance of the health care reform are examined and analyzed. In terms of organization, decentralization of the decision making power in health sector and marketization of the medical establishments constitutes the main organizational changes in the health care reform. This organizational reform of health sector as an imposed institution change, encounters lots of resistance in the process of implementation. A tremendous amount of conflictions arises because of the commercialization of health sector that used to perform social welfare function. In terms of financing, share of organized financing (government and social fund) in the total health expenditure declined dramatically since the reform. In urban China, Health care insurance faced tough going on universal access. In rural China, there are lots of problems in implementing new cooperative health system partly because of its imperfect design. In terms of performance, data shows that there is growing inequity in health status between rural and urban in the past 15 years. Inefficiencies also exists in both resource allocation and service delivery. Several options are analyzed for organizational reform and health care financing. The report recommends that the aims of the future reform policy that government would adopt should be to improve the population health status instead of generating profit for institutions or industry. The social welfare function of health care system should be reinforced and at the same time managed competition in the health care market should be encouraged. In health care financing in urban area, several directions of broadening risk pooling are discussed. In rural health care financing, the designing of new cooperative health care system is analyzed. Rural financing should be more flexible in order to attract more people to join the cooperative medical system. It is recommended that Chinese government should increase funding for public health programs and subsidize health services for the disadvantaged groups.
    Date: 2011
  12. By: Lorenzo Corsini
    Abstract: We analyse the role that wealth and unemployment benefits have on unemployment duration and try to tackle the different mechanisms through which they may interact. In particular, we investigated on whether liquidity constraints (which are influenced both by wealth and benefits) are affecting negatively search effort and thus unemployment duration and whether the benefits eligibility criteria, requiring active search could produce incentives to find a job. Using a sample of newly unemployed from Italy in 2007, we perform estimations of Cox hazard models and as- sess what variables are important in determining unemployment duration. Our analysis highlights three relevant features. 1) Benefits have a mixed effect on duration: initially they provide incentives to actively search and increase re-employment probability, as the eligibility criteria impose certain search requirements and benefits are associated to re-employment services and counseling. However, with time, the mitigation of liquidity constraints takes over and they increase duration. 2) Household wealth, reducing liquidity constraints, seems to increase duration. 3) We find interactions between benefits and wealth: individuals from richer house- holds have less liquidity constraints and therefore the mitigating effect of benefits on liquidity constraints is less relevant and, in fact, we do not find evidence that, for these individuals, benefits increase unemployment duration.
    Keywords: Unemployment Insurance; Household Wealth; Unemployment Duration; Duration Models.
    JEL: J64 J65 D31
    Date: 2011–01–09
  13. By: Jeffrey Brown; Amy Finkelstein
    Abstract: Long-term care expenditures constitute one of the largest uninsured financial risks facing the elderly in the United States. This paper provides an overview of the economic and policy issues surrounding insuring long-term care expenditure risk. Through this lens we also discuss the likely impact of recent long-term care public policy initiatives at both the state and federal level.
    JEL: I11 I28
    Date: 2011–09
  14. By: Gopi Shah Goda; John B. Shoven; Sita Nataraj Slavov
    Abstract: Despite the presence of Medicare, out-of-pocket medical spending is a large expenditure risk facing the elderly. While women live longer than men, elderly women incur higher out-of-pocket medical spending than men at each age. In this paper, we examine whether differences in marital status and living arrangements can explain this difference. We find that out-of-pocket medical spending is approximately 29 percent higher when an individual becomes widowed, a large portion of which is spending on nursing homes. Our results suggest a substantial role of living arrangements in out-of-pocket medical spending; however, our estimates combined with differences in rates of widowhood across gender suggest that marital status can explain only one third of the gender difference in total out-of-pocket medical spending, leaving a large portion unexplained. On the other hand, gender differences in widowhood more than explain the observed gender difference in out-of-pocket spending on nursing homes.
    JEL: I11 J12 J14 J16
    Date: 2011–09

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