nep-ias New Economics Papers
on Insurance Economics
Issue of 2012‒01‒03
eleven papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Blanket guarantee, deposit insurance, and risk-shifting incentive: evidence from Indonesia By Kariastanto, Bayu
  2. In Absolute or Relative Terms?: How Framing Prices Affects the Consumer Price Sensitivity of Health Plan Choice By Hendrik Schmitz; Nicolas R. Ziebarth
  3. Social insurance mechanisms in the European Union By Katherine Lyons; Christine Cheyne
  4. Take-Up of Public Insurance and Crowd-out of Private Insurance Under Recent CHIP Expansions to Higher Income Children By Carole Roan Gresenz; Sarah E. Edgington; Miriam J. Laugesen; José J. Escarce
  5. An Industrial Organization Theory of Risk Sharing By M. Martin Boyer; Charles M. Nyce
  6. Utilization of Infertility Treatments: The Effects of Insurance Mandates By Marianne P. Bitler; Lucie Schmidt
  7. Using Respondents’ Uncertainty Scores to Mitigate Hypothetical Bias in Community-Based Health Insurance Studies By Eric Malin CREM, UMR CNRS 6211, University of Rennes I, France; Hermann Pythagore Pierre Donfouet, CREM, UMR 6211, University of Rennes I, France; Pierre-Alexandre Mahieu, LEMNA, University of Nantes, France
  8. Redistribution and Insurance in the German Welfare State By Charlotte Bartels
  9. Measuring the (Income) Effect of Disability Insurance Generosity on Labour Market Participation By Marie Olivier; Vall Castello Judit
  10. Unemployment Compensation and Adjustment Assistance for Displaced Workers: Policy Options for Canada By Riddell, W. Craig
  11. Medicaid and the Elderly By Mariacristina De Nardi; Eric French; John Bailey Jones; Angshuman Gooptu

  1. By: Kariastanto, Bayu
    Abstract: Indonesia established a deposit insurance system to maintain stability in its banking sector after the abolishment of blanket guarantees in 2005. Since the insurance premiums are fixed and flat, deposit insurance may create an incentive for banks to take more risks and transfer the risks to the deposit insurer. Using an option pricing based model of deposit insurance, we compute the fair deposit insurance premiums for all banks listed on the Indonesian stock exchange. We find evidence that banks shifted their risks to the deposit insurer. The magnitude of risk-shifting incentives under the deposit insurance regime is higher than under the blanket guarantee regime, as Indonesian depositors seem to lack awareness in monitoring bank performance.
    Keywords: Deposit Insurance; Fair Premium; Option-based Pricing; Moral Hazard; Indonesia
    JEL: G18 G21
    Date: 2011–12–23
  2. By: Hendrik Schmitz; Nicolas R. Ziebarth
    Abstract: This paper provides field evidence on (a) how price framing affects consumers¿ decision to switch health insurance plans and (b) how the price elasticity of demand for health insurance can be influenced by policymakers through simple regulatory efforts. In 2009, in order to foster competition among health insurance companies, German federal regulation required health insurance companies to express price differences between health plans in absolute Euro values rather than percentage point payroll tax differences. Using individuallevel panel data, as well as aggregated health plan-level panel data, we find that the reform led to a sixfold increase in an individual¿s switching probability and a threefold demand elasticity increase.
    Keywords: Health insurance, health plan switching, price competition, price elasticity, SOEP
    JEL: H51 I11 I18
    Date: 2011
  3. By: Katherine Lyons; Christine Cheyne
    Abstract: Social insurance is an established method of social protection in certain European Union (EU) member states and has been introduced more widely as a means of minimising the threats to social welfare expenditure from economic crisis and ageing populations. With the recent global financial crisis, when affordability of welfare spending is coming under intense scrutiny, it is timely to consider the nature of social insurance. This paper reviews social insurance in three different welfare regimes (Continental, Scandinavian and Anglo-Saxon) and considers its future role. Social insurance currently takes a variety of forms reflecting historical developments and ideological influences in different member states and going forward is argued to be an important mechanism both in terms of its contribution to fiscal sustainability and solidarity.
    Keywords: political science; social democracy; social policy; sociology; welfare state
    Date: 2011–12–15
  4. By: Carole Roan Gresenz; Sarah E. Edgington; Miriam J. Laugesen; José J. Escarce
    Abstract: We analyze the effects of states’ expansions of CHIP eligibility to children in higher income families during 2002-2009 on take-up of public coverage, crowd-out of private coverage, and rates of uninsurance. Our results indicate these expansions were associated with limited uptake of public coverage and only a two percentage point reduction in the uninsurance rate among these children. Because not all of the take-up of public insurance among eligible children is accounted for by children who transfer from being uninsured to having public insurance, our results suggest that there may be some crowd-out of private insurance coverage; the upper bound crowd-out rate we calculate is 46 percent.
    Date: 2011–12
  5. By: M. Martin Boyer; Charles M. Nyce
    Abstract: Examining the global reinsurance market for catastrophic losses, we propose a new theory of optimal risk sharing that finds its inspiration in the economic theory of the firm. Our model offers a theoretical foundation for the vertical and horizontal tranching of insurance contracts (also known respectively as proportional and excess of loss reinsurance contracts). Using a two-factor production model popular in industrial economics, we show how reinsurance should be optimally layered (with attachment and detachment points) for a given book of business. This allows us to find the minimum insurance premium necessary to cover the cost of catastrophic events. We conclude with public policy implications by showing the conditions under which government intervention in the catastrophic loss insurance industry can reduce the cost to society of bearing risk and increase its welfare. <P>
    Keywords: Reinsurance; Cost of capital; Catastrophic risk; Government intervention in insurance markets,
    JEL: G22 G28
    Date: 2011–12–01
  6. By: Marianne P. Bitler; Lucie Schmidt
    Abstract: Over the last several decades, both delay of childbearing and fertility problems have become increasingly common among women in developed countries. At the same time, technological changes have made many more options available to individuals experiencing fertility problems. However, these technologies are expensive, and only 25% of health insurance plans in the United States cover infertility treatment. As a result of these high costs, legislation has been passed in 15 states that mandates insurance coverage of infertility treatment in private insurance plans. In this paper, we examine whether mandated insurance coverage for infertility treatment affects utilization. We allow utilization effects to differ by age and education, since previous research suggests that older, more educated women should be more likely to be directly affected by the mandates than younger women and less educated women, both because they are at higher risk of fertility problems and because they are more likely to have private health insurance which is subject to the mandate. We find robust evidence that the mandates do have a significant effect on utilization for older, more educated women that is larger than the effects found for other groups. These effects are largest for the use of ovulation-inducing drugs and artificial insemination.
    JEL: I1
    Date: 2011–12
  7. By: Eric Malin CREM, UMR CNRS 6211, University of Rennes I, France; Hermann Pythagore Pierre Donfouet, CREM, UMR 6211, University of Rennes I, France; Pierre-Alexandre Mahieu, LEMNA, University of Nantes, France
    Abstract: Community-based health insurance has been implemented in several developing countries to help the poor to gain access to adequate health care services. Assessing what the poor are willing to pay is of paramount importance for policy-making. The contingent valuation method, which relies on a hypothetical market, is commonly used for this purpose. But the presence of the hypothetical bias which is most often inherent in this method tends to bias the estimates upward, and compromises policy-making. This paper uses respondents’ uncertainty scores in an attempt to mitigate hypothetical bias in community-based health insurance in one rural setting in Cameroon. Uncertainty scores are often employed in single dichotomous choice surveys. An originality of the paper is to use such an approach in a double-bounded dichotomous choice survey. The results suggest that this instrument is effective at decreasing the mean WTP.
    Keywords: Community-based health insurance, contingent valuation method, hypothetical bias
    JEL: C35 D80 I38
    Date: 2011–10
  8. By: Charlotte Bartels
    Abstract: Welfare states redistribute both between individuals reducing annual inequality and over the life-cycle insuring against income risks. But studies measuring redistribution often focus only on a one-year period. Using German SOEP data from 1984 to 2009, long-term inequality over a 20-year period is computed and then decomposed into an inter- and intra-individual component. Results show that annual inequality is higher than long-term inequality, but redistribution is also larger annually. In the long-term, the German welfare state clearly gives priority to insurance over redistribution. This gets even more pronounced at later stages of the life-cycle through the payment of social security pensions.
    Keywords: Long-term income inequality, Income redistribution, Social security
    JEL: D31 D63 H53 H55
    Date: 2011
  9. By: Marie Olivier; Vall Castello Judit (METEOR)
    Abstract: We analyze the employment effect of a law that provides for a 36 percent increase in thegenerosity of disability insurance (DI) for claimants who are, as a result of their lack of skillsand of the labour market conditions they face, deemed unlikely to find a job. The selectionprocess for treatment is therefore conditional on having a low probability of employment, makingevaluation of its effect intrinsically difficult. We exploit the fact that the benefit increase isonly available to individuals aged 55 or older, estimating its impact using a regressiondiscontinuity approach. Our first results indicate a large drop in employment for disabledindividuals who receive the increase in the benefit. Testing for the linearity of covariatesaround the eligibility age threshold reveals that the age at which individuals start claiming DIis not continuous: the benefit increase appears to accelerate the entry rate of individuals aged55 or over. We obtain new estimates excluding this group of claimants, and find that the policydecreases the employment probability by 8 percent. We conclude that the observed DI generosityelasticity of 0.22 on labour market participation is mostly due to income effects since benefitreceipt is not work contingent in the system studied.
    Keywords: labour organization;
    Date: 2011
  10. By: Riddell, W. Craig
    Abstract: This paper examines the role of EI in providing support to “displaced workers,†those who permanently lose their jobs because of changing circumstances. Adjusting to change benefits Canadians as a whole. However, some workers suffer much more from job loss than do others. Those who have held their jobs for an extended period experience substantial earnings losses, while those who have been employed for brief periods experience small losses. Like other job losers, long-tenure displaced workers experience earnings losses due to reduced income during unemployment following displacement. However, unlike other job losers, many long-tenure displaced workers become re-employed at significantly lower wages. EI does not take into account these consequences of job loss. Long-tenure displaced workers constitute a small minority of job losers. My analysis indicates that job losers with 5 or more years of job tenure constitute about 5% of unemployment and 15-20% of permanent job losers. The paper makes several policy recommendations. Some address gaps in research and knowledge, while others recommend enhanced EI benefits for those who suffer greatly from job loss. Since most loss from displacement occurs after reemployment, wage insurance seems the most promising approach for insuring against large losses.
    Keywords: labour market adjustment, job displacement, unemployment, unemployment insurance, adjustment assistance policies, wage insurance
    JEL: J60 J63 J64 J65 J68
    Date: 2011–12–22
  11. By: Mariacristina De Nardi; Eric French; John Bailey Jones; Angshuman Gooptu
    Abstract: We describe the Medicaid eligibility rules for the elderly. Medicaid is administered jointly by the Federal and state governments, and each state has significant flexibility on the details of the implementation. We document the features common to all states, but we also highlight the most salient state-level differences. There are two main pathways to Medicaid eligibility for people over age 65: either having low assets and income, or being impoverished due to large medical expenses. The first group of recipients (the categorically needy) mostly includes life-long poor individuals, while the second group (the medically needy) includes people who might have earned substantial amounts of money during their lifetime but have become impoverished by large medical expenses. The categorically needy program thus only affects the savings decision of people who have been poor throughout most of their lives. In contrast, the medically needy program provides some insurance even to people who have higher income and assets. Thus, this second pathway is to some extent going to affect the savings of the relatively higher income and assets people.
    JEL: H1 H31
    Date: 2011–12

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