nep-ias New Economics Papers
on Insurance Economics
Issue of 2014‒06‒02
twenty papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Do more health insurance options lead to higher wages? Evidence from states extending dependent coverage By Marcus Dillendcer
  2. Surprising Selection Effects in the UK Car Insurance Market By Cannon, Edmund; Cipriani, Giam Pietro; Bazar-Rosen, Katia
  3. The Effect of Public Insurance Coverage for Childless Adults on Labor Supply By Dague, Laura; DeLeire, Thomas; Leininger, Lindsey
  4. Hurricane Katrina: Behavioral Health and Health Insurance in Non-Impacted Vulnerable Counties By Pesko, Michael
  5. Social Program Substitution and Optimal Policy By Nicholas Lawson
  6. Risk, Insurance and Wages in General Equilibrium By Mobarak, Ahmed Mushfiq; Rosenzweig, Mark
  7. Hidden Insurance in a Moral Hazard Economy By Bertola, Giuseppe; Koeniger, Winfried
  8. Monopoly Insurance with Endogenous Information By Lagerlöf, Johan N. M.; Schottmüller, Christoph
  9. Market Externalities of Large Unemployment Insurance Extension Programs By Lalive, Rafael; Landais, Camille; Zweimüller, Josef
  10. Work and Tax Evasion Incentive Effects of Social Insurance Programs: Evidence from an Employment-Based Benefit Extension By Bergolo, Marcelo; Cruces, Guillermo
  11. Public Health Insurance Expansions and Hospital Technology Adoption By Seth Freedman; Haizhen Lin; Kosali Simon
  12. Work and tax evasion incentive effects of social insurance programs. Evidence from an employment-based benefit extension By Marcelo Bergolo; Guillermo Cruces
  13. Impacts of the Affordable Care Act Dependent Coverage Provision on Health-Related Outcomes of Young Adults By Silvia Barbaresco; Charles J. Courtemanche; Yanling Qi
  14. The Tradeoff Between Health and Wealth in Retirement Decisions By Kristine M. Brown
  15. Unemployment Insurance, Job Search and Informal Employment By David Margolis; Lucas Navarro; David A. Robalino
  16. Why Do Some Countries Spend More for Health? An Assessment of Sociopolitical Determinants and International Aid for Government Health Expenditures By Li-Lin Liang; Andrew J Mirelman
  17. Taking Stock of Fiscal Health: Trends in Global, Regional, and Country Level Health Financing By Lisa Fleisher; Adam Leive; George Schieber
  18. Voluntary Public Health Insurance By Goulão, Catarina
  19. Cyclical Patterns in Government Health Expenditures Between 1995 and 2010 By Edit V. Velenyi; Marc F. Smitz
  20. Using quantile regression for optimal risk adjustment By Normann Lorenz

  1. By: Marcus Dillendcer (W.E. Upjohn Institute for Employment Research)
    Keywords: Health insurance, Dependent coverage, Wages, Education
    JEL: J30 I13
  2. By: Cannon, Edmund (University of Bristol); Cipriani, Giam Pietro (University of Verona); Bazar-Rosen, Katia (University of Bristol)
    Abstract: We document a large and persistent anomaly in the UK car insurance market over the period 2012-13: insurance companies charged a higher premium for third-party (liability) insurance than comprehensive insurance (which includes third-party). Furthermore, some companies charged higher prices for comprehensive policies with larger deductibles. This evidence suggests both that consumers are too confused or too poorly informed to arbitrage and that sellers of car insurance do not implement the incentive-compatibility constraints at the heart of the adverse-selection model of insurance. This particular insurance market is much less sophisticated than that characterised by modern microeconomic theory.
    Keywords: car insurance, adverse selection, bounded rationality
    JEL: D82 G22
    Date: 2014–05
  3. By: Dague, Laura (Texas A&M University); DeLeire, Thomas (Georgetown University); Leininger, Lindsey (University of Illinois at Chicago)
    Abstract: This study provides plausibly causal estimates of the effect of public insurance coverage on the employment of non-elderly, non-disabled adults without dependent children ("childless adults"). We use regression discontinuity and propensity score matching difference-in-differences methods to take advantage of the sudden imposition of an enrollment cap, comparing the labor supply of enrollees to eligible applicants on a waitlist. We find enrollment into public insurance leads to sizable and statistically meaningful reductions in employment up to at least 9 quarters later, with an estimated size of from 2 to 10 percentage points depending upon the model used.
    Keywords: health insurance, labor supply
    JEL: I13 J22
    Date: 2014–05
  4. By: Pesko, Michael
    Abstract: I find causal evidence that Hurricane Katrina increased stress, smoking, binge drinking, and health insurance coverage in the non-impacted storm surge region. In this region, Hurricane Katrina increased health insurance coverage by 440,000 young adults, the number of smokers by 930,000, and the number of binge drinkers by 510,000. Results are robust to varying the location and time of Hurricane Katrina, varying the pre-Hurricane Katrina time window, and excluding counties within 400 miles of New Orleans. Findings suggest that disasters are integral to the formation of risk perceptions and affect the demand for behavioral health and health insurance.
    Keywords: health insurance, substance use, stress, risk perceptions, disasters
    JEL: D81 I13 I19 Q54
    Date: 2014–05
  5. By: Nicholas Lawson (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: A growing literature on substitution between social programs provides consistent evidence that changes in the generosity of one program can lead to changes in enrollment on other programs. However, this evidence has been ignored in welfare analyses of social insurance programs. I demonstrate that substitutions between programs can dramatically alter conclusions about optimal policy, with a particular focus on optimal unemployment insurance (UI) when there is substitution between UI and disability insurance (DI). If more generous UI reduces enrollment on DI, the result is a reduction in government spending on DI, and I show that this effect can significant increase the optimal UI replacement rate from 3% to 85%.
    Keywords: fiscal interactions, program substitution, optimal unemployment insurance, disability insurance
    Date: 2014–05–16
  6. By: Mobarak, Ahmed Mushfiq; Rosenzweig, Mark
    Abstract: We estimate the general-equilibrium labor market effects of a large-scale randomized intervention in which we designed and marketed a rainfall index insurance product across three states in India. Marketing agricultural insurance to both cultivators and to agricultural wage laborers allows us to test a general-equilibrium model of wage determination in settings where households supplying labor and households hiring labor face weather risk. Consistent with theoretical predictions, we find that both labor demand and equilibrium wages become more rainfall sensitive when cultivators are offered rainfall insurance, because insurance induces cultivators to switch to riskier, higher-yield production methods. The same insurance contract offered to agricultural laborers smoothes wages across rainfall states by inducing changes in labor supply. Policy simulations based on our estimates suggest that selling insurance only to land-owning cultivators and precluding the landless from the insurance market (which is the current regulatory practice in India and other developing countries), makes wage laborers worse off relative to a situation where insurance does not exist at all. The general-equilibrium analysis reveals that the welfare costs of current regulation are borne by landless laborers, who represent the poorest segment of society and whose risk management options are the most limited.
    Keywords: Agricultural Wages; General Equilibrium Effects; Index Insurance
    JEL: O13 O16
    Date: 2014–01
  7. By: Bertola, Giuseppe; Koeniger, Winfried
    Abstract: We consider an economy where individuals privately choose effort and trade competitively priced securities that pay off with effort-determined probability. We show that if insurance against a negative shock is sufficiently incomplete, then standard functional form restrictions ensure that individual objective functions are optimized by an effort and insurance combination that is unique and satisfies first- and second-order conditions. Modeling insurance incompleteness in terms of costly production of private insurance services, we characterize the constrained inefficiency arising in general equilibrium from competitive pricing of non-exclusive financial contracts.
    Keywords: Constrained efficiency; First-order approach; Hidden action; Principal agent
    JEL: D81 D82 E21
    Date: 2014–03
  8. By: Lagerlöf, Johan N. M.; Schottmüller, Christoph
    Abstract: We study a monopoly insurance model with endogenous information acquisition. Through a continuous effort choice, consumers can determine the precision of a privately observed signal that is informative about their accident risk. The equilibrium effort is, depending on parameter values, either zero (implying symmetric information) or positive (implying privately informed consumers). Regardless of the nature of the equilibrium, all offered contracts, also at the top, involve underinsurance. The reason is that underinsurance at the top discourages information gathering. We identify a sorting effect that explains why the insurer wants to discourage information acquisition. Moreover, a public policy that decreases the information gathering costs can hurt both parties. Lower information gathering costs can harm consumers because the insurer adjusts the optimal contract menu in an unfavorable manner.
    Keywords: adverse selection; asymmetric information; information acquisition; insurance; screening
    JEL: D82 I13
    Date: 2013–12
  9. By: Lalive, Rafael; Landais, Camille; Zweimüller, Josef
    Abstract: This paper offers quasi experimental evidence of the existence of spillover effects of UI extensions using a unique program that extended unemployment benefits drastically for a subset of workers in selected regions of Austria. We use non-eligible unemployed in treated regions, and a difference-in-difference identification strategy to control for preexisting differences across treated and untreated regions. We uncover the presence of important spillover effects: in treated regions, as the search effort of treated workers plummets, the job finding probability of untreated workers increases, and their average unemployment duration and probability of long term unemployment decrease. These effects are the largest when the program intensity reaches its highest level, then decrease and disappear as the program is scaled down and finally interrupted. We use this evidence to assess the relevance of different assumptions on technology and the wage setting process in equilibrium search and matching models and discuss the policy implications of our results for the EUC extensions in the US.
    Keywords: benefit extension; macro effects; market externality; unemployment insurance
    JEL: J21 J22 J65
    Date: 2013–10
  10. By: Bergolo, Marcelo (IECON, Universidad de la República); Cruces, Guillermo (CEDLAS-UNLP)
    Abstract: This article studies how social insurance programs shape individual's incentives to take up registered employment and to report earnings to the tax authorities. The analysis is based on a social insurance reform in Uruguay that extended healthcare coverage to the dependent children of registered private-sector workers. The identification strategy relies on a comparison between individuals with and without dependent children before and after the reform. The reform increased benefit-eligible registered employment by 1.6 percentage points (about 5 percent above the pre-reform level), mainly due to an increase in labor force participation rather than to movement from unregistered to registered employment. The shift was greater for parents with younger children and for cohabiting adults whose partners' jobs did not provide the couples' children with access to the benefit. Finally, the reform increased the incidence of underreporting of salaried earnings by about 4 percentage points (25 percent higher than the pre-reform level), mostly for workers employed at small firms. The increase in fiscal revenue from higher levels of registered employment was several orders of magnitude greater than the loss of revenue due to an increase in underreporting.
    Keywords: labor supply, work incentives, social insurance, tax evasion
    JEL: J22 H26 O17
    Date: 2014–05
  11. By: Seth Freedman; Haizhen Lin; Kosali Simon
    Abstract: This paper explores the effects of public health insurance expansions on hospitals’ decisions to adopt medical technology. Specifically, we test whether the expansion of Medicaid eligibility for pregnant women during the 1980s and 1990s affects hospitals’ decisions to adopt neonatal intensive care units (NICUs). While the Medicaid expansion provided new insurance to a substantial number of pregnant women, prior literature also finds that some newly insured women would otherwise have been covered by more generously reimbursed private sources. This leads to a theoretically ambiguous net effect of Medicaid expansion on a hospital’s incentive to invest in technology. Using American Hospital Association data, we find that on average, Medicaid expansion has no statistically significant effect on NICU adoption. However, we find that in geographic areas where more of the newly Medicaid-insured may have come from the privately insured population, Medicaid expansion slows NICU adoption. This holds true particularly when Medicaid payment rates are very low relative to private payment rates. This finding is consistent with prior evidence on reduced NICU adoption from increased managed-care penetration. We conclude by providing suggestive evidence on the health impacts of this deceleration of NICU diffusion, and by discussing the policy implications of our work for insurance expansions associated with the Affordable Care Act.
    JEL: I11 I13 I18
    Date: 2014–05
  12. By: Marcelo Bergolo (IECON-UDELAR and CEDLAS-UNLP); Guillermo Cruces (CEDLAS-UNLP, CONICET and IZA)
    Abstract: This article studies how social insurance programs shape individual’s incentives to take up registered employment and to report earnings to the tax authorities. The analysis is based on a social insurance reform in Uruguay that extended healthcare coverage to the dependent children of registered private-sector workers. The identification strategy relies on a comparison between individuals with and without dependent children before and after the reform. The reform increased benefit-eligible registered employment by 1.6 percentage points (about 5 percent above the prereform level), mainly due to an increase in labor force participation rather than to movement from unregistered to registered employment. The shift was greater for parents with younger children and for cohabiting adults whose partners’ jobs did not provide the couples’ children with access to the benefit. Finally, the reform increased the incidence of underreporting of salaried earnings by about 4 percentage points (25 percent higher than the pre-reform level), mostly for workers employed at small firms. The increase in fiscal revenue from higher levels of registered employment was several orders of magnitude greater than the loss of revenue due to an increase in underreporting.
    JEL: J22 H26 O17
    Date: 2014–05
  13. By: Silvia Barbaresco; Charles J. Courtemanche; Yanling Qi
    Abstract: The first major insurance expansion of the Affordable Care Act – a provision requiring insurers to allow dependents to remain on parents’ health insurance until turning 26 – took effect in September 2010. We estimate this mandate’s impacts on numerous health-related outcomes using a difference-in-differences approach with 23-25 year olds as the treatment group and 27-29 year olds as the control group. For the full sample, the dependent coverage provision increased the probabilities of having insurance, a primary care doctor, and excellent self-assessed health, while decreasing unmet medical needs because of cost. However, we find no evidence of improvements in preventive care utilization or health behaviors. Subsample analyses reveal particularly striking gains for college graduates, including reduced obesity. Finally, we show that the mandate’s impacts on 19-22 year olds were generally weaker than those on 23-25 year olds, although we observe a reduction in pregnancies for unmarried 19-22 year old women.
    JEL: I12 I13 I18
    Date: 2014–05
  14. By: Kristine M. Brown
    Abstract: In the United States, because access to health insurance is tied to employment, the availability of retiree health insurance interacts with post-retirement income to shape the retirement decision. This paper uses administrative data from the California Department of Education to estimate the rate at which individuals’ trade off post-retirement health insurance benefits for a longer retirement and for retirement income benefits. The sensitivity of retirement to the return to working in terms of post-retirement health insurance is estimated. This estimate is then compared to the sensitivity of retirement to pension generosity in order to determine the implied rate at which individuals substitute between health insurance and pension benefits. The two estimation methods used leverage plausibly exogenous benefit variation driven by the sharp features of the retiree benefit programs. The results imply that individuals will delay retirement to become eligible for retiree health benefits, but that the effect is small relative to the effect of pension benefits on retirement timing.
    Date: 2014–05
  15. By: David Margolis (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique, IZA - Institute for the Study of Labor, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, IZA - Forschungsinstitut zur Zukunft der Arbeit (Institute for the Study of Labor) - Bonn Universität - University of Bonn, Paris School of Economics - Université Paris I - Panthéon-Sorbonne); Lucas Navarro (ILADES - Universidad Alberto Hurtado); David A. Robalino (Social Protection and Labor Sector, Human Development Department - The World Bank)
    Abstract: This paper analyses the potential impacts of introducing unemployment insurance (UI) in middle income countries using the case of Malaysia, which today does not have such a system. The analysis is based on a job search model with unemployment and three employment sectors: formal and informal wage employment, and self employment. The parameters of the model are estimated to replicate the structure of the labor market in Malaysia in 2009 and the distribution of earnings for informal, formal and self employed workers. The results suggest that unemployment insurance would have only a modest negative effect on unemployment if benefits are not overly generous. The main effect would be a reallocation of labor from wage into self employment while increasing average wages in the formal and informal sectors.
    Keywords: Unemployment insurance, Informal sector, Self employment, Job search
    Date: 2013
  16. By: Li-Lin Liang; Andrew J Mirelman
    Abstract: A consensus exists that rising income levels and technological development are among the key drivers of total health spending. However, determinants of public sector health expenditure are less well understood. This study examines a complex relationship across government health expenditure (GHE), sociopolitical risks, and international aid, while taking into account the impact of national income and fiscal capacity on health spending. The author apply a two-way fixed effects and two-stage least squares regression method to a panel dataset comprising 120 countries for the years 1995 through 2010. Our results show that democratic accountability has a diminishing positive correlation with GHE, and that levels of spending are higher when the government is more stable. Corruption is associated with less spending in developing countries, but with more spending in high-income countries. Furthermore, the author find that development assistance for health (DAH) substitutes for domestically financed government health expenditure (DGHE). For an average country, a 1 percent increase in total DAH or DAH to government is associated with a 0.02 percent decrease in DGHE. Our work highlights that policy reforms that aim to eliminate corruption are fundamental to improving the capacity of developing countries to scale up GHE, and to increasing the efficiency of health care systems in developed countries in containing health care costs. To minimize fungibility, donors may impose stronger monitoring mechanisms for corruption. Delivering aid through NGOs may be an option in countries with high ethnic tensions; however, the ability to do so depends on institutional arrangements and the capacity of NGOs in individual countries.
    Keywords: accountability, aggregate health expenditure, aggregate income, anticorruption, anticorruption reforms, bribes, cabinet, coalition government, corrupt, Corruption, corruption ... See More + in government, debt, delivery system, democracies, democracy, democratic accountability, democratic systems, determinants of health, Econometric Analysis of Health Care Expenditure, Economic Review, election, External Debt, financial resources, Fiscal Policy, fraud, Health Affairs, health care, health care costs, Health Care Expenditure, Health Care Finance, Health Care Reform, Health Care Spending, health care systems, health coverage, Health Economics, health expenditure, health expenditure growth, Health Expenditures, health financing, health insurance, health insurance coverage, Health Organization, Health Outcomes, Health Policy, health programs, health resources, health sector, Health Services, health spending, health systems, hospital systems, Human Development, Human Resources, incentive structures, income countries, Income Elasticity, Income Elasticity of Health Care, income groups, informal sector, insurance premiums, International Health Care, investigation, kickbacks, leadership, low-income countries, medical resources, medical technology, monitoring mechanisms, National Health, nepotism, Nutrition, older people, patronage, pocket payment, political interests, political opponents, political party, political system, political systems, Politicians, Private Health Services, private sector, Provision of Health Care, Public Health, Public Health Care, Public Health Spending, Public Policy, public sector, public spending, social health insurance, social welfare, transparency, Tuberculosis
    Date: 2014–01
  17. By: Lisa Fleisher; Adam Leive; George Schieber
    Abstract: This note analyzes levels and trends of health expenditures by country, income group, and region in the context of overall government revenue, expenditure, and GDP trends between 1995 and 2010. The study uses available data from the World Health Organization's (WHO) National Health Accounts, the International Monetary Fund's (IMF) fiscal data bases, and the World Bank's World Development Indicators. The paper provides snapshots of health financing patterns, both public and private, at different points in time, as well as analyzing the stability of these relationships and tracing their evolution during this period. In general, there is little variation in the average income elasticity's of total, government, and out-of pocket (OOP) health spending by income level or region. The elasticity's of government health spending to total government expenditures and revenues exhibit more variation across both income groups and region than the income elasticity. Controlling for demographics moderately reduces the magnitude of these estimates. Many elasticity estimates are close to one, indicating the importance of income as a driving force behind health spending. Some countries exhibit fluctuations in the income elasticity of government health spending but many have increasing elasticity's over the 1995 to 2010 period. These trends highlight the simple macro-fiscal context for health spending, and flag situations that require more in-depth analyses as countries struggle with the fiscal sustainability of their health systems, particularly as they pursue universal insurance coverage and significant supply side expansions.
    Keywords: absolute difference, analysis of variance, average income, average share, base year, benchmarks, capita health spending, clean water, Country Level, crowding, debt, demand ... See More + for health, DESCRIPTIVE STATISTICS, determinants of health, developing countries, economic factors, exchange rates, exogenous shocks, families, financial crisis, fiscal policy, GDP, GDP per capita, government expenditures, health care, Health Care Spending, Health Economics, health expenditure, health expenditures, Health Financing, HEALTH INDICATORS, health insurance, health interventions, Health Organization, health outcomes, health policies, health policy, health programs, health share, health spending, health status, health systems, high correlation, human capital, Human Development, illness, income countries, income elasticities, income elasticity, income groups, income level, income levels, incomes, infant mortality, insurance, insurance coverage, life expectancy, life expectancy at birth, linear regression, low income, Macroeconomic Context, Mean Income, medical care, middle income countries, middle income country, mortality, mortality rates, National Health, nominal income, non-governmental organizations, Nutrition, obesity, physician, policy perspective, Political Economy, population share, positive coefficient, private spending, public health, public health interventions, public health programs, real GDP, regression analysis, significant differences, taxation, trough
    Date: 2013–11
  18. By: Goulão, Catarina
    Abstract: We look at the consequences of allowing public health insurance (PuHI) to be voluntary when its coverage can be supplemented in the market. PuHI redistributes with respect to risk and income, and the market is affected by adverse selection. We argue that making PuHI voluntary does not lead to its collapse since there are always individuals participating in it. Additionally, in some cases, a voluntary PuHI scheme creates an increase in market efficiency because participation in it becomes a sign of an individual's type. The welfare consequences depend on the status quo. If in the status quo there is no political support for a compulsory PuHI, making it voluntary constitutes a Pareto improvement, and in some cases all individuals are strictly better off. If, instead, the status quo implements compulsory PuHI, making it voluntary then results in less redistribution.
    Keywords: Public health insurance, adverse selection, majority voting
    JEL: D72 H23 H42 H50
    Date: 2014–03–17
  19. By: Edit V. Velenyi; Marc F. Smitz
    Abstract: The 2008-09 global economic crises have shown that no country is immune to external challenges. When policy controls are missing or not used efficiently, crises can reverse progress even in advanced economies. This unexpected outcome has increased concerns about the ability of governments in developing countries to manage downturns. The question is whether current and future crises will reinforce the procyclical responses or whether these governments will be able to escape the procyclical trap. In the fiscal domain, countercyclical trends in developing countries are promising. Over the last decade, about a third of the developing world has been able to escape the procyclicality trap. Yet, little is known about the evidence on the cyclical patterns of government health spending. This descriptive analysis, which covers 183 countries between 1995 and 2010, provides empirical evidence on the cyclicality of government health expenditures, using panel data from a global macro database, the fiscal health database. The objective is to propose user-friendly diagnostic approaches in this area that can be easily replicated and updated to inform technical discussions and policy making
    Keywords: allocation of resources, analytical capacity, Article, automatic stabilizer, automatic stabilizers, balance of payment, banking crises, Burns, BUSINESS CYCLE, business ... See More + cycles, capital flows, capital formation, capital investment, capital spending, Central Bank, central government, central government spending, checks, Country Risk, credit markets, creditworthiness, crisis countries, currency crises, data analysis, DATA AVAILABILITY, data quality, debt, debt crises, debt payments, demand for health, demand for health care, demand for services, developing countries, diagnostic tool, economic cycle, economic development, economic downturn, economic downturns, economic fluctuations, economic growth, ECONOMIC POLICIES, economic policy, ECONOMIC RISK, economic shocks, education spending, efficiency gains, exchange rate, exchange rates, expenditure growth, EXPENDITURES ON HEALTH, exporters, external borrowings, external debt, family planning, financial crises, Financial Crisis, financial flows, financial markets, financial protection, financial resources, financial risk, financial sustainability, financial variables, financing policies, fiscal adjustment, fiscal austerity, fiscal behavior, fiscal constraints, fiscal deficits, Fiscal Health, fiscal impact, fiscal institutions, fiscal policies, fiscal policy, fiscal rules, fiscal stabilization, Fiscal Statistics, fiscal targets, foreign direct investment, government budgets, government consumption, government expenditure, GOVERNMENT EXPENDITURES, government revenue, government revenues, government spending, gross domestic product, growth potential, growth rate, health budgets, health care, health care financing, health coverage, Health Database, health expenditure, HEALTH EXPENDITURES, health financing, health insurance, health insurance funds, health needs, Health Organization, health outcomes, health policies, Health Policy, health sector, health sector reform, health service, health services, health share, health spending, health status, health system, Health Systems, Health Systems Research, health targets, household income, human capital, Human Development, illness, income countries, income effects, income elasticity, income groups, income growth, interest payments, International Bank, intervention, Keynesian theories, liquidity, loan, loan repayment, local currency, local governments, low-income countries, macroeconomic environment, Monetary Fund, National Health, national income, nongovernmental organizations, Nutrition, pensions, personal income, policy formulation, policy responses, political economy, Political Risk, poverty reduction, price volatility, private sector, provision of health services, provision of water, public education, public expenditure, public expenditures, public health, public health spending, public investment, public investments, public sector, public spending, purchasing power, remittances, reserves, returns, Risk Groups, risk management, safety net, sanitation, sector budget, sector policies, sector policy, sectoral allocation, sectoral policies, SOCIAL EXPENDITURES, social insurance, social policies, social policy, social programs, social protection, social safety nets, social services, solvency, sovereign debt, tax, total spending, transparency, Trust Fund, unemployment, voluntary sector
    Date: 2014–01
  20. By: Normann Lorenz
    Abstract: This paper analyzes optimal risk adjustment for direct risk selection (DRS). Integrating insurers activities for risk selection into a discrete choice model of individuals’ health insurance choice shows that DRS has the structure of a contest. For the contest success function used in most of the contest literature, optimal transfers for a risk adjustment scheme have to be determined by means of a restricted quantile regression, irrespective of whether insurers primarily engage in positive DRS (attracting low risks) or negative DRS (repelling high risks). This is at odds with the common practice of determining transfers by means of a least squares regression. However, this common practice can be rationalized within a discrete choice model for a new class of contest success functions, but only if positive and negative DRS are equally important; if not, optimal transfers have to be calculated from a restricted asymmetric least squares regression. Using data from a German and a Swiss health insurer, we find considerable differences between the three types of regressions. Optimal transfers therefore critically depend on which contest success function represents insurers’ incentives for DRS and whether positive and negative DRS are equally important or not. Results from the two data sets indicate that if a regulator does not know which case applies, transfers should rather be calculated by means of a quantile than a least squares regression.
    Keywords: Risk selection, risk adjustment, discrete choice, contest, quantile regression
    JEL: I13 I18 L13
    Date: 2014

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