nep-ias New Economics Papers
on Insurance Economics
Issue of 2014‒06‒22
thirteen papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Quality healthcare and health insurance retention: Evidence from a randomized experiment in the Kolkata slums: By Delavallade, Clara
  2. Will Divestment from Employment-Based Health Insurance Save Employers Money? The Case of State and Local Governments By Jeremy D. Goldhaber-Fiebert; David M. Studdert; Monica S. Farid; Jay Bhattacharya
  3. Encouraging health insurance for the informal sector : a cluster randomized trial By Wagstaff, Adam; Nguyen, Ha Thi Hong; Dao, Huyen; Balesd, Sarah
  4. "Sticker Shock" in Individual Insurance under Health Reform By Mark Pauly; Scott Harrington; Adam Leive
  5. Health Care Demand in the Presence of Discrete Price Changes By Michael Gerfin; Boris Kaiser; Christian Schmid
  6. Database Structure for a Multi Stage Stochastic Optimization Based Decision Support System for Asset – Liability Management of a Life Insurance Company By Rao, Harish Venkatesh; Dutta, Goutam; Basu, Sankarshan
  7. Paying on the Margin for Medical Care: Evidence from Breast Cancer Treatments By Liran Einav; Amy Finkelstein; Heidi Williams
  8. Optimal Unemployment Insurance over the Business Cycle By Camille Landais; Pascal Michaillat; Emmanuel Saez
  9. Climate Events and Insurance Demand - The effect of potentially catastrophic events on insurance demand in Italy By Alessandro Chieppa; Andrea Ricca; Gianluca Rosso
  10. How Well Did Social Security Mitigate the Effects of the Great Recession? By Peterman, William B.; Sommer, Kamila
  11. Premium Transparency in the Medicare Advantage Market: Implications for Premiums, Benefits, and Efficiency By Karen Stockley; Thomas McGuire; Christopher Afendulis; Michael E. Chernew
  12. Survival Analysis of Very Low Birth Weight Infant Mortality in Taiwan By Chia-Lin Chang; Wei-Chen Chen; Michael McAleer
  13. The Underwriting, Choice And Performance Of Government-Insured Mortgages In Russia By Evgeniy M. Ozhegov

  1. By: Delavallade, Clara
    Abstract: This paper examines an innovative approach to access to and demand for quality health care from the poor. Using data from a field experiment in India, I examine the impact of high-quality care experiences in the form of a free medical consultation with a qualified nongovernmental organization doctor, randomly offered by a health insurance provider to a subset of its enrollees.
    Keywords: health care, Poverty, Insurance, health insurance, trust, insurance retention, micro health insurance, insurance demand,
    Date: 2014
  2. By: Jeremy D. Goldhaber-Fiebert; David M. Studdert; Monica S. Farid; Jay Bhattacharya
    Abstract: Reforms introduced by the Affordable Care and Patient Protection Act (ACA) build new sources of coverage around employment-based health insurance. But what if firms find it cheaper to have their employees obtain insurance from these sources, even after accounting for penalties (for non-provision of insurance) and employee bonuses (to ensure the shift is cost neutral for them)? State and local governments (SLGs) have strong incentives to consider the economics of such “divestment”; many have large unfunded benefits liabilities. We investigated whether SLGs would save under two scenarios: (1) shifting all employees and under-65-retirees to alternative sources of coverage; (2) shifting only employees whose household incomes indicate they would be eligible for federally subsidized coverage and all under-65-retirees. Full divestment would cost SLGs more than they currently pay, due primarily to penalty costs. Selective divestment could save SLGs nearly $119 billion over 10 years at the expense of the federal government.
    JEL: H51 H7 I1 J45
    Date: 2014–06
  3. By: Wagstaff, Adam; Nguyen, Ha Thi Hong; Dao, Huyen; Balesd, Sarah
    Abstract: Subsidized voluntary enrollment in government-run health insurance schemes is often proposed as a way of increasing coverage among informal sector workers and their families. This paper reports the results of a cluster randomized control trial in which 3,000 households in 20 communes in Vietnam were randomly assigned at baseline to a control group or one of three treatments: an information leaflet about Vietnam’s government-run scheme and the benefits of health insurance; a voucher entitling eligible household members to 25 percent off their annual premium; and both. The four groups were balanced at baseline. In the control group, 6.3 percent (82/1296) of individuals were enrolled in the endline, compared with 6.3 percent (79/1257), 7.2 percent (96/1327), and 7.0 percent (87/1245) in the information, subsidy, and combined intervention groups; the adjusted odds ratios were 0.94, 1.12, and 1.15, respectively. Only among those reporting poor health were any significant intervention effects found, and only for the combined intervention: an enrollment rate of 16.3 percent (33/202) compared with 8.3 percent (18/218) in the control group, and an adjusted odds ratio of 2.50. The results suggest limited opportunities to raise voluntary health insurance enrollment through information campaigns and subsidies, and that these interventions exacerbate adverse selection.
    Keywords: Health Monitoring&Evaluation,Health Economics&Finance,Health Systems Development&Reform,Health Law,Housing&Human Habitats
    Date: 2014–06–01
  4. By: Mark Pauly; Scott Harrington; Adam Leive
    Abstract: This paper provides estimates of the changes in premiums, average or expected out of pocket payments, and the sum of premiums and out of pocket payments (total expected price) for a sample of consumers who bought individual insurance in 2010 to 2012, comparing total expected prices before the Affordable Care Act with estimates of total expected prices if they were to purchase silver or bronze coverage after reform, before the effects of any premium subsidies. We provide comparisons for purchasers of self only coverage in California and in 23 states with minimal prior state premium regulation before the ACA now using federally managed exchanges. Using data from the Current Population Survey, we find that the average prices increased by 14 to 28 percent, with similar changes in California and the federal exchange states; we attribute the increase primarily to higher premiums in exchanges associated with insurer expectations of a higher risk population being enrolled. The increase in total expected price is similar for age-gender population subgroups except for a larger than average increases for older women. A welfare calculation of the change in risk premium associated with moving from coverage that prevailed before reform to bronze or silver coverage finds small changes.
    JEL: I11 I13
    Date: 2014–06
  5. By: Michael Gerfin; Boris Kaiser; Christian Schmid
    Abstract: Deductibles in health insurance generate nonlinear budget sets and dynamic incentives. This paper uses detailed individual claims data from a large Swiss insurance company to estimate the response in health care demand to the discrete price increase that is generated by resetting the deductible at the start of each calendar year. We use a regression discontinuity type framework based on daily data to estimate the change in health care demand right before and right after the turn of the year. We find that for individuals with high deductibles health care demand drops by 27%, which translates into an elasticity of -.21. The decrease is most pronounced for inpatient care and prescription drugs. By contrast, for individuals with low deductibles there is no significant change in health care demand (except for prescription drugs). A remaining open question is whether the observed behavioral responses can be attributed to intertemporal substitution or whether they constitute a classic moral hazard effect.
    Keywords: Health care demand; nonlinear pricing; dynamic incentives; health insurance
    JEL: C31 D12 I13
    Date: 2014–06
  6. By: Rao, Harish Venkatesh; Dutta, Goutam; Basu, Sankarshan
    Abstract: We introduce a stochastic optimization based decision support system (DSS) for asset-liability management of a life insurance firm using a multi-stage, stochastic optimization model. The DSS is based on a multi-stage stochastic linear program (SLP) with recourse for strategic planning. The model can be used with little or no knowledge of management sciences. The model maximizes the expected value of total reserve (policy holders’ reserve and shareholders’ reserve) at the end of the time period of planning. We discuss the issues related to database design structure, DSS interface design, database updating procedure, and solution reporting.
  7. By: Liran Einav; Amy Finkelstein; Heidi Williams
    Abstract: We present a simple framework to illustrate the welfare consequences of a “top up” health insurance policy that allows patients to pay the incremental price for more expensive treatment options. We contrast it with common alternative policies that require essentially no incremental payments for more expensive treatments (as in the United States), or require patients to pay the full costs of more expensive treatments (as in the United Kingdom). We provide an empirical illustration of this welfare analysis in the context of treatment choices among breast cancer patients, where lumpectomy with radiation therapy is a more expensive treatment than mastectomy, with similar average health benefits. We use variation in distance to the nearest radiation facility to estimate the relative demand for lumpectomy and mastectomy. Extrapolating the resultant demand curve (grossly) out of sample, our estimates suggest that the “top-up” policy, which achieves the efficient treatment decision, increases total welfare by $700-2,500 per patient relative to the current US “full coverage” policy, and by $700-1,800 per patient relative to the UK “no top up” policy. While we caution against putting much weight on our specific estimates, the analysis illustrates the potential welfare gains from more efficient reimbursement policies for medical treatments. We also briefly discuss additional tradeoffs that arise from the top-up and UK-style policies, which both lead to additional (ex-ante) risk exposure.
    JEL: H44 I13 I18
    Date: 2014–06
  8. By: Camille Landais (London School of Economics (LSE), Economics Department); Pascal Michaillat (London School of Economics (LSE), Economics Department; Centre for Macroeconomics (CFM)); Emmanuel Saez (University of California-Berkeley, Department of Economics)
    Abstract: This paper analyzes optimal unemployment insurance (UI) over the business cycle. We consider a general matching model of the labor market. For a given UI, the economy is efficient if tightness satisfies a generalized Hosios condition, slack if tightness is too low, and tight if tightness is too high. The optimal UI formula is the sum of the standard Baily-Chetty term, which trades off search incentives and insurance, and an externality-correction term, which is positive if UI brings the economy closer to efficiency and negative otherwise. Our formula therefore deviates from the Baily-Chetty formula when the economy is inefficient and UI affects labor market tightness. In a model with rigid wages and concave production function, UI increases tightness; hence, UI should be more generous than in the Baily-Chetty formula when the economy is slack, and less generous otherwise. In contrast, in a model with linear production function and Nash bargaining, UI increases wages and reduces tightness; hence, UI should be less generous than in the Baily-Chetty formula when the economy is slack, and more generous otherwise. Deviations from the Baily-Chetty formula can be quantitatively large using realistic empirical parameters.
    Keywords: business cycle, unemployment insurance
    JEL: E24 E27
    Date: 2013–10
  9. By: Alessandro Chieppa; Andrea Ricca; Gianluca Rosso
    Abstract: Climate extreme events are constantly increasing. What is the effect of these potentially catastrophic events on insurance demand in Italy, with particular reference to the economic activities? Extreme precipitation events over most of the midlatitude land masses and over wet tropical regions will very likely become more intense and more frequent by the end of this century, as global mean surface temperature increases. If we look to Italy, examination of the precipitation time series shows a sensitive and highly significant decrease in the total number of precipitation events in Italy, with a trend of events intense dissimilar as regards to low and high intensity, with a decline of firsts and an increase of seconds. The risk related to hydrological natural disasters is in Italy one of the most important problem for both damage and number of victims. How evolves the ability to pay for damages, with a view to safeguarding work and economic activities, and employment protection?
    Date: 2014–06
  10. By: Peterman, William B. (Board of Governors of the Federal Reserve System (U.S.)); Sommer, Kamila (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: This paper quantifies the welfare implications of the U.S. Social Security program during the Great Recession. We find that the average welfare losses due to the Great Recession for agents alive at the time of the shock are notably smaller in an economy with Social Security relative to an economy without a Social Security program. Moreover, Social Security is particularly effective at mitigating the welfare losses for agents who are poorer, less productive, or older at the time of the shock. Importantly, in addition to mitigating the welfare losses for these potentially more vulnerable agents, we do not find any specific age, income, wealth or ability group for which Social Security substantially exacerbates the welfare consequences of the Great Recession. Taken as a whole, our results indicate that the U.S. Social Security program is particularly effective at providing insurance against business cycle episodes like the Great Recession.
    Keywords: Social Security; recessions; overlapping generations
    Date: 2014–01–15
  11. By: Karen Stockley; Thomas McGuire; Christopher Afendulis; Michael E. Chernew
    Abstract: In the Medicare Advantage (MA) market, private health insurers compete to offer plans with the most attractive premium and benefit package. Medicare provides a subsidy, based on a "benchmark payment rate", for each Medicare beneficiary a plan enrolls. We investigate how this subsidy, the primary policy lever in the market, affects the equilibrium premiums and benefits of MA plans. We exploit variation in benchmark payment rates within plans over time, coming from rebasing years where benchmark changes differed across areas in ways that were plausibly exogenous, to determine empirically how plan premiums and benefit generosity respond to changes in benchmarks. We find that premiums do not respond to changes in the benchmark payment rate on average but that insurers do pass through a portion of the benchmark increase by increasing plan benefit generosity. We argue that the way premium information is communicated to consumers influences the way in which plans pass through subsidy dollars and can account for the empirical results. More specifically, institutional features make it difficult for consumers to observe a large component of the plan premium, leading to a lack of demand response to premium reductions below the premium charged by traditional Medicare (the fee-for-service Part B premium). When demand does not respond to lower premiums, plans have an incentive to pass-through cost subsidies to consumers via more generous benefits that consumers may not value at cost, creating an inefficiently high level of benefit generosity. Our results provide evidence that a lack of premium transparency in the MA market may distort the combination of premium levels and benefit generosity offered in equilibrium, resulting in some degree of inefficiently high benefits. We conclude by discussing changes to the choice environment that would increase premium transparency and potentially soften the premium rigidities we find.
    JEL: I11
    Date: 2014–06
  12. By: Chia-Lin Chang; Wei-Chen Chen; Michael McAleer (University of Canterbury)
    Abstract: This paper examines the determinants of very low birth weight infant (or neonatal) mortality using the Taiwan National Health Insurance Research database from 1997 to 2009. After infants are discharged from hospital, it is not possible to track their mortality, so the Cox proportional hazard model is used to analyze the very low birth weight infant mortality rate. In order to clarify treatment responsibility and to avoid selective referral effects, we use the number of infants treated in the preceding five years to observe the effect of a physician’s and hospital’s medical experience on the mortality rate of hospitalized minimal birth weight infants. The empirical results show that, given disease control variables, a higher infant weight, higher quality hospitals, increased hospital medical experience, and higher investment in pediatrics can reduce the mortality rate significantly. However, an increased physician’s medical experience does not seem to influence significantly the very low birth weight infant mortality rate.
    Keywords: Very low birth weight, Neonatal mortality, Physician’s infant experience, Hospital infant experience, Statistical analysis, Cox proportional hazard model, Selective referral, Taiwan National Health Insurance Scheme
    JEL: C41 I10 I13 I18
    Date: 2014–06–09
  13. By: Evgeniy M. Ozhegov (National Research University Higher School)
    Abstract: This paper analyzes the mortgage borrowing process from a Russian state-owned provider of residential housing mortgages concentrating on the choice of having government insurance. This analysis takes into account the underwriting process and the choice of loan limit by the bank, the choice of contract terms and the performance of all loans issued from 2008 to 2012. Our dataset contains demographic, financial, loan terms and the performance information for all applications. We use a multistep nonparametric approach to estimate the determinants of bank and borrower choice. The main finding that the probability of having government insurance is linked to riskier loans, but insured loans also are more likely to be approved by the bank. The bank, when approving a borrower, takes into account not the probability of default but the difference between the probability of default and having government insurance.
    Keywords: mortgage, terms choice, default, nonparametrics.
    JEL: C14 C30 C51 G21
    Date: 2014

This nep-ias issue is ©2014 by Soumitra K Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.