nep-ias New Economics Papers
on Insurance Economics
Issue of 2015‒01‒03
fourteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Basic versus supplementary health insurance: moral hazard and adverse selection By Boone, Jan
  2. Optimal Life Cycle Unemployment Insurance By Michelacci, Claudio; Ruffo, Hernán
  3. Private information in life insurance, annuity and health insurance markets By Wuppermann, A.C.;
  4. (Measured) Profit is Not Welfare: Evidence from an Experiment on Bundling Microcredit and Insurance By Banerjee, Abhijit; Duflo, Esther; Hornbeck, Richard
  5. Shadow Insurance By Yogo, Motohiro; Koijen, Ralph S.J.
  6. Incidental Bequests: Bequest Motives and the Choice to Self-Insure Late-Life Risks By Lee M. Lockwood
  7. Universal Basic Income versus Unemployment Insurance By Alice Fabre; Stéphane Pallage; Christian Zimmermann
  8. The Affordable Care Act: A Family-Friendly Policy By Helene Jorgensen; Dean Baker
  10. How Much Does Access to Health Insurance Influence the Timing of Retirement? By Norma Coe; Gopi Shah Goda
  11. Purchasing Term Life Insurance to Reach a Bequest while Consuming By Erhan Bayraktar; David Promislow; Virginia Young
  12. Source of health insurance coverage and employment survival among newly disabled workers: Evidence from the health and retirement study By Matthew J. Hill; Nicole Maestas; Kathleen J. Mullen
  13. Do Migrants Send Remittances as a Way of Self-Insurance? By Catia Batista; Janis Umblijs
  14. The Impact of Health Insurance Expansion on Physician Treatment Choice: Medicare Part D and Physician Prescribing By Tianyan Hu; Sandra L. Decker; Shin-Yi Chou

  1. By: Boone, Jan
    Abstract: This paper introduces a tractable model of health insurance with both moral hazard and adverse selection. We show that government sponsored universal basic insurance should cover treatments with the biggest adverse selection problems. Treatments not covered by basic insurance can be covered on the private supplementary insurance market. Surprisingly, the cost effectiveness of a treatment does not affect its priority to be covered by basic insurance.
    Keywords: adverse selection; cost effectiveness; moral hazard; public vs private insurance; universal basic health insurance; voluntary supplementary insurance
    JEL: D82 H51 I13
    Date: 2014–10
  2. By: Michelacci, Claudio; Ruffo, Hernán
    Abstract: We argue that US welfare would rise if unemployment insurance were increased for younger and decreased for older workers. This is because the young tend to lack the means to smooth consumption during unemployment and want jobs to accumulate high-return human capital. So unemployment insurance is most valuable to them, while moral hazard is mild. By calibrating a life cycle model with unemployment risk and endogenous search effort, we find that allowing unemployment replacement rates to decline with age yields sizeable welfare gains to US workers.
    Keywords: insurance; search; unemployment
    JEL: E24 H21 J64 J65
    Date: 2014–09
  3. By: Wuppermann, A.C.;
    Abstract: Economic theory predicts that private information on risks in insurance markets leads to adverse selection. To counterbalance private information insurers collect and use information on applicants to assess their risk and calculate premiums in an underwriting process. Using data from the English Longitudinal Study of Ageing (ELSA) this paper documents that dierences in the information used in underwriting across life insurance, annuity and health insurance markets attenuate private information to dierent extents. The results are in line with - and might help to reconcile - the mixed empirical evidence on adverse selection across these markets.
    Keywords: ELSA; private information; health-related risks; insurance; biomarkers;
    JEL: D82 I13
    Date: 2014–08
  4. By: Banerjee, Abhijit; Duflo, Esther; Hornbeck, Richard
    Abstract: We investigate the puzzle of microfinance: that loans generate large measured returns for businesses, yet loan take-up is low and the businesses often close. We analyze a randomized trial that bundled microfinance loans with a cheap health insurance policy. Requiring clients to purchase insurance substantially lowered loan renewal. The insurance was useless, due to administrative failures, but reduced loan renewal negatively impacted clients’ businesses. Clients' decision to incur substantial business losses, rather than pay modest insurance premiums, implies the substantial financial gains from microfinance loans are dissipated by unmeasured costs and provide little net value to microfinance clients.
    Keywords: development; health insurance; microcredit; microenterprises; microfinance; revealed preference; welfare
    JEL: O12 O16 O19
    Date: 2014–09
  5. By: Yogo, Motohiro (Federal Reserve Bank of Minneapolis); Koijen, Ralph S.J. (London Business School)
    Abstract: Liabilities ceded by life insurers to shadow reinsurers (i.e., affiliated and less regulated off-balance-sheet entities) grew from $11 billion in 2002 to $364 billion in 2012. Life insurers using shadow insurance, which capture half of the market share, ceded 25 cents of every dollar insured to shadow reinsurers in 2012, up from 2 cents in 2002. Our adjustment for shadow insurance reduces risk-based capital by 53 percentage points (or 3 rating notches) and raises default probabilities by a factor of 3.5. We develop a structural model of the life insurance industry and estimate the impact of current policy proposals to contain or eliminate shadow insurance. In the counterfactual without shadow insurance, the average company currently using shadow insurance would raise its price by 12 percent, and annual life insurance underwritten would fall by 11 percent for the industry.
    Keywords: Capital regulation; Life insurance industry; Regulatory arbitrage; Reinsurance; Special purpose vehicles
    JEL: G22 G28 L11 L51
    Date: 2014–11–26
  6. By: Lee M. Lockwood
    Abstract: Despite facing significant uncertainty about how long they will live and how much costly health care they will require, few retirees buy life annuities or long-term care insurance. Low rates of long-term care insurance coverage are often interpreted as evidence against the importance of bequest motives since failing to buy insurance exposes bequests to significant risk. In this paper, however, I find that low rates of long-term care insurance coverage, especially in combination with the slow rate at which many retirees draw down their wealth, constitute evidence in favor of bequest motives. Retirees' saving and long-term care insurance choices are highly inconsistent with standard life cycle models in which people care only about their own consumption but match well models in which bequests are luxury goods. Such bequest motives reduce the value of insurance by reducing the opportunity cost of precautionary saving. Buying insurance reduces one's need to engage in precautionary saving, which is most valuable to individuals without bequest motives who wish to consume all of their wealth. The results suggest that bequest motives significantly increase saving and significantly decrease purchases of long-term care insurance and annuities.
    JEL: D91 E21 H55
    Date: 2014–12
  7. By: Alice Fabre (Aix Marseille School of Economics, CNRS & EHESS, France); Stéphane Pallage (ESG UQAM, CIRPEE and Département des Sciences Economiques, Université du Québec à Montréal, Canada); Christian Zimmermann (Federal Reserve Bank of St-Louis, IZA, CESifo, The Rimini Centre for Economic Analysis, Italy)
    Abstract: In this paper we compare the welfare effects of unemployment insurance (UI) with an universal basic income (UBI) system in an economy with idiosyncratic shocks to employment. Both policies provide a safety net in the face of idiosyncratic shocks. While the unemployment insurance program should do a better job at protecting the unemployed, it suffers from moral hazard and substantial monitoring costs, which may threaten its usefulness. The universal basic income, which is simpler to manage and immune to moral hazard, may represent an interesting alternative in this context. We work within a dynamic equilibrium model with savings calibrated to the United States for 1990 and 2011, and provide results that show that UI beats UBI for insurance purposes because it is better targeted towards those in need.
    Date: 2014–11
  8. By: Helene Jorgensen; Dean Baker
    Abstract: Most of the discussion of the Affordable Care Act (ACA) has focused on the extent to which it has extended health insurance coverage to the formerly uninsured. This is certainly an important aspect of the law. However by allowing people to buy insurance through the exchanges and extending Medicaid coverage to millions of people, the ACA also largely ends workers’ dependence on their employer for insurance. This gives tens of millions of people the option to change their job, to work part-time, or take time off to be with young children or family members in need of care, or to retire early.
    Keywords: affordable care act, family, working families, aca, part-time employment
    JEL: I I1 H J J8 J83 J88 J3 J33 J38
    Date: 2014–09
  9. By: Zoran Simonović, Vesna Simić, Janko Todorov (Institute of Agricultural Economics)
    Abstract: through the current legal framework, which consists of three laws: the Law on Health Insurance, the Law on Compulsory Social Insurance and the Law on Employment and Unemployment Insurance. These laws are observed in terms of the rules that are currently open. This approach is the study of these laws relies on the fact that these laws are applicable regulations in this area. The legislation in force in Serbia, in our opinion, should be subject to change and adjustment with the current legislation in force in the EU. Or should it be changed and improved.
    Keywords: health insurance of farmers, farmers' pension insurance, Serbia.
    JEL: H7 H75
    Date: 2014–04
  10. By: Norma Coe (University of Washington); Gopi Shah Goda (Stanford University)
    Abstract: Access to health insurance is a known determinant in the decision of when to retire. What remains unknown, however, is how much retirement behavior will change in response to the set of reforms that will be enacted in 2014 with the Patient Protection and Affordable Care Act (ACA). These reforms include more regulation of the non-group market, subsidies to health insurance for the low-to middle-class households, and Medicaid expansions. This project examines the effect of the state-level reforms that are most similar to those included in the ACA on the timing of retirement. We find that non-group health insurance reform substantially increases the hazard of leaving the labor force. For workers aged 63, the hazards of exiting the labor force increases by 2.2 percentage points, or approximately doubling the exit hazard at that age. For workers who report themselves to be in fair or poor health – those most likely to gain access to the individual market through these regulations, we find that the exit hazard differentially increases at age 64, and the self-reported retirement hazard also increase at age 62. These changes in retirement and labor force participation also lead to a hastening of claiming Social Security at age 63.
    Keywords: Retirement, non-group health insurance
    Date: 2014–11
  11. By: Erhan Bayraktar; David Promislow; Virginia Young
    Abstract: We determine the optimal strategies for purchasing term life insurance and for investing in a risky financial market in order to maximize the probability of reaching a bequest goal. We extend our previous work, Bayraktar et al. 2014a, Section 3.1, in two important ways: (1) we assume that the individual consumes from her investment account, and (2) we add a risky asset to the financial market. We learn that if the rate of consumption is large enough, then the individual will purchase term life insurance at any level of wealth, a surprising result. We also determine when the individual optimally invests more in the risky asset than her current wealth, so-called leveraging.
    Date: 2014–12
  12. By: Matthew J. Hill; Nicole Maestas; Kathleen J. Mullen
    Abstract: We use prospective longitudinal data on newly disabled older workers to examine the effect of employer sponsorship of health insurance (ESHI) on post-onset employment and disability insurance claiming. We compare outcomes of workers with ESHI and no access to spousal coverage prior to onset with outcomes of two comparison groups: individuals with ESHI who also have access to spousal coverage and those who are covered by a spouse’s employer prior to onset. We find evidence of "employment lock" among the 20 percent of individuals whose disabilities do not impact their immediate physical capacity but are associated with high medical costs.
    Date: 2014–09
  13. By: Catia Batista; Janis Umblijs
    Abstract: How do risk preferences affect migrant remittance behaviour? Examination of this relationship has only begun to be explored. Using a tailored representative survey of 1500 immigrants in the Greater Dublin Area, Ireland, we find a positive and significant relationship between risk aversion and migrant remittances. Risk-averse individuals are more likely to send remittances home and are, on average, likely to remit a higher amount, after controlling for a broad range of individual and group characteristics. The evidence we obtain is consistent with a “purchase of self-insurance” motive to remit in that we also find support for more remittances being sent by risk-averse immigrants who face higher wage risks and to individuals with more financial resources. JEL codes: D81, F22, F24, J15, J61
    Keywords: Migration, Risk Aversion, Remittances, Self-Insurance
    Date: 2014
  14. By: Tianyan Hu; Sandra L. Decker; Shin-Yi Chou
    Abstract: We test the effect of the introduction of Medicare Part D on physician prescribing behavior by using data on physician visits from the National Ambulatory Medical Care Survey (NAMCS) 2002-2004 and 2006-2009 for patients aged 60-69. We use a combined DD-RD specification that is an improvement over either the difference-in-difference (DD) or regression discontinuity (RD) designs. Comparing the discrete jump in outcomes at age 65 before and after 2006, we find a 35% increase in the number of prescription drugs prescribed or continued per visit and a 55% increase in the number of generic drugs prescribed or continued, providing evidence of physician response to changes in patient out-of-pocket costs.
    JEL: I13 I18 I31
    Date: 2014–11

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