nep-ias New Economics Papers
on Insurance Economics
Issue of 2015‒01‒09
eighteen 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, J.
  2. Basic versus Supplementary Health Insurance : The Role of Cost Effectiveness and Prevalence By Boone, J.
  3. Insurance companies of the poor By Bold, Tessa; Dercon, Stefan
  4. Universal Basic Income versus Unemployment Insurance By Alice Fabre; Stéphane Pallage; Christian Zimmermann
  5. Universal Basic Income versus Unemployment Insurance By Fabre, Alice; Pallage, Stéphane; Zimmermann, Christian
  6. Determinants of insurance demand against forest fire risk: an empirical analysis of French private forest owners By Marielle Brunette; Stéphane Couture; Serge Garcia
  7. How Basis Risk and Spatiotemporal Adverse Selection Influence Demand for Index Insurance: Evidence from Northern Kenya By Jensen, Nathaniel; Mude, Andrew; Barrett, Christopher
  8. Life cycle responses to health insurance status By Pelgrin, F.;; St-Amour, P.;
  9. Assessing Cost-Effectiveness of the Conservation Reserve Program and its Interaction with Crop Insurance Subsidies By Ruiqing Miao; Hongli Feng; David A. Hennessy; Xiaodong Du
  10. Understanding Risk in an Evolving World : A Policy Note By Global Facility for Disaster Reduction and Recovery
  11. How is the low-interest-rate environment affecting the solvency of German life insurers? By Kablau, Anke; Weiß, Matthias
  12. Stability in informal insurances: an approach by networks and overlapping coalitions By Messan Agbaglah
  13. Impact of Ethiopia’s Community Based Health Insurance on household economic welfare By Debebe, Z.Y.; Mebratie, A.D.; Sparrow, R.A.; Dekker, M.; Alemu, G.; Bedi, A.S.
  14. Does Experience Rating Improve Obstetric Practices? Evidence From Geographical Discontinuities* By Amaral-Garcia, S.;; Bertoli, P.;; Grembi, V.;
  15. Means-tested long term care and family transfers By CREMER, Helmuth; PESTIEAU, Pierre
  16. Who Benefits when the Government Pays More? Pass-Through in the Medicare Advantage Program By Mark Duggan; Amanda Starc; Boris Vabson
  17. Rainfall Risk and Religious Membership in the Late Nineteenth-Century United States By Ager, Philipp; Ciccone, Antonio
  18. Impact of aging on curative health care workforce. Country Report Poland By Stanislawa Golinowska; Agnieszka Sowa; Ewa Kocot

  1. By: Boone, J. (Tilburg University, TILEC)
    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: universal basic health insurance; voluntary supplementary insurance; public vs private insurance; adverse selection; moral hazard; cost effectiveness
    JEL: I13 D82 H51
    Date: 2014
  2. By: Boone, J. (Tilburg University, Center For Economic Research)
    Abstract: In a model where patients face budget constraints that make some treatments unaffordable, we ask which treatments should be covered by universal basic insurance and which by private voluntary insurance. We argue that both cost effectiveness and prevalence are important if the government wants to maximize the health gain that it gets from its health budget. In particular, basic insurance should cover treatments that are used by people who at the margin buy treatments that are highly cost effective. This is not the same as covering treatments that are themselves highly cost effective.
    Keywords: universal basic health insurance; voluntary supplementary insurance; public vs private insurance; access to care,; cost effectiveness
    JEL: I3 D82 H51
    Date: 2014
  3. By: Bold, Tessa; Dercon, Stefan
    Abstract: We model the emergence of formal insurance institutions as equilibria under limited contract enforceability where groups are required to be coalition-proof but also can use fines for enforcement. The model can generate coexistence of formal and informal groups without requiring heterogeneity in insurance demand, because coalition-proof equilibria can fail to exist. It also predicts where formal insurance is likely to flourish: insurance groups that hold savings become more prevalent the more enforcement power communities have, and the more enforcement power, the better insurance. We use data on Ethiopian funeral insurance groups and their members to motivate and test our model. Those which hold savings and collect regular premia provide better insurance than informal ones, and both sets of groups employ a variety of punishment mechanisms to induce their members to share risk. Despite the observed positive correlation between formality and the quality of insurance, informal and formal groups co-exist. Consistent with predictions generated by the model, we find that standard measures of social cohesion are linked to the use of punishment mechanisms, the quality of insurance and the prevalence of formal insurance institutions.
    Keywords: institutions; insurance; limited commitment; savings; social capital
    JEL: C73 D02 E21
    Date: 2014–12
  4. By: Alice Fabre; Stéphane Pallage; Christian Zimmermann
    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.
    Keywords: Universal basic income, Idiosyncratic shocks, Unemployment insurance, Heterogeneous agents, Moral hazard
    JEL: E24 D7 J65
    Date: 2014
  5. By: Fabre, Alice (Aix-Marseille University); Pallage, Stéphane (University of Québec at Montréal); Zimmermann, Christian (Federal Reserve Bank of St. Louis)
    Abstract: In this paper we compare the welfare effects of unemployment insurance (UI) with a 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.
    Keywords: universal basic income, idiosyncratic shocks, unemployment insurance, heterogeneous agents, moral hazard
    JEL: E24 D7 J65
    Date: 2014–11
  6. By: Marielle Brunette (Laboratoire d'Economie Forestière, INRA - AgroParisTech); Stéphane Couture (Unité de mathématiques et informatique appliquées de Toulouse, INRA); Serge Garcia (Laboratoire d'Economie Forestière, INRA - AgroParisTech)
    Abstract: In this article, we estimate the demand of French private forest owners for forest insurance against fire risk. For this purpose, we combine experimental data and real-world data on forest owners’ characteristics. Our econometric approach consists in estimating both insurance participation and coverage-level decisions, while accounting for sample selection issues. Our results clearly show that the type of public assistance is a significant determinant in the insurance decision. Other attributes of the experiment such as the expected loss only explain coverage-level decisions, whereas the existence of an ambiguity concerning the probability of fire occurrence positively affects both insurance participation and coverage-level decisions.
    Keywords: Insurance, Forest, Fire risk, Ambiguity, Public compensation, Experimental data
    JEL: C51 D81 Q23 Q28
    Date: 2014–12
  7. By: Jensen, Nathaniel; Mude, Andrew; Barrett, Christopher
    Abstract: Basis risk – the remaining risk that an insured individual faces – is widely acknowledged as the Achilles Heel of index insurance, but to date there has been no direct study of its role in determining demand for index insurance. Further, spatiotemporal variation leaves open the possibility of adverse selection. We use rich longitudinal household data from northern Kenya to determine which factors affect demand for index based livestock insurance (IBLI). We find that both price and the non-price factors studied previously are indeed important, but that basis risk and spatiotemporal adverse selection play a major role in demand for IBLI.
    Keywords: Pastoralists, Index Insurance, Uptake
    JEL: D81 O16 Q12
    Date: 2014–12–08
  8. By: Pelgrin, F.;; St-Amour, P.;
    Abstract: Health insurance status can change over the life cycle for exogenous reasons (e.g. Medicare for the elders, PPACA for younger agents, termination of coverage at retirement in employer-provided plans). Durability of the health capital, endogenous mortality and morbidity, as well as backward induction suggests that these changes should affect the dynamic life cycle beyond the period at which theyoccur. The purpose of this paper is to study these lifetime effects on the optimal allocation (consumption, leisure, health expenditures), status (health, wealth and survival rates), and welfare. We analyse the impact of young (resp. old) insurance status conditional on old (resp. young) coverage through the structural estimation of a dynamic model with endogenous death and sickness risks. Our resultsshow that young insurees are healthier, wealthier, consume more health care yet are less exposed to OOP risks, and substitute less (more) leisure before (after) retirement. Old insurees show similar patterns, except for lower precautionary wealth balances. Compulsory health insurance is unambiguously optimal for elders, and for young agents, except early in the life cycle. We draw other implicationsfor public policy such as Medicare and PPACA.
    Keywords: household finance;endogenous morbidity and mortality risks; demand for health; medicare and patient protection and aordable care act; simulated moments estimation;
    JEL: D91 G11 I13
    Date: 2014–08
  9. By: Ruiqing Miao; Hongli Feng; David A. Hennessy (Center for Agricultural and Rural Development (CARD)); Xiaodong Du
    Abstract: Strong demand for agricultural commodities, high crop prices and pressure to reduce government budget deficits heighten the need for land retirement programs to be designed to maximize environmental benefits for any given budget outlay. The Conservation Reserve Program (CRP) is the largest land retirement program while the federal crop insurance program (FCIP) is the largest federal program supporting U.S. agriculture. We examine the environmental and budgetary implications of alternative CRP enrollment mechanisms in the context of the program’s interactions with FCIP. We demonstrate that the current CRP enrollment mechanism is inconsistent with cost-effective targeting. We also identify a cost-effective targeting enrollment mechanism that maximizes total environmental benefits under a budget constraint. Since federal crop insurance subsidies will not be incurred when a tract of land is retired from agricultural production, we consider the impacts when avoided subsidies are accounted for in designing a land-retirement program. Based on contract-level CRP offer data in 2003 and 2011 across the contiguous United States, we find that adopting the cost-effective targeting enrollment mechanism can increase CRP acreage by up to 45% and total environmental benefits by up to 21% while leaving government outlay unchanged. Incorporating crop insurance subsidies into the land retirement design can increase avoided subsidies caused by CRP enrollment and environmental benefits obtained from CRP. The government can enroll significant acres at zero real cost. Under cost-effective targeting, CRP acreage and payments would increase in the Great Plains and the Southeastern states but would decrease in the Midwest.
    Date: 2014–11
  10. By: Global Facility for Disaster Reduction and Recovery
    Keywords: Insurance and Risk Mitigation Banks and Banking Reform Environment - Natural Disasters Social Protections and Labor - Labor Policies Urban Development - Hazard Risk Management Finance and Financial Sector Development
    Date: 2014
  11. By: Kablau, Anke; Weiß, Matthias
    Abstract: Life insurance companies are affected directly by the impact of the low-interestrate environment. To fulfil promised guarantees they may be forced to tap into their own funds, say if the current income generated is no longer sufficient to cover the policyholders' profit participation share as defined by the enterprises or even guaranteed benefits. They may then find themselves in a position in which their solvency is at risk. A scenario analysis is used to examine the stage at which German life insurers would no longer be able to fulfil the currently prevailing Solvency I own funds requirements owing to the low-interest-rate environment. In contrast to other literature in this field of research we use prudential individual data from 85 German life insurers. Even in a mild stress scenario 12 life insurers, with a combined market share of some 14%, would no longer be able to fulfil the own funds requirements by 2023. Under more severe stress conditions, especially if yields on investments were also to come under pressure, 32 enterprises would no longer be able to meet the Solvency I own funds requirements. This points to a potential solvency risk in the life insurance industry.
    Abstract: Die Lebensversicherer sind von den Auswirkungen des Niedrigzinsumfelds unmittelbar betroffen. Damit sie die zugesicherten Garantien erfüllen können, müssen sie unter Umständen Eigenmittel aufwenden. Dies ist dann der Fall, wenn die von den Unternehmen festgelegte Überschussbeteiligung oder sogar die garantierten Leistungen nicht mehr aus den laufenden Erträgen erwirtschaftet werden können. Dadurch kann ihre Solvabilität gefährdet sein. Mit Hilfe einer Szenarioanalyse wird untersucht, zu welchem Zeitpunkt die deutschen Lebensversicherer aufgrund des Niedrigzinsumfelds die derzeit gültigen Eigenmittelanforderungen nach Solvency I nicht mehr erfüllen können. Im Gegensatz zur übrigen Literatur in diesem Bereich kann für die Analyse auf regulatorische Einzeldaten von 85 deutschen Lebensversicherern zurückgegriffen werden. Die Untersuchung zeigt, dass bereits in einem milden Stressszenario zwölf Lebensversicherer mit einen Marktanteil von rund 14% bis zum Jahr 2023 die Eigenmittelanforderungen nicht mehr erfüllen könnten. Unter verschärften Stressbedingungen, insbesondere wenn auch die Renditen auf andere Anlagenverstärkt unter Druck gerieten, würden 32 Unternehmen die Eigenmittelanforderungen nach Solvency I nicht mehr erfüllen. Dies weist auf ein Gefährdungspotenzial für die Solvabilität der Lebensversicherungsbranche hin.
    Keywords: life insurance,low-interest-rate environment,financial stability
    JEL: G17 G22 G28
    Date: 2014
  12. By: Messan Agbaglah (Département d'économique, Université de Sherbrooke)
    Abstract: Based on empirical facts, we build a model of informal insurance institutions and study their stability. In our setting, risk sharing groups are overlapping homogenous coalitions, originating from networks of historical trust relationships. We derive a general folk theorem that works in an environment of uncertainty and we identify the determinants of stability which are robust to social norms. Our results provide theoretical explanations for empirical findings, including the puzzle that rich families in rural economies in developing countries consume less. Our approach bridges the two traditional approaches of clubs and bilateral agreements.
    Keywords: Informal insurance, networks, overlapping coalitions, stability
    JEL: O17 Z13 D85 D71
    Date: 2014–10
  13. By: Debebe, Z.Y.; Mebratie, A.D.; Sparrow, R.A.; Dekker, M.; Alemu, G.; Bedi, A.S.
    Abstract: In 2011, the Government of Ethiopia launched a pilot Community-Based Health Insurance (CBHI) scheme. This paper uses three rounds of household survey data, collected before and after the introduction of the CBHI pilot, to assess the impact of the scheme on household consumption, income, indebtedness and livestock holdings. We find that enrolment leads to a 5 percentage point – or 13 percent – decline in the probability of borrowing and is associated with an increase in household income. There is no evidence that enrolling in the scheme affects consumption or livestock holdings. Our results show that the scheme reduces reliance on potentially harmful coping responses such as borrowing. This paper adds to the relatively small body of work which rigorously evaluates the impact of CBHI schemes on economic welfare.
    Date: 2014–08–08
  14. By: Amaral-Garcia, S.;; Bertoli, P.;; Grembi, V.;
    Abstract: We provide an assessment of the introduction of experience rating for medical malpractice insurance using 2002-2009 inpatient discharge records data on deliveries from the Italian Region of Piedmont. Considering experience rating as an increase in medical malpractice pressure, we show that such increase decreased the incidence of cesarean sections between 7 and 11.6% with no consequences on a broadly defined measure of complications. Our identification strategy exploits the territorial peculiarities of Piedmont: its 33 hospitals are distributed across 16 Courts' districts, 10 of which use schedules of non economic damages to set compensations for personal injuries and 6 do not. We use this ex-ante policy conditions to distinguish treated from control and implement first a difference in difference analysis, the robustness of which we test through a basic difference in discontinuities specification. We show that our results are robust to the different methodologies, and they can be explained in terms of a reduction in the discretion over obstetric decisions ratherthan a change in the risk profile of the patients.
    Keywords: experience rating; medical liability insurance; difference-in-differences; difference-in-discontinuities; c-sections; schedules of damages compensation;
    JEL: K13 K32 I13
    Date: 2014–08
  15. By: CREMER, Helmuth (Toulouse School of Economics); PESTIEAU, Pierre (CREPP, Universté de Liège; Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve, Belgium)
    Abstract: One of the pervasive problems with means-tested public long term care (LTC) programs is their inability to prevent individuals who could afford private long term services from taking advantage of public care. They often manage to elude the means-test net through “strategic impoverishment”. We show in a simple model how this problem comes about, how it affects welfare and how it can be mitigated.
    Keywords: long term care, means-testing, strategic impoverishment, opting out, public insurance, altruism
    JEL: H2 H5
    Date: 2014–06–11
  16. By: Mark Duggan (Stanford University); Amanda Starc (University of Pennsylvania); Boris Vabson (University of Pennsylvania)
    Abstract: Governments contract with private firms to provide a wide range of services. While a large body of previous work has estimated the effects of that contracting, surprisingly little has investigated how those effects vary with the generosity of the contract. In this paper we examine this issue in the Medicare Advantage (MA) program, through which the federal government contracts with private insurers to coordinate and finance health care for 16 million Medicare recipients. To do this, we exploit a substantial policy-induced increase in MA reimbursement in metropolitan areas with a population of 250 thousand or more relative to MSAs below this threshold. Our results demonstrate that the additional reimbursement leads more private firms to enter this market and to an increase in the share of Medicare recipients enrolled in MA plans. Our findings also reveal that about one-sixth of the additional reimbursement is passed through to consumers in the form of better coverage. A somewhat larger share accrues to private insurers in the form of higher profits and we find suggestive evidence of a large impact on advertising expenditures. Our results have implications for a key feature of the Affordable Care Act that will reduce reimbursement to MA plans by $156 billion from 2013 to 2022.
    Date: 2014–10
  17. By: Ager, Philipp; Ciccone, Antonio
    Abstract: Building on the idea that religious communities provide mutual insurance against some idiosyncratic risks, we argue that religious membership is more valuable in societies exposed to greater common risk. In our empirical analysis we exploit rainfall risk as a source of common economic risk in the nineteenth-century United States and show that religious communities were larger in counties where they faced greater rainfall risk. The link between rainfall risk and the size of religious communities is stronger in counties that were more agricultural, that had lower population densities, or that were exposed to greater rainfall risk during the growing season.
    Keywords: agricultural risk; informal insurance; religious community size
    JEL: D1 D8 N31 N51 O1 Q10 Z12
    Date: 2014–07
  18. By: Stanislawa Golinowska; Agnieszka Sowa; Ewa Kocot
    Abstract: The report discusses employment in the health care system in Poland based on analysis and projections of the demand and supply of medical workforce. The impact of the financial situation and policy on relativelly low employment level of medical personel was accounted for in the analysis while projections were driven by demographic changes in the following two decades. Results of different demographic variants of projections used in Neujobs project and additional scenarios show that while ageing is an important factor that may stimulate demand for provision of medical personnel, changes might be mitigated by further increase in efficiency of care. At the same time the supply of care will be affected by ageing too. The results indicate that more detailed monitoring of employment in the future will be needed in order to assure adequacy of provision of medical professionals, especially of nurses (critical gap), some medical specialists, physiotherapists and medical technical personnel.This report was prepared within a research project entitled NEUJOBS, which has received funding from the European Union’s Seventh Framework Programme for research, technological development and demonstration under grant agreement no. 266833.
    Keywords: Health Care, Employment in Health Care, Employment Projections, Labor Resources in Health, Medical Professions
    JEL: H51 H75 I18
    Date: 2014

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