nep-ias New Economics Papers
on Insurance Economics
Issue of 2015‒04‒25
fourteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Nonparametric Kernel Estimation of the Impact of Tax Policy on the Demand for Private Health Insurance in Australia By Xiaodong Gong; Jiti Gao
  2. Social insurance and the marriage market By Persson, Petra
  3. A Dynamic Analysis of the Demand for Health Insurance and Health Care By Jonneke Bolhaar; Maarten Lindeboom; Bas van der Klaauw
  4. Health Effects of Containing Moral Hazard: Evidence from Disability Insurance Reform By Pilar Garcia-Gomez; Anne C. Gielen
  5. Miles, Speed and Technology: Traffic Safety under Oligopolistic Insurance By Maria Dementyeva; Erik T. Verhoef
  6. Insurance, Entrepreneurial Start-Up, and Performance By Mette Ejrnæs; Stefan Hochguertel
  7. Reserve-Dependent Benefits and Costs in Life and Health Insurance Contracts By Marcus C. Christiansen; Michel M. Denuit; Jan Dhaene
  8. Survival Analysis of very Low Birth Weight Infant Mortality in Taiwan By Chialin Chang; Wei-Chen Chen; Michael McAleer
  9. Universal Coverage on a Budget: Impacts on Health Care Utilization and Out-Of-Pocket Expenditures in Thailand By Supon Limwattananon; Sven Neelsen; Owen O'Donnell; Phusit Prakongsai; Viroj Tangcharoensathien; Eddy van Doorslaer
  10. Loss Modification Incentives for Insurers under Expected Utility and Loss Aversion By Adriaan R. Soetevent; Liting Zhou
  11. Myopia and Complex Dynamic Incentives: Evidence from Medicare Part D By Christina M. Dalton; Gautam Gowrisankaran; Robert Town
  12. Evaluation of Health Care Innovation Awards (HCIA): Primary Care Redesign Programs, First Annual Report By Boyd Gilman; Sheila Hoag; Lorenzo Moreno; Greg Peterson; Linda Barterian; Laura Blue; Kristin Geonnotti; Tricia Higgins; Mynti Hossain; Lauren Hula; Rosalind Keith; Jennifer Lyons; Brenda Natzke; Brenna Rabel; Rumin Sarwar; Rachel Shapiro; Cara Stepanczuk; Victoria Peebles; KeriAnn Wells; Joseph Zickafoose
  13. Banking panics and deflation in dynamic general equilibrium By Carapella, Francesca
  14. Does Experience Rating Improve Obstetric Practices? Evidence From Geographical Discontinuities in Italy By Sofia Amaral-Garcia; Paola Bertoli; Veronica Grembi

  1. By: Xiaodong Gong; Jiti Gao
    Abstract: This paper is motivated by our attempt to answer an empirical question: how is private health insurance take-up in Australia affected by the income threshold at which the Medicare Levy Surcharge (MLS) kicks in? We propose a new difference de-convolution kernel estimator for the location and size of regression discontinuities. We also propose a bootstrapping procedure for estimating confidence bands for the estimated discontinuity. Performance of the estimator is evaluated by Monte Carlo simulations before it is applied to estimating the effect of the income threshold of Medicare Levy Surcharge on the take-up of private health insurance in Australia using contaminated data.
    Keywords: De-convolution kernel estimator, regression discontinuity, error-in-variables, demand for private health insurance.
    JEL: C13 C14 C29 I13
    Date: 2015
  2. By: Persson, Petra (Stanford University, Department of Economics)
    Abstract: Social insurance is often linked to marriage. I model how such linkage affects the marriage market, and exploit Sweden’s elimination of survivors insurance to demonstrate economically important responses along several behavioral margins in this market. Entry into marriage reflects a demand for survivors insurance up to 50 years before expected payout, especially among couples with high husband mortality risks. Further, elimination of survivors insurance induces divorces and intra-household redistribution towards wives in pre-existing marriages. Because survivors insurance subsidizes couples with highly unequal earnings (capacities), its elimination also raises the long-run assortativeness of matching. These findings demonstrate that when social insurance is linked to marriage, marital behavior is an integral component of couples’ strategies to plan for financial security in old age. The magnitude of these marriage market responses influences the optimality of linking social insurance to marriage.
    Keywords: Marriage; Social insurance; Cohabitation; Matching; Long-term financial planning
    JEL: D13 H31 J12
    Date: 2015–03–10
  3. By: Jonneke Bolhaar (VU University Amsterdam); Maarten Lindeboom (VU University Amsterdam); Bas van der Klaauw (VU University Amsterdam)
    Abstract: This discussion paper has led to a publication in <A href="">'European Economic Review'</A>, 56(4), 669-90.<P>We investigate the presence of moral hazard and advantageous or adverse selection in a market for supplementary health insurance. For this we specify and estimate dynamic models for health insurance decisions and health care utilization. Estimates of the health care utilization models indicate that moral hazard is not important. Furthermore, we find strong evidence for advantageous selection, largely driven by heterogeneity in education, income and health preferences. Finally, we show that ignoring dynamics and unobserved fixed effects changes the results dramatically.
    Keywords: supplementary private health insurance, health care utilization, advantageous selection, moral hazard, panel data
    JEL: I11 D82 G22 C33
  4. By: Pilar Garcia-Gomez; Anne C. Gielen (Erasmus University Rotterdam, the Netherlands)
    Abstract: We exploit an age discontinuity in a Dutch disability insurance (DI) reform to identify the health impact of stricter eligibility criteria and reduced generosity. Women subject to the more stringent rule experience greater rates of hospitalization and mortality. A €1,000 reduction in annual benefits leads to a rise of 4.2 percentage points in the probability of being hospitalized and a 2.6 percentage point higher probability of death more than 10 years after the reform. There are no effects on the hospitalization of men subject to stricter rules but their mortality rate is reduced by 1.2 percentage points. The negative health effect on females is restricted to women with low pre-disability earnings. We hypothesize that the gender difference in the effect is due to the reform tightening eligibility particularly with respect to mental health conditions, which are more prevalent among female DI claimants. A simple back-of-the-envelope calculation shows that every dollar reduction in DI is almost completely offset by additional health care costs. This implies that policy makers considering a DI reform should carefully balance the welfare gains from reduced moral hazard against losses not only from less coverage of income risks but also from deteriorated health.
    Keywords: disability insurance, moral hazard, health, mortality, regression discontinuity
    JEL: I14 H53 I38
    Date: 2014–08–07
  5. By: Maria Dementyeva; Erik T. Verhoef
    Abstract: This paper studies road safety and accident externalities when insurance companies have market power, and can influence road users' driving behaviour via insurance premiums. We obtain both welfare and profit maximizing marginal conditions for first- and second-best insurance premiums for monopoly and oligopoly market structures in insurance. The insurance program consists of an insurance premium, and marginal dependencies ("slopes") of that premium on speed and on the own safety technology choice. While a private monopolist internalizes accident externalities up to the point where compensations to users' benefit matches the full (immaterial) costs, in oligopolistic markets insurance firms do not fully internalize accident externalities that their customers impose upon one another. Therefore, non-optimal premiums as well as speed and technology control apply. Analytical results demonstrate how insurance firms' incentives to influence traffic safety deviate from socially optimal incentives.
    Keywords: Accident externalities, congestion externalities, traffic regulations, road safety,second-best, market power
    JEL: D43 D62 R41 R42 R48
    Date: 2015–02–16
  6. By: Mette Ejrnæs (University of Copenhagen, Denmark); Stefan Hochguertel (VU University Amsterdam)
    Abstract: Availability of (partial) insurance mechanisms is arguably important for the decision of (riskaverse) workers to start up a risky entrepreneurial venture. Using administrative data from Denmark, where unemployment insurance (UI) is available to both wage earners and self-employed on a voluntary basis, we estimate the causal effect of UI cover on the self-employment choice of wage earners after instrumenting for the UI choice. The instruments we use are based on a series of policy variations that took place at three points in time during an observation period spanning three decades: only UI covered individuals could under certain conditions qualify for an early retirement (ER) program. Changes (reforms) in the eligibility conditions of the program that affected different age groups differentially at these three different points in time identify the UI choice process. Results show that the causal effect of insurance on the probability of starting up a venture is positive for would-be entrepreneurs, in contrast to correlations in the data or uninstrumented estimates. Using firm data, we also investigate how the newly insurance-induced entrepreneurs fare relative to their uninsured peers. Results suggest that they survive longer, but are not more likely to employ any workers or to make higher or lower profits.
    Keywords: self-employment, insurance, entrepreneurs, unemployment, panel data, early retirement
    JEL: C35 J26 J62 J65 L26
    Date: 2014–03–27
  7. By: Marcus C. Christiansen (University of Ulm, Germany); Michel M. Denuit (Université Catholique de Louvain, Belgium); Jan Dhaene (Katholieke Universiteit Leuven, Belgium, and University of the Free State, South Africa)
    Abstract: Premiums and benefits associated with traditional life insurance contracts are usually specified as fixed amounts in policy conditions. However, reserve-dependent surrender values and reserve-dependent expenses are common in insurance practice. The famous Cantelli theorem in life insurance ensures that under appropriate assumptions surrendering can be ignored in reserve calculations provided the surrender payment equals the accumulated reserve. In this paper, more complex reserve-dependent payment patterns are considered, in line with insurance practice. Explicit formulas are derived for the corresponding reserve.
    Keywords: life insurance, multistate models, Markov process, surrender value, Cantelli theorem
    Date: 2014–08–29
  8. By: Chialin Chang (National Chung Hsing University, Taiwan); Wei-Chen Chen (National Chung Hsing University, Taiwan); Michael McAleer (National Tsing Hua University, China; Erasmus University Rotterdam, the Netherlands; Complutense University of Madrid, Spain)
    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: 2014–06–10
  9. By: Supon Limwattananon (International Health Policy Program, Ministry of Public Health, Thailand); Sven Neelsen (Institute of Health Policy and Management, Erasmus University Rotterdam); Owen O'Donnell (Erasmus University Rotterdam); Phusit Prakongsai (International Health Policy Program, Ministry of Public Health, Thailand); Viroj Tangcharoensathien (International Health Policy Program, Ministry of Public Health, Thailand); Eddy van Doorslaer (Erasmus University Rotterdam)
    Abstract: We estimate the impact on health care utilization and out-of-pocket (OOP) expenditures of a major reform in Thailand that extended health insurance to one-quarter of the population to achieve universal coverage while keeping health spending below 4% of GDP. Identification is through comparison of changes in outcomes of groups to whom coverage was extended with those of public sector employees and their dependents whose coverage was not affected. The reform is estimated to have reduced the probability that a sick person goes without formal treatment by 3.2 percentage points (11%). It increased the probability of receiving public ambulatory care by 2.7 ppt (5%) and of admission to a public hospital by 1 ppt (18%). OOP expenditures were reduced by one-third on average, as was the probability of spending more than 10% of the household budget on health care, while spending at the very top of the OOP distribution was reduced by one-half representing substantial reductio ns in exposure to medical expenditure risk. Supply-side measures implemented with the coverage extension are likely to have helped realize these effects from an increased, but still very tight, budget.
    Keywords: Health Insurance, Health Care, Medical Expenditures, Universal Coverage, Thailand
    JEL: H42 H51 I18
    Date: 2013–05–16
  10. By: Adriaan R. Soetevent (University of Groningen, the Netherlands); Liting Zhou (University of Amsterdam, the Netherlands)
    Abstract: Given the possibility to modify the probability of a loss, will a profit-maximizing insurer engage in loss prevention or is it in his interest to increase the loss probability? This paper investigates this question. First, we calculate the expected profit maximizing loss probability within an expected utility framework. We then use Köszegi and Rabin's (2006, 2007) loss aversion model to answer the same question for the case where consumers have reference-dependent preferences. Largely independent of the adopted framework, we find that the optimal loss probability is sizable and for many commonly used parameterizations much closer to 1/2 than to 0. Previous studies have argued that granting insurers market power may incentivize them to engage in loss prevention activities, this to the benefit of consumers. Our results show that one should be cautious in doing so because there are conceivable instances where the insurer's interests in modifying the loss probability to against those of consumers.
    Keywords: loss modification, expected utility, reference-dependent preferences, insurance
    JEL: D11 D42 D81 L12
    Date: 2014–08–21
  11. By: Christina M. Dalton; Gautam Gowrisankaran; Robert Town
    Abstract: Standard Medicare Part D drug insurance provides limited coverage in a ``donut hole'' region, making the purchase problem dynamic. We develop a discontinuity-based test for myopia using enrollees who arrived near the coverage gap early in the year. We find that there are fewer and cheaper purchases immediately after reaching the gap, providing evidence in favor of myopia. We structurally estimate a dynamic drug purchase model and find complete myopia. For a nationally representative sample, "behavioral hazard" increases enrollee spending by 41%. Entirely eliminating the gap would increase insurer spending 31%, compared to 6% for generic-only gap coverage.
    JEL: D03 I13 I18 L88
    Date: 2015–04
  12. By: Boyd Gilman; Sheila Hoag; Lorenzo Moreno; Greg Peterson; Linda Barterian; Laura Blue; Kristin Geonnotti; Tricia Higgins; Mynti Hossain; Lauren Hula; Rosalind Keith; Jennifer Lyons; Brenda Natzke; Brenna Rabel; Rumin Sarwar; Rachel Shapiro; Cara Stepanczuk; Victoria Peebles; KeriAnn Wells; Joseph Zickafoose
    Abstract: In July 2012, the Center for Medicare & Medicaid Innovation (CMMI) awarded cooperative agreements to a select group of programs proposing innovative ways to improve the quality and lower the cost of care for Medicare, Medicaid, and Children’s Health Insurance Program (CHIP) enrollees. This initiative, the Health Care Innovation Awards (HCIA), is a central part of CMMI’s overall objective of finding effective and efficient ways to achieve better quality of care, improved population health, and lower costs. The initiative also seeks to increase and improve the performance of the health care workforce through enhanced training and education, as well as to rethink the roles and functions of different types of health care workers. CMMI subsequently classified 14 of the 107 HCIA awards as primary care redesign (PCR) programs, representing a broad range of intervention models, target populations, and organizational settings.
    Keywords: Primary Care Redesign, Implementation Evaluation, Impact Evaluation, Delivery Systems Innovation, Clinician Behavior, Workforce Development, Medicare, Medicaid
    JEL: I
    Date: 2014–11–14
  13. By: Carapella, Francesca (Board of Governors of the Federal Reserve System (U.S.))
    Abstract: This paper develops a framework to study the interaction between banking, price dynamics, and monetary policy. Deposit contracts are written in nominal terms: if prices unexpectedly fall, the real value of banks' existing obligations increases. Banks default, panics precipitate, economic activity declines. If banks default, aggregate demand for cash increases because financial intermediation provided by banks disappears. When money supply is unchanged, the price level drops, thereby providing incentives for banks to default. Active monetary policy prevents banks from failing and output from falling. Deposit insurance can achieve the same goal but amplifies business cycle fluctuations by inducing moral hazard.
    Keywords: banking panics; deflation; deposit insurance
    JEL: E53 E58 G21 N12
    Date: 2015–03–04
  14. By: Sofia Amaral-Garcia (ETH Zurich); Paola Bertoli (University of Economics, Prague); Veronica Grembi (Copenhagen Business School & CEIS, University of Rome "Tor Vergata")
    Abstract: Using data from 2002 to 2009 inpatient discharge records on deliveries in the Italian region of Piedmont, we assess the impact of an increase in malpractice pressure on obstetric practices, as identified by the introduction of experience-rated malpractice liability insurance. Our identification strategy exploits the exogenous location of public hospitals in court districts with and without schedules for noneconomic damages. We perform difference-in-differences and difference-in-discontinuities analyses. We find that the increase in medical malpractice pressure is associated with a decrease in the probability of performing a C-section from 2.3 to 3.7 percentage points (7% to 11.6% at the mean value of C-section) with no consequences for a broadly defined measure of complications or neonatal outcomes. We show that these results are robust to the different methodologies and can be explained by a reduction in the discretion of obstetric decision making rather than by patient cream skimming.
    Keywords: Experience rating, Medical liability insurance, Difference-in-discontinuities, C-sections, Scheduled damages
    JEL: K13 K32 I13
    Date: 2015–04–17

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