nep-ias New Economics Papers
on Insurance Economics
Issue of 2015‒09‒26
seventeen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. How the 2003 Social Insurance Premium Reform Affects Firm Behavior By Kodama, Naomi; Yokoyama, Izumi
  2. Competition and Consume Choice in Option Demand Markets By Gilad Sorek
  3. Improving Risk Equalization with Constrained Regression By Richard van Kleef; Thomas McGuire; Rene van Vliet; Wynand van de Ven
  4. The Value of Socialized Medicine: The Impact of Universal Primary Healthcare Provision on Birth and Mortality Rates in Turkey By Cesur, Resul; Güneş, Pınar Mine; Tekin, Erdal; Ulker, Aydogan
  5. On the Optimal Provision of Social Insurance: Progressive Taxation versus Education Subsidies in General Equilibrium By Dirk Krueger; Alexander Ludwig
  6. Optimal Insurance with Rank-Dependent Utility and Increasing Indemnities By Xu Zuo Quan; Zhou Xun Yu; Zhuang Sheng Chao
  7. Use of Unemployment Insurance and Public Employment Services after Leaving Welfare By Christopher J. O'Leary
  8. Health, Medical Innovation and Disability Insurance: A Case Study of HIV Antiretroviral Therapy By Perry Singleton
  9. Insuring Health or Insuring Wealth? An Experimental Evaluation of Health Insurance in Rural Cambodia By Levine, David; Polimeni, Rachel; Ramage, Ian
  10. Higher-Order Income Risk and Social Insurance Policy Over the Business Cycle By Rocio Madera; Fatih Guvenen; David Domeij; Christopher Busch
  11. Still “Saving Babies”? The Impact of Child Medicaid Expansions on High School Completion Rates. By Lincoln Groves
  12. The Effect of Extended Unemployment Insurance Benefits: Evidence from the 2012-2013 Phase-Out By Farber, Henry S; Rothstein, Jesse; Valletta, Robert G
  13. Norway: Financial Sector Assessment Program-Technical Note-Insurance Sector Stress Tests By International Monetary Fund. Monetary and Capital Markets Department
  14. Age of Decision: Pension Savings Withdrawal and Consumption and Debt Response By Sumit Agarwal
  15. The Effect of Medicaid on Adult Hospitalizations: Evidence from Tennessee’s Medicaid Contraction By Ausmita Ghosh; Kosali Simon
  16. Online Appendix to "Unemployment Benefit Extension at the Zero Lower Bound" By Julien Albertini; Arthur Poirier
  17. Changing pattern of catastrophe in paying for health care in India: a disaggregated analysis By Dr. Ramna Thakur

  1. By: Kodama, Naomi; Yokoyama, Izumi
    Abstract: In 2003, a total reward system was introduced for employee pension insurance and health insurance in Japan. This reform increased the insurance premiums for bonuses from 2% to 21.87%, and decreased the premiums for monthly salary from 25.96% to 21.87%. As a result, the social insurance premium burden of some companies increased, while that of others decreased. The variation, depending on the difference in the bonus/monthly salary ratio before the introduction of the total reward system, allows us to measure the influence of the increased social insurance premium burden using a natural experiment. This paper provides new evidence on the possible effect that the 2003 total reward system had on the behavior of firms, specifically its impact on labor demand and wages. Consequently, many firms reduced the number of employees, increased the average number of working hours, and maintained the total number of working hours. In terms of the costs to firms, the increase in average monthly salary associated with longer working hours was compensated for by a decrease in the amount of the average bonus. Our finding of the effects of the 2003 reform on the behavior of firms could lead to the general effects of the increasing social insurance premium burden found in many developed countries.
    Keywords: Bonus ratio, Social insurance premium, Difference-in-differences estimation, Fixed effect model, Dinardo, Fortin, Lemieux decomposition
    JEL: J33 J38 H20
    Date: 2015–09
  2. By: Gilad Sorek
    Abstract: Two medical providers choose their geographic location and medical-care specialization, and then compete in prices through health insurance sales. When buying insurance consumers know their geographic address, but they do not know their preferred medical treatment before getting sick. This uncertainty generates option demand for multiple providers: consumers may desire access for both providers although eventually attending only one. I characterize equilibrium with both providers located at the city center and at the quartiles of the products line. Under these locations and products choices all consumers buy insurance with access to both providers. This market outcome is efficient only if consumers care about minimizing mismatches between medical needs and medical products more than they care about minimizing commuting distance. Otherwise the market provides excessive product differentiation and insufficient geographic dispersion between medical providers. In this case the first best market outcome can be achieved by regulating (zoning) providers' geographic locations in a way that eliminates option demand for multiple providers: each consumer wishes access only to the geographically-closest provider.
    Keywords: Location, Product Differentiation, Option Demand
    JEL: I11 I13 L1
    Date: 2015–09
  3. By: Richard van Kleef; Thomas McGuire; Rene van Vliet; Wynand van de Ven
    Abstract: Several countries rely on regulated health plan competition to combine affordability of health plans with incentives for cost containment and quality improvement. Typically, these policies include premium regulation supplemented with risk equalization to compensate health plans for predictable variation in medical spending. An extensive empirical literature shows, however, that even the state-of-the-art risk equalization models undercompensate some risk groups and overcompensate others, leaving systematic incentives for risk selection. A natural approach to reducing under or overcompensation for a group is to include membership in that group as an indicator in the risk equalization model. For several types of indicators, however, inclusion can be problematic or infeasible. This paper introduces and illustrates an alternative approach to reducing over or undercompensation in such cases: constraining the estimated coefficients of the risk equalization model so as to limit over or undercompensation. Our empirical illustration is based on administrative data on medical spending and risk characteristics of nearly all individuals with basic health insurance in the Netherlands. We evaluate empirically the benefits of constraints in terms of reduced under or overcompensation on indicators omitted from the Dutch risk equalization model and their costs in terms of increased under or overcompensation on indicators included in the model. Our findings imply that the benefits of introducing constraints can be worth the costs. Constrained regression adds a tool for developing risk equalization models that can improve the overall economic performance of health plan payment schemes.
    JEL: I10 I11 I13 I18
    Date: 2015–09
  4. By: Cesur, Resul (University of Connecticut); Güneş, Pınar Mine (University of Alberta); Tekin, Erdal (American University); Ulker, Aydogan (Deakin University)
    Abstract: This paper examines the impact of universal, free, and easily accessible primary healthcare on population health as measured by age-specific birth and mortality rates, focusing on a nationwide socialized medicine program implemented in Turkey. The Family Medicine Program (FMP), launched in 2005, assigns each Turkish citizen to a specific state-employed family physician, who offers a wide range of primary healthcare services that are free-of-charge. Furthermore, these services are provided at family health centers, which operate on a walk-in basis and are located within the neighborhoods in close proximity to the patients. To identify the causal impact of the FMP, we exploit the variation in its introduction across provinces and over time. Our estimates indicate that the FMP caused large declines in mortality rates across all age groups with more pronounced impacts among infants and the elderly, and a moderate reduction in the birth rates, primarily among teenagers. Furthermore, the results are suggestive that the program has also contributed towards equalization in the mortality disparities across provinces. Our findings highlight the importance of a nationwide supply-side intervention on improving public health.
    Keywords: healthcare, reform, socialized, medicine, health, Turkey, infant, mortality, birth, teenager, physician
    JEL: I0 I1 I11 I13 I14 I18 J13 J14
    Date: 2015–09
  5. By: Dirk Krueger; Alexander Ludwig
    Abstract: In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the quantitative importance of general equilibrium feedback effects from policies to relative wages of skilled and unskilled workers: subsidizing higher education increases the share of workers with a college degree thereby reducing the college wage premium which has important redistributive benefits. We also argue that a full characterization of the transition path is crucial for policy evaluation. We find that optimal education policies are always characterized by generous tuition subsidies, but the optimal degree of income tax progressivity depends crucially on whether transitional costs of policies are explicitly taken into account and how strongly the college premium responds to policy changes in general equilibrium.
    JEL: E62 H21 H24
    Date: 2015–09
  6. By: Xu Zuo Quan; Zhou Xun Yu; Zhuang Sheng Chao
    Abstract: Bernard et al. (2015) study an optimal insurance design problem where an individual's preference is of the rank-dependent utility (RDU) type, and show that in general an optimal contract covers both large and small losses. However, their contracts suffer from a problem of moral hazard for paying more compensation for a smaller loss. This paper addresses this setback by exogenously imposing the constraint that both the indemnity function and the insured's retention function be increasing with respect to the loss. We characterize the optimal solutions via calculus of variations, and then apply the result to obtain explicitly expressed contracts for problems with Yaari's dual criterion and general RDU. Finally, we use a numerical example to compare the results between ours and that of Bernard et al. (2015).
    Date: 2015–09
  7. By: Christopher J. O'Leary (W.E. Upjohn Institute for Employment Research)
    Abstract: In this paper I examine the rates at which adults in households recently receiving Temporary Assistance to Needy Families (TANF) become jobless, apply for and receive unemployment insurance (UI) benefits, and participate in publicly funded employment services. I also investigate the correlation of UI and employment services receipt with maintenance of self-sufficiency through return to work and independence from TANF. The analysis is based on person-level administrative program records from four of the nine largest states between 1997 and 2003. Evidence suggests that three-quarters of new TANF leavers experience joblessness within three years, and one-quarter of the newly jobless apply for UI benefits. About 87 percent of UI applicants have sufficient prior earnings to qualify for UI benefits; however, only about 44 percent qualify based on their job separation reasons. Among all UI applicants, TANF leavers were found to have much higher rates of voluntary quits and employer dismissals than non-TANF leavers. Nonetheless, 50 percent of TANF leavers who apply for UI ultimately receive benefits. Public employment services are used by one-quarter of newly jobless TANF leavers. Among UI applicants, more than 75 percent use public employment services whether they receive UI benefits or not, while only 14 percent of newly jobless TANF leavers who do not apply for UI choose to use public employment services. Among TANF leavers who become jobless and apply for UI, the rate of return to TANF is lower for those who receive UI benefits. Rates of return to TANF are highest among nonbeneficiary UI applicants and non-UI applicants with low recent earnings.
    Keywords: Unemployment insurance, temporary assistance to needy families, employment service, Wagner-Peyser, welfare, public assistance, unemployment, low-income, self-sufficiency, social safety net
    JEL: J65 I38 J68
    Date: 2015–09
  8. By: Perry Singleton (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244)
    Abstract: The growth of the US Social Security Disability Insurance (SSDI) program has raised questions about whether the program targets the disabled population effectively. To address these questions, this study examines the direct effect of health on SSDI outcomes. The effect is identified by a new antiretroviral therapy introduced in late 1995 and early 1996 to treat the human immunodeficiency virus. Administrative data on SSDI applications come from the Disability Research File. According to the analysis, the new therapy had an immediate and persistent effect on program entry. By 1997, the therapy decreased HIV-related applications by 35.2 percent and new awards by 36.7 percent. The therapy did not substantially increase program exits for work and, instead, decreased program exits through death. By 1999, the therapy increased HIV-related expenditures by $43.6 million, reflecting a decrease in mortality among existing beneficiaries who continued to receive benefits.
    Keywords: Health, HIV, Social Security, Disability Insurance
    JEL: H51
    Date: 2015–09
  9. By: Levine, David; Polimeni, Rachel; Ramage, Ian
    Keywords: Social and Behavioral Sciences, Insurance, Health, Impact, Randomized Trial, Cambodia
    Date: 2014–04–01
  10. By: Rocio Madera (University of Minnesota); Fatih Guvenen (University of Minnesota); David Domeij (Stockholm School of Economics); Christopher Busch (University of Cologne)
    Abstract: This paper studies how higher-order income risk varies over the business cycle as well as the extent to which such risks can be smoothed within households or with government social insurance policies. To provide a broad perspective on these questions, we study panel data on individuals and households from the United States, Germany, and Sweden, covering more than three decades of data for each country. We find that the underlying variation in higher-order risk is remarkably similar across these countries that differ in many details of their labor markets. In particular, in all three countries, the variance of earnings shocks is almost entirely constant over the business cycle, whereas the skewness of these shocks becomes much more negative in recessions. Government provided insurance, in the form of unemployment insurance, welfare benefits, aid to low income households, and the like, plays a more important role reducing downside risk in all three countries; the effectiveness is weakest in the United States, and most pronounced in Germany. For Sweden, we find that insurance provided within households plays a similar role. We calculate that the welfare benefits of social insurance policies for stabilizing higher- order income risk over the business cycle range from 1% of annual consumption for the United States to 5% for Germany.
    Date: 2015
  11. By: Lincoln Groves (Center for Policy Research, Maxwell School, Syracuse University, 426 Eggers Hall, Syracuse, NY 13244)
    Abstract: Precipitated by the legislative decision to decouple child Medicaid benefits from welfare receipt, the number of young children qualifying for public health insurance grew markedly throughout the 1980s and early 1990s. From a baseline of roughly 15% in the average state at the beginning of the decade, the rate increased to more than 40% of all young children in the United States by the time all federal mandates were fully enacted in 1992. This paper extends the academic literature examining early childhood investments and longer-term human capital measures by exploring whether public health insurance expansions to low-income children led to a greater number of high school completers in the 2000s. Building on the literature that uses the generosity of a state’s Medicaid program as a time-varying, exogenous source of variation in a quasi-experimental design, I find a positive and statistically significant relationship between Medicaid eligibility during early childhood – defined as conception through age 5 – and longer-term high school completion rates. Completion is examined in two forms: the dropout rate and the traditional four-year high school graduation rate. Intent-to-treat estimates range from a 1.9 to 2.5 percentage point (pp) decrease in the dropout rate for each 10 pp increase in early childhood years covered by the state-level Medicaid program. The same 10 pp increase in child Medicaid program generosity reveals increases of 1.0 to 1.3 pp when applied to graduation rates, indicating that completion gains are propelled by increases in traditional diplomas. Furthermore, results appear to be driven by Hispanics and white students, the two groups which experienced the greatest within-group eligibility increases due to the decoupling of child Medicaid from the Aid to Families with Dependent Children program.
    Keywords: Child Medicaid Expansions; High School Completion; Early Childhood Investments
    JEL: C23 H51 H52 H75 I21
    Date: 2015–06
  12. By: Farber, Henry S; Rothstein, Jesse; Valletta, Robert G
    Abstract: Unemployment Insurance benefit durations were extended during the Great Recession, reaching 99 weeks for most recipients. The extensions were rolled back and eventually terminated by the end of 2013. Using matched CPS data from 2008-2014, we estimate the effect of extended benefits on unemployment exits separately during the earlier period of benefit expansion and the later period of rollback. In both periods, we find little or no effect on job-finding but a reduction in labor force exits due to benefit availability. We estimate that the rollbacks reduced the labor force participation rate by about 0.1 percentage point in early 2014.
    Keywords: Social and Behavioral Sciences
    Date: 2015–01–01
  13. By: International Monetary Fund. Monetary and Capital Markets Department
    Abstract: While the financial condition of insurance companies under Solvency I has generally been sound, insurers face major challenges going forward, thus placing an important premium on sound risk management and effective oversight by supervisors. First, a continued low-interest rate environment would adversely impact earnings and the claims-paying capacity of life insurers over the medium term, as some 83 percent of their liabilities carry guaranteed minimum rates of return. For example, at end-2013, the guaranteed return averaged 3.2 percent, above the return on 10-year government bonds, and the difference seems to have widened in 2014–15. This is particularly challenging given insurers’ significant asset-liability maturity mismatch: the five largest life insurers’ liability duration is about 16 years while asset duration is about 4 years. Second, life insurers’ reliance on products bearing longevity risks makes them vulnerable to rising longevity. Third, pension providers are required to apply the new mortality tables, which will significantly increase technical reserves. In response, insurers have recently started to encourage existing policyholders with guaranteed products to switch their policies to “unit-linked†(nonguaranteed) products, thus shifting risks from insurers to policyholders. Furthermore, the expected implementation of Solvency II represents additional challenges for life insurers (as in many peer countries).
  14. By: Sumit Agarwal (NUS)
    Abstract: This paper uses a unique panel of consumer financial transactions to examine how aging consumers respond to the option to cash out retirement savings. To obtain causal identification, we exploit an administrative regulation in Singapore that allows individuals to cash out a fraction of their pension savings at age 55. We find a large and highly significant increase in bank account balances when an individual turns 55, suggesting that the average consumer in our sample withdraws a large portion of their eligible retirement savings. In line with the predictions from the life-cycle/permanent-income hypothesis, we find modest increases (about 9 percent of the increase in account balance) in cumulative total spending twelve months later. This increase is driven largely by an increase in debit card spending and is concentrated among low-liquidity consumers. Consumers also use the increase in disposable income to pay down their credit card debt. We do not find any evidence that the average consumer responds by excessively increasing present consumption at the expense of future financial security. Nevertheless, consumers leave a sizeable portion of their withdrawn savings in low-interest accruing bank accounts for at least a year after withdrawal. We provide some suggestive evidence that consumer demographics, especially those related to financial literacy and sophistication, appear to matter for consumers' withdrawal decisions.
    Date: 2015
  15. By: Ausmita Ghosh; Kosali Simon
    Abstract: The 2010 Affordable Care Act (ACA) Medicaid expansions aimed to improve access to care and health status among low-income non-elderly adults. Previous work has established a link between Medicaid coverage expansion and reduced mortality (Sommers, Baicker and Epstein, 2012), but the mechanism of this reduction is not clearly understood. Prior to the ACA, one of the largest policy changes in non-elderly adult Medicaid access was a 2005 contraction through which nearly 170,000 enrollees lost Medicaid coverage in Tennessee. We exploit this change in Medicaid coverage to estimate its causal impact on inpatient hospitalizations. We find evidence that the contraction decreased the share of hospitalizations covered by Medicaid by 21 percent and increased the share uninsured by nearly 61 percent, relative to the pre-reform levels and to other states. We also find that 75 percent of the increase in uninsured hospitalizations originated from emergency department visits, a pattern consistent with losing access to medical homes. However, uninsured hospitalizations increased for both avoidable and unavoidable conditions at the same rate, which does not suggest a lack of preventive care. Although there may be limited symmetry in response to Medicaid expansion and contraction, these findings are also consistent with the substantial decrease in uncompensated care costs in the states that have thus far expanded Medicaid under the ACA. These results also help shed light on the mechanisms by which Medicaid might affect mortality for non-elderly adults.
    JEL: I13
    Date: 2015–09
  16. By: Julien Albertini (Humboldt Universitat Berlin); Arthur Poirier (Universite du Maine)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2015
  17. By: Dr. Ramna Thakur (Indian Institute of Technology Mandi)
    Abstract: The future of any society depends on the present quality of life of people. One can imagine the future of a society which has one of the poorest health records in the world and government spends only one percent of its gross domestic product (GDP) on public health for a population of more than one billion. All economic growth indexes are moving forward but the wellness index is dipping in the country. India is Asia's third-largest economy but ranked 171 out of the 175 countries in the world in public health spending. Low spending by the government, Resource-poor settings and low insurance availability force people to divert their resources from minimum necessities to ailments and health care which imposes high regressive cost burdens and pushes them into poverty. This study aims to access the economic costs and consequences of illness for households in India. It is based on Consumer Expenditure Survey data from the National Sample Survey Origination (NSSO) conducted in 1993-94, 2004-05 and 2011-12. Household spending on health as the percentage of their consumption expenditure has been calculated separately for rural and urban areas for each state of the country. The number of individuals below the state specific rural and urban poverty lines in all states, with and without health spending at different thresholds has been calculated. Results of this study shows that both intensity and incidence of catastrophic payment on health care has increased over the period of time (1993-94 to 2004-05 and 2011-12) at all threshold level and there is a large variation in health spending among Indian states.
    Keywords: India, household, health, catastrophe, threshold.
    JEL: I15 I14 I15

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