nep-ias New Economics Papers
on Insurance Economics
Issue of 2015‒12‒28
fifteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. The Price Ain’t Right? Hospital Prices and Health Spending on the Privately Insured By Zack Cooper; Stuart V. Craig; Martin Gaynor; John Van Reenen
  2. It’s About Time: Effects of the Affordable Care Act Dependent Coverage Mandate On Time Use By Gregory Colman; Dhaval Dave
  3. Inferring Risk Perceptions and Preferences using Choice from Insurance Menus: Theory and Evidence By Keith Marzilli Ericson; Philipp Kircher; Johannes Spinnewijn; Amanda Starc
  4. Information Frictions and Adverse Selection: Policy Interventions in Health Insurance Markets By Benjamin R. Handel; Jonathan T. Kolstad; Johannes Spinnewijn
  5. Income-Related Subsidies for Universal Health Insurance Premia: Exploring Alternatives Using the SWITCH Model By Callan, Tim; Colgan, Brian; John Walsh
  6. Work Incentives in the Social Security Disability Benefit Formula By Gopi Shah Goda; John B. Shoven; Sita Slavov
  7. Knowledge of Future Job Loss and Implications for Unemployment Insurance By Nathaniel Hendren
  8. Voluntary Contributions to a Mutual Insurance Pool By Louis Lévy-Garboua; Claude Montmarquette; Jonathan Vaksmann; Marie Claire Villeval
  9. Internalizing Behavioral Externalities: Benefit Integration in Health Insurance By Amanda Starc; Robert J. Town
  10. Listen to your Doctor, or else!: Medication Under-use and Overuse and Long-term Health Outcomes of Danish Diabetes Patients By Gisela Hostenkamp; Frank R. Lichtenberg
  11. Seguro de paro y protección a los desempleados en Uruguay (1958-2014): legislación y desempeño By Nicolás Bonino-Gayoso; Ulises Garcia Repetto
  12. Market inconsistencies of the market-consistent European life insurance economic valuations: pitfalls and practical solutions By Nicole El Karoui; Stéphane Loisel; Jean-Luc Prigent; Julien Vedani
  13. Federal Financial Benefits and Health Care Coverage for Veterans with Disabilities By Lucy Miller; John Kregel
  14. Prescription Drug Advertising and Drug Utilization: The Role of Medicare Part D By Abby Alpert; Darius Lakdawalla; Neeraj Sood
  15. Targets for maximum waiting times and patient prioritisaton: evidence from England By Arthur Sinko; Silviya Nikolova; Matt Sutton

  1. By: Zack Cooper; Stuart V. Craig; Martin Gaynor; John Van Reenen
    Abstract: We use insurance claims data for 27.6 percent of individuals with private employer-sponsored insurance in the US between 2007 and 2011 to examine the variation in health spending and in hospitals’ transaction prices. We document the variation in hospital prices within and across geographic areas, examine how hospital prices influence the variation in health spending on the privately insured, and analyze the factors associated with hospital price variation. Four key findings emerge. First, health care spending per privately insured beneficiary varies by a factor of three across the 306 Hospital Referral Regions (HRRs) in the US. Moreover, the correlation between total spending per privately insured beneficiary and total spending per Medicare beneficiary across HRRs is only 0.14. Second, variation in providers’ transaction prices across HRRs is the primary driver of spending variation for the privately insured, whereas variation in the quantity of care provided across HRRs is the primary driver of Medicare spending variation. Consequently, extrapolating lessons on health spending from Medicare to the privately insured must be done with caution. Third, we document large dispersion in overall inpatient hospital prices and in prices for seven relatively homogenous procedures. For example, hospital prices for lower-limb MRIs vary by a factor of twelve across the nation and, on average, two-fold within HRRs. Finally, hospital prices are positively associated with indicators of hospital market power. Even after conditioning on many demand and cost factors, hospital prices in monopoly markets are 15.3 percent higher than those in markets with four or more hospitals.
    JEL: I11 L10 L11
    Date: 2015–12
  2. By: Gregory Colman; Dhaval Dave
    Abstract: One of the main purposes of the Patient Protection and Affordable Care Act (ACA) is to enable Americans to make more productive use of their time. This is apparent in the rationale given for the ACA’s extension of dependent care coverage, which requires employer-sponsored insurance plans that cover the children of insured workers to continue to cover these dependents until they turn 26. A number of studies have examined the effect of the dependent care coverage provision on insurance coverage, health, healthcare utilization, and labor supply among young adults. None that we are aware of has directly examined effects on time use. If, as suggested by prior work, the provision reduced the amount of time young adults work, the question arises, what have these adults done with the extra time? A related question is whether the change made them better off. We use the American Time Use Survey from 2003-2013 to answer these two main questions, providing several contributions to the literature on the ACA. Models are based on a difference-in-differences framework, and the results suggest that the ACA’s dependent coverage provision has reduced job-lock, as well as the duration of the average doctor’s visit, including time spent waiting for and receiving medical care, among persons ages 19-25. The latter effect is consistent with a substitution from hospital ER utilization to greater routine physician care. The extra time has gone into socializing, and to a lesser extent, into education and job search. Availability of insurance and change in work time appear to have increased young adults’ subjective well-being, enabling them to spend time on activities they view as more meaningful than those they did before insurance became available.
    JEL: H0 I1 J2
    Date: 2015–11
  3. By: Keith Marzilli Ericson; Philipp Kircher; Johannes Spinnewijn; Amanda Starc
    Abstract: Demand for insurance can be driven by high risk aversion or high risk. We show how to separately identify risk preferences and risk types using only choices from menus of insurance plans. Our revealed preference approach does not rely on rational expectations, nor does it require access to claims data. We show what can be learned non-parametrically from variation in insurance plans, offered separately to random cross-sections or offered as part of the same menu to one cross-section. We prove that our approach allows for full identification in the textbook model with binary risks and extend our results to continuous risks. We illustrate our approach using the Massachusetts Health Insurance Exchange, where choices provide informative bounds on the type distributions, especially for risks, but do not allow us to reject homogeneity in preferences.
    JEL: D8 I13
    Date: 2015–12
  4. By: Benjamin R. Handel; Jonathan T. Kolstad; Johannes Spinnewijn
    Abstract: A large literature has analyzed pricing inefficiencies in health insurance markets due to adverse selection, typically assuming informed, active consumers on the demand side of the market. However, recent evidence suggests that many consumers have information frictions that lead to suboptimal health plan choices. As a result, policies such as information provision, plan recommendations, and smart defaults to improve consumer choices are being implemented in many applied contexts. In this paper we develop a general framework to study insurance market equilibrium and evaluate policy interventions in the presence of choice frictions. Friction-reducing policies can increase welfare by facilitating better matches between consumers and plans, but can decrease welfare by increasing the correlation between willingness-to-pay and costs, exacerbating adverse selection. We identify relationships between the underlying distributions of consumer (i) costs (ii) surplus from risk protection and (iii) choice frictions that determine whether friction-reducing policies will be on net welfare increasing or reducing. We extend the analysis to study how policies to improve consumer choices interact with the supply-side policy of risk-adjustment transfers and show that the effectiveness of the latter policy can have important implications for the effectiveness of the former. We implement the model empirically using proprietary data on insurance choices, utilization, and consumer information from a large firm. We leverage structural estimates from prior work with these data and highlight how the model's micro-foundations can be estimated in practice. In our specific setting, we find that friction-reducing policies exacerbate adverse selection, essentially leading to the market fully unraveling, and reduce welfare. Risk-adjustment transfers are complementary, substantially mitigating the negative impact of friction-reducing policies, but having little effect in their absence.
    JEL: D8 D82 G22 I11 I13
    Date: 2015–11
  5. By: Callan, Tim; Colgan, Brian; John Walsh
    Abstract: The Programme for Government indicated that under a Universal Health Insurance system, the State would “pay insurance premia for people on low incomes and subsidise premia for people on middle incomes”. This paper examines issues in the design of such a subsidy scheme, in the context of overall premium costs as estimated by Wren et al. (2015) and the KPMG (2015) study for the Health Insurance Authority. Subsidy design could involve a step-level system, similar to the medical card and GP visit card in the current system; or a smooth, tapered withdrawal of the subsidy, similar to what obtains for many cash benefits in the welfare system. The trade-offs between the income limit up to which a full subsidy would be payable, the rate of withdrawal of subsidy with respect to extra income and overall subsidy cost are explored.
    Date: 2015–11
  6. By: Gopi Shah Goda; John B. Shoven; Sita Slavov
    Abstract: We examine the connection between taxes paid and benefits accrued under the Social Security Disability Insurance (SSDI) program on both the intensive and extensive margins. We perform these calculations for stylized workers given the existing benefit structure and disability hazard rates. On the intensive margin, we examine the effect of an additional dollar of earnings on the marginal payroll taxes contributed and future benefits earned. We find that the present discounted value of disability benefits received from an additional dollar of earnings, net of the SSDI payroll tax, generally declines with age, becoming negative around age 40 and reaching almost zero at age 63. On the extensive margin, we determine the effect of working an additional year on the additional payroll taxes and future benefits as a percentage of income. The return to working an additional year at an income level just large enough to earn Social Security credits for the year is large and positive through age 60. However, the return to working an additional full year is substantially smaller and becomes negative at approximately age 57. Thus, older workers face strong incentives to earn enough to obtain creditable coverage through age 60, but they face disincentives for additional earnings. In addition, workers ages 61 and older face work disincentives at any level of earnings. We repeat this analysis for stylized workers at different levels of earnings and find that, while the program transfers resources from high earners to low earners, the workers experience similar patterns in the returns to working.
    JEL: H31 H53 J22 J26
    Date: 2015–11
  7. By: Nathaniel Hendren
    Abstract: This paper provides evidence that individuals' knowledge about their potential future job loss prevents the existence of a private market for unemployment insurance (UI). Using information contained in subjective probability elicitations, I show privately-traded UI policies would be too adversely selected to be profitable, at any price. Moreover, in response to learning about future unemployment, individuals decrease consumption and spouses are more likely to enter the labor market. From a normative perspective, this suggests existing estimates miss roughly 35% of the social value of UI because it also partially insures against the risk of learning one might lose their job.
    JEL: H0
    Date: 2015–12
  8. By: Louis Lévy-Garboua (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics); Claude Montmarquette (CIRANO - Centre Interuniversitaire de Recherche en ANalyse des Organisations); Jonathan Vaksmann (UM - Université du Maine); Marie Claire Villeval (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université Jean Monnet - Saint-Etienne - PRES Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: We study mutual-aid games in which individuals choose to contribute to an informal mutual insurance pool. Individual coverage is determined by the aggregate level of contributions and a sharing rule. We analyze theoretically and experimentally the (ex ante) efficiency of equal and contribution-based coverage. The equal coverage mechanism leads to a unique no-insurance equilibrium while contribution-based coverage develops multiple equilibria and improves efficiency. Experimentally, the latter treatment reduces the amount of transfers from high contributors to low contributors and generates a "dual interior equilibrium". That dual equilibrium is consistent with the coexistence of different prior norms which correspond to notable equilibria derived in the theory. This results in asymmetric outcomes with a majority of high contributors less than fully reimbursing the global losses and a signi cant minority of low contributors less than fully defecting. Such behavioral heterogeneity may be attributed to risk attitudes (risk tolerance vs risk aversion) which is natural in a risky context.
    Keywords: Mutual insurance pool, voluntary contribution mechanism, equal coverage, contribution-based coverage, heterogeneity of risk attitudes, experiment
    Date: 2015–12–14
  9. By: Amanda Starc; Robert J. Town
    Abstract: We show that profit-maximizing firms alter product design in the market for Medicare prescription drug coverage to account for underutilization by consumers. Using plausibly exogenous variation in coverage, we examine prescription drug utilization under two different plan structures. We document that plans that cover all medical expenses spend more on drugs than plans that are only responsible for prescription drug spending, consistent with drug spending offsetting some medical costs. The effect is driven by drugs that are likely to generate substantial offsets. Our supply side model confirms that differential incentives across plans can explain this disparity. Counterfactuals show that the externality created by stand-alone drug plans is $405 million per year. Finally, we explore the extent to which subsidies and information provision can mitigate the externality generated by under-consumption.
    JEL: I13 L2
    Date: 2015–12
  10. By: Gisela Hostenkamp; Frank R. Lichtenberg
    Abstract: We use Danish diabetes registry and health insurance data to analyze the extent, consequences, and determinants of under-use and overuse of oral anti-diabetic drugs. Less than half of patients consume the appropriate amount of medication--between 90% and 110% of the amount prescribed by their doctors. The life expectancy of patients consuming the appropriate amount is 2.5 years greater than that of patients consuming less than 70% of the prescribed amount, and 3.2 years greater than that of patients consuming more than 130% of the prescribed amount, controlling for time since diagnosis, insulin dependence, comorbidities, age, gender and education. Patients consuming the appropriate amount are also less likely to be hospitalized than under- or over-users. Pharmaceutical innovation appears to have reduced medication under-use and overuse: patients using newer drugs are significantly more likely to consume the appropriate amount, controlling for socioeconomic factors, average number of pills and average daily out-of-pocket costs. Defined Daily Doses published by the World Health Organization substantially overstate the appropriate level of consumption of these medications. Patients who don’t adhere to recommended medication regimens may also disregard other physician instructions. Medication under-use and overuse could easily be monitored to identify patients at risk and enact interventions.
    JEL: I1 O33
    Date: 2015–12
  11. By: Nicolás Bonino-Gayoso (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía); Ulises Garcia Repetto (Universidad de la República (Uruguay). Facultad de Ciencias Económicas y de Administración. Instituto de Economía)
    Abstract: From the beginning of the 20th century the issue of unemployed workers’ protection has occupied a central place in the political agenda of Uruguay. The problem has been attempted to address through three mechanisms: the so-called “pension for dismissal” (“jubilación por despido”, 1904-1979), the seasonal unemployment insurance (1944-1979) and the compulsory and autonomous unemployment insurance (from 1958 onwards). By the mid-1950s, in moments when the economic stagnation of the country started to be perceived, authorities felt the need to organize a scheme of unemployed workers’ protection that should be autonomous of retirement benefits. This aim is reached in 1958 when a compulsory an autonomous unemployment insurance program is approved for the private workers of industry and commerce. This paper examines the legislation that has ruled the program since 1958, its financial performance and real coverage, in comparison with international experience. Its conclusion is that in Uruguay unemployment insurance has been a marginal tool regarding its coverage and financial dimension, in spite of being Uruguay a country with a highly formalized labour market in relation to the rest of Latin America. This reveals the limitations of state’s action.
    Keywords: Unemployment insurance, Social Security, Unemployment, Social Public Spending, Public Finances
    JEL: N46
    Date: 2015–12
  12. By: Nicole El Karoui (LPMA - Laboratoire de Probabilités et Modèles Aléatoires - UPMC - Université Pierre et Marie Curie - Paris 6 - UP7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique); Stéphane Loisel (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1); Jean-Luc Prigent (THEMA - Théorie économique, modélisation et applications - Université de Cergy Pontoise - CNRS - Centre National de la Recherche Scientifique); Julien Vedani (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1)
    Abstract: The Solvency II directive has introduced a specific so-called risk-neutral framework to valuate economic accounting quantities throughout European life insurance companies. The adaptation of this theoretical notion for regulatory purposes requires the addition of a specific criterion, namely the market-consistency, in order to objectify the choice of the valuation probability measure. This paper aims at pointing out and fixing some of the major risk sources embedded in the current regulatory life insurance valuation scheme. We compare actuarial and financial valuation schemes. We then address first operational issues and potential market manipulation sources in life insurance, induced by both theoretical and regulatory pitfalls. For example, we show that calibrating the interest rate model in October 2014 instead of December 31 st 2014 generates a 140%-increase in the economic own funds of a representative French life insurance company. We propose various adaptations of the current implementations, including product-specific valuation scheme, to limit the impact of these market-inconsistencies.
    Keywords: risk-neutral valuation,economic valuation,market-consistency,European regulation,life insurance
    Date: 2015–12–11
  13. By: Lucy Miller; John Kregel
    Keywords: Veteran benefits, health care coverage, disability
    JEL: I J
    Date: 2015–12–04
  14. By: Abby Alpert; Darius Lakdawalla; Neeraj Sood
    Abstract: Pharmaceutical firms currently spend over $4 billion on direct-to-consumer advertising (DTCA) of prescription drugs, a nearly 30-fold increase since 1993 that has led to much debate about its value to patients. We examine how DTCA influences drug utilization along the extensive and intensive margins by exploiting a large and plausibly exogenous shock to DTCA driven by the introduction of Medicare Part D in 2006. Using data on advertising for local media markets from Nielsen, we show that Part D led to large relative increases in DTCA in geographic areas with a high concentration of Medicare beneficiaries compared to areas with a low concentration. We examine the effects of this sudden differential increase in advertising on non-elderly individuals to isolate the effects of advertising on drug utilization from the direct effects of Part D. Using data from pharmacy claims, we find substantial differential increases in drug utilization that mirror the increases in DTCA after Part D. These effects are driven both by increased take-up of treatment and improved drug adherence. Our results imply significant spillovers from Medicare Part D onto the under-65 population and an important role for non-price factors in influencing prescription drug utilization.
    JEL: H51 I10 I18
    Date: 2015–11
  15. By: Arthur Sinko (Economics, School of Social Sciences,University of Manchester, Manchester, U.K.); Silviya Nikolova (Academic Unit of Health Economics, Leeds Institute of Health Sciences, University of Leeds); Matt Sutton (Manchester Centre for Health Economics, Institute of Population Health, University of Manchester, Manchester, U.K.)
    Abstract: This paper develops a model for managing hospital waiting lists with two types of patients. The model focuses on answering how hospital priorities change following the introduction of targets for maximum waiting times and how uncertainty about future queue streams impact on this decision making. The paper shows that the main mechanism for meeting the target is reducing the waiting times for long-waiting patients at the expense of short-waiting patients. We test the model using administrative hospital data for the English NHS. We detect statistically significant changes in prioritisation between different groups of patients.
    Keywords: managing waiting times, maximum waiting time targets, conditional density estimation
    JEL: I18
    Date: 2015

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