nep-ias New Economics Papers
on Insurance Economics
Issue of 2016‒06‒25
twelve papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Strategic Formulary Design in Medicare Part D Plans By Kurt Lavetti; Kosali Simon
  2. A stochastic forward-looking model to assess the profitability and solvency of European insurers By Berdin, Elia; Pancaro, Cosimo; Kok Sørensen, Christoffer
  3. Weather index insurance and shock coping : evidence from Mexico's CADENA Program By De Janvry,Alain F.; Ramirez Ritchie,Elizabeth Andrea; Sadoulet,Elisabeth Marie L.
  4. Analysis on Demand and Supply-side Responses during the Expansion of Health Insurance Coverage in Vietnam: Challenges and Policy Implications toward Universal Health Coverage By Midori Matsushima; Hiroyuki Yamada; Yasuharu Shimamura
  5. Insurance and the High Prices of Pharmaceuticals By David Besanko; David Dranove; Craig Garthwaite
  6. Optimal Automatic Stabilizers By Alisdair McKay; Ricardo Reis
  7. Paths Taken By New Awardees of Federal Disability Benefits By Priyanka Anand; Yonatan Ben-Shalom
  8. Performance Assessment of Crop Insurance Schemes in Odisha in Eastern India By Mamata Swain; Sasmita Patnaik
  9. STAX and Cotton Crop Insurance: First Year Results By Coble, Keith
  10. The Long Run Impacts of Merit Aid: Evidence from California’s Cal Grant By Eric Bettinger; Oded Gurantz; Laura Kawano; Bruce Sacerdote
  11. Year 2 Demonstration Impacts of Using Medicaid Data to Directly Certify Students for Free School Meals By Lara Hulsey; Joshua Leftin; Anne Gordon; Claire Smither Wulsin; Nicholas Redel; Allen Schirm; Nicholas Beyler; Sheila Heaviside; Brian Estes; Carole Trippe
  12. Insurance Between Firms: The Role of Internal Labor Markets By Cestone, Giacinta; Fumagalli, Chiara; Kramarz, Francis; Pica, Giovanni

  1. By: Kurt Lavetti; Kosali Simon
    Abstract: The design of Medicare Part D causes most Medicare beneficiaries to receive fragmented health insurance, whereby prescription drugs and other medical care are covered by separate insurance plans. Fragmentation of insurance plans is potentially inefficient since separate insurers maximize profits over only one component of healthcare spending, despite many complementarities and substitutabilities between types of healthcare. Fragmentation of some plans but not others can also lead to market distortions due to differential adverse selection, as integrated plans may use drug formulary designs to induce enrollment by patients who are profitable under Parts A & B, while stand-alone drug plans have no such incentive. We study whether the design of insurance plans in Medicare Part D reflects these two differences in incentives using data on the universe of Part D plan formularies, drug prices, and Medicare claims data. We find evidence consistent with both hypotheses. Relative to fragmented plans, integrated plans systematically design their drug formularies to encourage enrollment by beneficiaries with medical conditions that are profitable under Parts A & B. However, integrated plans also more generously cover drugs that have the potential to causally reduce medical costs. These large differences in incentives and plan design between integrated and fragmented plans are likely the precursors of substantial differential selection of enrollees, and the basic design of Medicare Part D abets this covert selection.
    JEL: I11 I13
    Date: 2016–06
  2. By: Berdin, Elia; Pancaro, Cosimo; Kok Sørensen, Christoffer
    Abstract: In this paper, we develop an analytical framework for conducting forward-looking assessments of profitability and solvency of the main euro area insurance sectors. We model the balance sheet of an insurance company encompassing both life and non-life business and we calibrate it using country level data to make it representative of the major euro area insurance markets. Then, we project this representative balance sheet forward under stochastic capital markets, stochastic mortality developments and stochastic claims. The model highlights the potential threats to insurers solvency and profitability stemming from a sustained period of low interest rates particularly in those markets which are largely exposed to reinvestment risks due to the relatively high guarantees and generous profit participation schemes. The model also proves how the resilience of insurers to adverse financial developments heavily depends on the diversification of their business mix. Finally, the model identifies potential negative spillovers between life and non-life business thorugh the redistribution of capital within groups.
    Keywords: Financial Stability,Insurance,Interest Rate Risk,Stress Test
    JEL: G20 G22 G23
    Date: 2016
  3. By: De Janvry,Alain F.; Ramirez Ritchie,Elizabeth Andrea; Sadoulet,Elisabeth Marie L.
    Abstract: Weather risk and incomplete insurance markets are significant contributors to poverty for rural households in developing countries. Weather index insurance has emerged as a possible tool for overcoming these challenges. This paper provides evidence on the impact of weather index insurance from a pioneering, large-scale insurance program in Mexico. The focus of this analysis is on the ex-post effects of insurance payments. A regression discontinuity design provides find evidence that payments from weather index insurance allow farmers to cultivate a larger land area in the season following a weather shock. Households in municipalities receiving payment also appear to have larger per capita expenditures and income in the subsequent year, although there is suggestive evidence that some of this increase is offset by a decrease in remittances. While the cost of insurance appears to be high relative to the payouts, the benefits exceed the costs for a substantial range of outcomes.
    Keywords: Debt Markets,Climate Change Economics,Insurance&Risk Mitigation,Labor Policies,Rural Poverty Reduction
    Date: 2016–06–21
  4. By: Midori Matsushima (Faculty of Business Administration, Osaka University of Commerce); Hiroyuki Yamada (Faculty of Economics, Keio University); Yasuharu Shimamura (Graduate School of International Cooperation Studies, Kobe University)
    Abstract: Vietnam is one of the leading countries moving towards universal health coverage (UHC) among developing and emerging countries. This paper examines how utilisation and the supply side have responded to the expansion of health insurance coverage. In the analysis, we use provincial panel data of 2006 to 2012 for every two years, which is constructed from several data sources. The results show that the utilisation has only slightly responded to the expansion of health insurance coverage, and nearly no positive supply-side response has been observed during the expansion. Also, the results of detailed analysis of health workers imply that there has been an unbalanced allocation of health workers between provincial hospitals and commune health stations despite the importance of commune health stations in providing primary healthcare. Our further analysis also reveals that the out-of-pocket (OOP) burden has not decreased and the affordability of healthcare services has not changed in response to health insurance coverage. Based on our findings, we argue that supply-side factors might have constrained utilisation, and that health insurance has hardly eased liquidity constraints.
    Keywords: universal health coverage, Vietnam, utilisation, supply
    JEL: I13 I18
    Date: 2016–05–23
  5. By: David Besanko; David Dranove; Craig Garthwaite
    Abstract: We present a model in which prospective patients are liquidity constrained, and thus health insurance allows patients access to treatments and services that they otherwise would have been unable to afford. Consistent with large expansions of insurance in the U.S. (e.g., the Affordable Care Act), we assume that policies expand the set of services that must be covered by insurance. We show that the profit-maximizing price for an innovative treatment is greater in the presence of health insurance than it would be for an uninsured population. We also show that consumer surplus is less than it would be if the innovation was not covered. These results show that even in the absence of moral hazard, there are channels through which insurance can negatively affect consumer welfare. Our model also provides an economic rationale for the claim that pharmaceutical firms set prices that exceed the value their products create. We empirically examine our model's predictions by studying the pricing of oncology drugs following the 2003 passage of Medicare Part D. Prior to 2003, drugs covered under Medicare Part B had higher prices than those that would eventually be covered under Part D. In general, the trends in pricing across these categories were similar. However, after 2003 there was a far greater increase in prices for products covered under Part D, and as result, products covered by both programs were sold at similar prices. In addition, these prices were quite high compared to the value created by the products---suggesting that the forced bundle of Part D might have allowed firms to capture more value than their products created.
    JEL: H0 H51 I0 I1 I11 L1 L13
    Date: 2016–06
  6. By: Alisdair McKay; Ricardo Reis
    Abstract: Should the generosity of unemployment benefits and the progressivity of income taxes depend on the presence of business cycles? This paper proposes a tractable model where there is a role for social insurance against uninsurable shocks to income and unemployment, as well as inefficient business cycles driven by aggregate shocks through matching frictions and nominal rigidities. We derive an augmented Baily-Chetty formula showing that the optimal generosity and progressivity depend on a macroeconomic stabilization term. Using a series of analytical examples, we show that this term typically pushes for an increase in generosity and progressivity as long as slack is more responsive to social programs in recessions. A calibration to the U.S. economy shows that taking concerns for macroeconomic stabilization into account raises the optimal unemployment benefits replacement rate by 13 percentage points but has a negligible impact on the optimal progressivity of the income tax. More generally, the role of social insurance programs as automatic stabilizers affects their optimal design.
    JEL: E62 H21 H30
    Date: 2016–06
  7. By: Priyanka Anand; Yonatan Ben-Shalom
    Abstract: In this brief administrative data from the Social Security Administration was used to examine the paths followed by new awardees of Social Security Disability Insurance (DI) and Supplemental Security Income (SSI) and to study the characteristics of awardees who have been most likely to take particular DI and SSI paths.
    Keywords: SSI, DI, Federal disability benefits
    JEL: I J
  8. By: Mamata Swain; Sasmita Patnaik
    Abstract: Agriculture is a highly risky venture mainly due to uncertainty in crop production emanating from natural causes including unpredictable weather events and pest attacks, which leads governments to implement various crop insurance schemes in order to provide economic support to farmers in the event of crop failure. There are two major crop insurance schemes operating in Odisha state of India: National Agricultural Insurance Scheme (NAIS) and the pilot Weather Based Crop Insurance Scheme (WBCIS). NAIS provides compensation for yield losses due to natural causes and covers all food crops and commercial crops. WBCIS provides coverage for paddy crop yield losses due to rainfall only. Both schemes are compulsory for loanee farmers and are also available for non-loanee farmers on voluntary basis. In this study, we analyze and compare various indicators including their coverage, financial performance and operational efficiency in acting as a safety net to the farmers when they experience crop losses. The study uses both secondary data and primary data. While the secondary data on various performance indicators are for the state of Odisha as a whole, the primary data for the study come from the Bolangir and Kalahandi districts located in drought-prone western Odisha. Applying a multi-stage sampling method, the sample includes 100 households using WBCIS from the Bolangir district and 100 households using NAIS from the contiguous Kalahandi district. Primary data were collected using a structured household questionnaire via the direct interview method between October 2011 and May 2012. The results show that the area under crop insurance in these two schemes has increased from 10 to 16 percent of the gross cropped area in Odisha state during 2000-2012 but 84 percent is still not covered. This increase in coverage is mainly due to increase in the number of loanee farmers. The area under crop insurance by non loanee farmers has substantially declined over time in the case of both NAIS and WBCIS. NAIS is a large insurance scheme which covers 96 percent whereas WBCIS being a pilot scheme covers only 4 percent of the area insured by these two schemes in 2012. The study reveals that WBCIS performs better than NAIS as indicated by the higher adoption rate, the higher percentage of farmers benefited, the lower premium, faster claim payment, and the frequent indemnity payment. However, WBCIS covers only paddy crop losses due to deficit or surplus rainfall. In a frequently disaster-affected state like Odisha, where reasons for crop failure are many, there is also a need for multi-peril crop insurance schemes like NAIS. Therefore, both the schemes should continue and complement each other. The public sector may address catastrophic risk and provide multi-peril insurance where the subsidy requirement is high while the private sector could be brought into to provide insurance products for less severe events and for individual, independent, idiosyncratic and localized risk.
    Keywords: Risk in Agriculture, Adaptation, Crop Insurance Schemes, Weather, Performance, Odisha
  9. By: Coble, Keith
    Keywords: Agricultural Finance, Crop Production/Industries,
    Date: 2016–02
  10. By: Eric Bettinger; Oded Gurantz; Laura Kawano; Bruce Sacerdote
    Abstract: We examine the impacts of being awarded a Cal Grant, among the most generous state merit aid programs. We exploit variation in eligibility rules using GPA and family income cutoffs that are ex ante unknown to applicants. Cal Grant eligibility increases degree completion by 2 to 5 percentage points in our reduced form estimates. Cal Grant also induces modest shifts in institution choice at the income discontinuity. At ages 28-32, Cal Grant receipt increases by three percentage points the likelihood of living in California at the income discontinuity, and raises earnings by four percentage points at the GPA discontinuity.
    JEL: H2 H4 H41 H52 I2 I22 I23 I24
    Date: 2016–06
  11. By: Lara Hulsey; Joshua Leftin; Anne Gordon; Claire Smither Wulsin; Nicholas Redel; Allen Schirm; Nicholas Beyler; Sheila Heaviside; Brian Estes; Carole Trippe
    Abstract: The Direct Certification with Medicaid (DC-M) demonstration added Medicaid to the list of programs used to directly certify students for free school meals. This report presents findings on the impacts of DC-M during the second year of the demonstration, school year 2013-2014.
    Keywords: NSLP, Direct Certification
    JEL: I0 I1
  12. By: Cestone, Giacinta; Fumagalli, Chiara; Kramarz, Francis; Pica, Giovanni
    Abstract: We investigate how Internal Labor Markets (ILMs) allow organizations to accommodate shocks calling for costly labor adjustments. Using data on workers' mobility within French business groups, we find that adverse shocks affecting affiliated firms boost the proportion of workers redeployed to other group units rather than external firms. This effect is stronger when labor regulations are stricter and destination-firms are more efficient or enjoy better growth opportunities. Affiliated firms hit by positive shocks rely on the ILM for new hires, especially high-skilled workers. Overall, ILMs emerge as a co-insurance mechanism within organizations, providing job stability to employees as a by-product.
    Keywords: Business Groups; Co-Insurance; Internal Labor Markets
    JEL: G30 J08 J40 L22
    Date: 2016–06

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