nep-ias New Economics Papers
on Insurance Economics
Issue of 2016‒08‒14
seven papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. The Interconnected Relationships of Health Insurance, Health, and Labor Market Outcomes By Matthew S. Rutledge
  2. Maybe "honor thy father and thy mother": uncertainfamily aid and the design of social long term care insurance By Canta, Chiara; Cremer, Helmuth; Gahvari, Firouz
  3. The General Equilibrium Impacts of Unemployment Insurance: Evidence from a Large Online Job Board By Ioana Marinescu
  4. Demand Heterogeneity in Insurance Markets: Implications for Equity and Efficiency By Michael Geruso
  5. On the Distribution of the Welfare Losses of Large Recessions By Dirk Krueger; Kurt Mitman; Fabrizio Perri
  6. Disability Benefit Generosity and Labor Force Withdrawal By Kathleen Mullen; Stefan Staubli
  7. Potential Unemployment Insurance Duration and Labor Supply: The Individual and Market-Level Response to a Benefit Cut By Andrew C. Johnston; Alexandre Mas

  1. By: Matthew S. Rutledge
    Abstract: The Affordable Care Act (ACA) has greatly increased the proportion of non-elderly Americans with health insurance. One justification for the ACA is that improving individuals’ access to health insurance would improve their health outcomes, mostly by increasing the probability that they have a regular source of care. Another is that increasing the availability of health insurance outside of employment reduces the “job lock” that ties poorly matched workers to their jobs only because they want to maintain coverage. This study reviews the literature on the relationships between health insurance and health, between health and work, and between health insurance and labor market outcomes directly. The review uses evidence from recent policy expansions in Oregon and Massachusetts, and among Social Security disability beneficiaries and Medicare enrollees, to evaluate the extent to which expansions have the expected effects on labor market outcomes, indirectly and directly.
    Date: 2016–07
  2. By: Canta, Chiara; Cremer, Helmuth; Gahvari, Firouz
    Abstract: We study the role and design of private and public insurance programs when informal care is uncertain. Children's degree of altruism is represented by a parameter which is randomly distributed over some interval. The level of informal care on which dependent elderly can count is therefore random. Social insurance helps parents who receive a low level of care, but it comes at the cost of crowding out informal care. Crowding out occurs both at the intensive and the extensive margins. We consider two types of LTC policies. A topping up (TU ) scheme provides a transfer which is non exclusive and can be supplemented. An opting out (OO) scheme is exclusive and cannot be topped up. TU will involve crowding out both at the intensive and the extensive margins, whereas OO will crowd out solely at the extensive margin. However, OO is not necessarily the dominant policy as it may exacerbate crowding out at the extensive margin. Finally, we show that the distortions of both policies can be mitigated by using an appropriately designed mixed policy.
    Keywords: Long term care, uncertain altruism, private insurance, public insurance, topping up, opting out.
    JEL: H2 H5
    Date: 2016–07
  3. By: Ioana Marinescu
    Abstract: During the Great Recession, U.S. unemployment benefits were extended by up to 73 weeks. Theory predicts that extensions increase unemployment by discouraging job search, a partial equilibrium effect. Using data from the large job board, I find that a 10% increase in benefit duration decreased state-level job applications by 1%, but had no robust effect on job vacancies. Job seekers thus faced reduced competition for jobs, a general equilibrium effect. Calibration implies that the general equilibrium effect reduces the impact of unemployment insurance on unemployment by 40%: increasing benefit duration by 10% increases unemployment by only 0.6% in equilibrium.
    JEL: J63 J64 J65
    Date: 2016–07
  4. By: Michael Geruso
    Abstract: In many markets insurers are barred from price discrimination on consumer characteristics like age, gender, and medical history. By themselves, such restrictions are known to exacerbate adverse selection problems. But the conventional wisdom—widely reflected in policy—is that with regulatory tools like premium subsidies, it is possible to address selection and induce efficient plan choices without price-discriminating. In this paper, I show why this conventional wisdom is wrong: As long as different sets of consumers (men and women, rich and poor, young and old) differ in their willingness-to-pay for insurance conditional on the losses they generate, then price discrimination across such groups is welfare-improving. The conventional wisdom is wrong because it implicitly assumes a one-to-one mapping from insurable risk to insurance valuation. I show that demand heterogeneity that breaks this one-to-one relationship is empirically relevant in a consumer health plan setting. Younger and older consumers and men and women reveal strikingly different demand for health insurance, conditional on their objective medical spending risk. This implies that these groups must face different prices in order to sort themselves efficiently across insurance contracts. The theoretical and empirical analysis highlights a previously unexplored, but fundamental, tradeoff between equity and efficiency that is unique to selection markets.
    JEL: I11 I13
    Date: 2016–07
  5. By: Dirk Krueger; Kurt Mitman; Fabrizio Perri
    Abstract: How big are the welfare losses from severe economic downturns, such as the U.S. Great Recession? How are those losses distributed across the population? In this paper we answer these questions using a canonical business cycle model featuring household income and wealth heterogeneity that matches micro data from the Panel Study of Income Dynamics (PSID). We document how these losses are distributed across households and how they are affected by social insurance policies. We find that the welfare cost of losing one's job in a severe recession ranges from 2% of lifetime consumption for the wealthiest households to 5% for low-wealth households. The cost increases to approximately 8% for low-wealth households if unemployment insurance benefits are cut from 50% to 10%. The fact that welfare losses fall with wealth, and that in our model (as in the data) a large fraction of households has very low wealth, implies that the impact of a severe recession, once aggregated across all households, is very significant (2.2% of lifetime consumption). We finally show that a more generous unemployment insurance system unequivocally helps low-wealth job losers, but hurts households that keep their job, even in a version of the model in which output is partly demand determined, and therefore unemployment insurance stabilizes aggregate demand and output.
    JEL: E21 E32 J65
    Date: 2016–07
  6. By: Kathleen Mullen; Stefan Staubli
    Abstract: A key component for estimating the optimal size and structure of disability insurance (DI) programs is the elasticity of DI claiming with respect to benefit generosity. Yet, in many countries, including the United States, all workers face identical benefit schedules, which are a function of one’s labor market history, making it difficult to separate the effect of the benefit level from the effect of unobserved preferences for work on individuals’ claiming decisions. To circumvent this problem, we exploit exogenous variation in DI benefits in Austria arising from several reforms to its DI and old age pension system in the 1990s and 2000s. We use comprehensive administrative social security records data on the universe of Austrian workers to compute benefit levels under six different regimes, allowing us to identify and precisely estimate the elasticity of DI claiming with respect to benefit generosity. We find that, over this time period, a one percent increase in potential DI benefits was associated with a 1.2 percent increase in DI claiming.
    JEL: H53 H55 J14 J22
    Date: 2016–07
  7. By: Andrew C. Johnston; Alexandre Mas
    Abstract: We examine how a 16-week cut in potential unemployment insurance (UI) duration in Missouri affected search behavior of UI recipients and the aggregate labor market. Using a regression discontinuity design (RDD), we estimate a marginal effect of maximum duration on UI and nonemployment spells of approximately 0.5 and 0.3 respectively. We use RDD estimates to simulate the unemployment rate assuming no market-level externalities. The simulated response closely approximates the estimated change in the unemployment rate following the benefit cut, suggesting that even in a period of high unemployment the labor market absorbed this influx of workers without crowding-out other jobseekers.
    JEL: E24 H0 J6 J64 J65
    Date: 2016–07

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