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on Insurance Economics |
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Issue of 2017‒09‒17
five papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Malakhov, Sergey |
| Abstract: | The theory of the optimal-consumption leisure choice under price dispersion describes the phenomenon of moral hazard as the customer’s reaction on unfair insurance policy. The unfair insurance offer does not equalize marginal costs of propensity to seek healthcare with marginal benefits on purchase. Under unfair insurance policy consumers increase ex post healthcare seeking activities and they optimize their consumption of medical services. The analysis of moral hazard results in the assumption that for an unfair offer there is an increase in the time horizon of the insurance policy that makes it fair and moral hazard becomes inefficient. The time horizon competition between insurance companies can eliminate moral hazard effect that clears the way to the competitive equilibrium. |
| Keywords: | moral hazard, health insurance, healthcare seeking behavior, optimal consumption-leisure choice |
| JEL: | D11 D83 I13 |
| Date: | 2017–09–07 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:81352&r=ias |
| By: | Keith Marzilli Ericson; Kimberley Geissler; Benjamin Lubin |
| Abstract: | Accurate risk adjustment facilitates healthcare market competition. Risk adjustment typically aims to predict annual costs of individuals enrolled in an insurance plan for a full year. However, partial-year enrollment is common and poses a challenge to risk adjustment, since diagnoses are observed with lower probability when individual is observed for a shorter time. Due to missed diagnoses, risk adjustment systems will underpay for partial-year enrollees, as compared to full-year enrollees with similar underlying health status and usage patterns. We derive a new adjustment for partial-year enrollment in which payments are scaled up for partial-year enrollees’ observed diagnoses, which improves upon existing methods. We simulate the role of missed diagnoses using a sample of commercially insured individuals and the 2014 Marketplace risk adjustment algorithm, and find the expected spending of six-month enrollees is underpredicted by 19%. We then examine whether there are systematically different care usage patterns for partial-year enrollees in this data, which can offset or amplify underprediction due to missed diagnoses. Accounting for differential spending patterns of partial-year enrollees does not substantially change the underprediction for six-month enrollees. However, one-month enrollees use systematically less than one-twelfth the care of full-year enrollees, partially offsetting the missed diagnosis effect. |
| JEL: | I11 I13 I18 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23765&r=ias |
| By: | David Autor (MIT Department of Economics and NBER); Andreas Ravndal Kostøl (Norges Bank (Central Bank of Norway)); Magne Mogstad (University of Chicago and Statistics Norway and NBER); Bradley Setzler (University of Chicago) |
| Abstract: | While a mature literature finds that Disability Insurance (DI) receipt discourages work, the welfare implications of these findings depend on two rarely studied economic quantities: the full cost of DI allowances to taxpayers, summing over DI transfer payments, benefit substitution to or from other transfer programs, and induced changes in tax receipts; and the value that individuals and families place on receiving benefits in the event of disability. We comprehensively assess these missing margins in the context of Norway's DI system, drawing on two strengths of the Norwegian environment. First, Norwegian register data allow us to characterize the household impacts and fiscal costs of disability receipt by linking employment, taxation, benefits receipt, and assets at the person and household level. Second, random assignment of DI applicants to Norwegian judges who differ systematically in their leniency allows us to recover the causal effects of DI allowance on individuals at the margin of program entry. Accounting for the total effect of DI allowances on both household labor supply and net payments across all public transfer programs substantially alters our picture of the consumption benefits and fiscal costs of disability receipt. While DI denial causes a significant drop in household income and consumption on average, it has little impact on income or consumption of married applicants; spousal earnings and benefit substitution entirely offset the loss in DI benefit payments. To develop the welfare implications of these findings, we estimate a dynamic model of household behavior that translates employment, reapplication and savings decisions into revealed preferences for leisure and consumption. We find that household valuation of receipt of DI benefits is considerably greater for single and unmarried individuals than for married couples because spousal labor supply substantially buffers household income and consumption in the event of DI denial. |
| Keywords: | disability insurance, consumption insurance, household labor supply, added worker |
| JEL: | I38 J62 H53 |
| Date: | 2017–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:bno:worpap:2017_16&r=ias |
| By: | Vasilev, Aleksandar |
| Abstract: | This paper describes the lottery- and insurance-market equilibrium in an economy with non-convex market-sector employment and informal sector work. In contrast to Vasilev (2016a), the discrete-continuous labor supply decision in this paper is a sequential one, and instead of home production, we focus on informal activity. This still requires a single insurance market to operate - in particular, one for market-sector employment. In addition, given that the labor choice for market- and informal-sector hours is made in succession, the insurance market for market employment needs to close before the- labor supply choice in the grey economy is made. This segmentation is reminiscent of the results obtained in Vasilev (2015) and also a direct consequence of the sequential nature of the discrete-continuous sectoral labor supply decision. |
| Keywords: | indivisible labor,lotteries,discrete-continuous mix,insurance,informal economy |
| JEL: | J22 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:esprep:168354&r=ias |
| By: | Martín Caruso; Sebastian Galiani; Pablo Ibarrarán |
| Abstract: | This paper discusses theoretical and practical issues related to long-term care (LTC) services in Latin America. Demand for these services will rise as the region undergoes a swift demographic transition from its currently young population to a rapidly aging one, especially since the region’s aging cohorts are more prone to experience a decline in their functional and physical abilities than elderly people elsewhere in the world. We argue that private insurance markets are ill-equipped to provide coverage to meet the need for LTC, while the amount of personal savings required to afford self-insurance would be prohibitively high. We study how developed economies have dealt with the issue of LTC and pay special attention to the most salient features of their LTC programs. We then direct the discussion to Latin America, where LTC may not be an immediate priority, but governments are likely to encourage the development of LTC programs as demand for them steadily grows. In particular, policymakers are probably going to focus initially on LTC programs for the poor and vulnerable, for whom affordability of LTC is a greater problem. We therefore study how basic elements of policy design affect cost-effectiveness of LTC programs by means of a formal model. Our study shows that pro-poor programs are more cost effective when people have the option to receive cash subsidies, and the availability of in-kind and in-cash choices reduces program costs overall. |
| JEL: | J14 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23797&r=ias |