nep-ias New Economics Papers
on Insurance Economics
Issue of 2018‒02‒19
fourteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Compulsory insurance and voluntary self-insurance: substitutes or complements? A matter of risk attitudes By François Pannequin; Anne Corcos
  2. Uninsured Unemployment Risk and Optimal Monetary Policy By Edouard Challe
  3. Unemployment Insurance Take-up Rates in an Equilibrium Search Model By Auray Stéphane; Fuller David; Lkhagvasuren Damba
  4. Social Insurance and Occupational Mobility By German Cubas; Pedro Silos
  5. Pricing formulae for derivatives in insurance using the Malliavin calculus By Caroline Hillairet; Ying Jiao
  6. High-Priced Drugs in Medicare Part D: Diagnosis and Potential Prescription By Richard G. Frank; Richard J. Zeckhauser
  7. Insurance, Redistribution, and the Inequality of Lifetime Income By Victoria Prowse; Daniel Kemptner; Peter Hahn
  8. Unemployment, Borrowing Constraints and Stabilization Policies By Auray Stéphane; Eyquem Aurélien
  9. Closed-form and numerical computations of actuarial indicators in ruin theory and claim reserving By Alexandre Brouste; Christophe Dutang
  10. Evaluation of the Diffusion and Impact of the Chronic Care Management (CCM) Services: Final Report By John Schurrer; Ann O'Malley; Claire Wilson; Nancy McCall; Neetu Jain
  11. Medicaid Managed Care Enrollment and Program Characteristics, 2015 By Benjamin Fischer; Jane Ahn; Claire Brindley; Kathryn Dovgala; Cyrus Jadun; Sean Kirk; Rebecca Lester; Jenna Libersky; Debra Lipson; Jessica Nysenbaum; Karina Wagnerman
  12. Report to Congress on the Evaluation of the Medicaid Emergency Psychiatric Demonstration By Crystal Blyler; Priyanka Anand; Melissa Azur; Emily Caffery; Grace Ferry; Benjamin Fischer; Angela Gerolamo; Rosalind Keith; Jung Kim; Brenda Natzke; Bonnie O'Day; Allison Siegwarth
  13. Determining Performance Benchmarks for a Medicaid Value-Based Payment By So O'Neil; Ella Douglas-Durham
  14. Pricing Carbon Under Economic and Climactic Risks: Leading-Order Results from Asymptotic Analysis By van den Bremer, Ton; van der Ploeg, Frederick

  1. By: François Pannequin (CREST; Ecole Normale Supérieure Paris-Saclay); Anne Corcos (CURAPP; Université de Picardie Jules Verne,)
    Abstract: Based on Ehrlich and Becker’s model (1972) on insurance and self-insurance substitutability, we study the effects of a compulsory partial insurance on self-insurance decisions of both risk-averters and (mixed) risk-lovers. We show that when insurance is compulsory, risk-averters adjust (by substituting) their self-insurance behavior to compensate for the level (too high or too low) of the compulsory coverage level. By contrast, even though they would refuse to invest in any voluntarily hedging scheme, (mixed) risk-lovers freely invest in self-insurance to complete a compulsory partial insurance coverage. Moreover, we prove that for a (mixed) risk-lover, an increase in the partial compulsory insurance coverage induces simultaneously a rise of the self-insurance marginal benefit and a decrease of its marginal cost. Therefore, while compulsory insurance and self-insurance are substitutes for risk-averters, they are complements for (mixed) risk-lovers. This last result brings an unexpected justification for compulsory insurance policies.
    Keywords: self-insurance; compulsory insurance; risk attitudes; risk-lovers
    JEL: D11 D86 G22 K32 L51
    Date: 2017–08–01
  2. By: Edouard Challe (CREST; CNRS; Ecole Polytechnique)
    Abstract: I study optimal monetary policy in a New Keynesian economy wherein households precautionary-save against uninsured, endogenous unemployment risk. In this economy greater unemployment risk raises desired savings, causing aggregate demand to fall and feedback to greater unemployment risk. I show this de?flationary feedback loop to be constrained-inefficient and to call for an accommodative monetary policy response: after a contractionary aggregate shock the policy rate should be kept signifi?cantly lower and for longer than in the perfect-insurance benchmark. For example, the usual prescription obtained under perfect insurance of a hike in the policy rate in the face of a bad supply (i.e., productivity or cost-push) shock is easily overturned. If implemented, the optimal policy effectively breaks the defl?ationary feedback loop and takes the dynamics of the imperfect-insurance economy close to that of the perfect-insurance benchmark.
    Keywords: Unemployment risk; imperfect insurance; optimal monetary policy
    JEL: E21 E32 E52
    Date: 2017–11–01
  3. By: Auray Stéphane (CREST-ENSAI ; ULCO); Fuller David (University of Wisconsin-Oshkosh); Lkhagvasuren Damba (Concordia University)
    Abstract: From 1989-2012, on average 23% of those eligible for unemployment insurance (UI) bene?ts in the US did not collect them. In a search model with matching frictions, asymmetric information associated with the UI non-collectors implies an inefficiency in non-collector outcomes. This inefficiency is characterized along with the key features of collector vs. non-collector allocations. Specifically, the inefficiency implies that noncollectors transition to employment at a faster rate and a lower wage than the efficient levels. Quantitatively, the inefficiency amounts to 1.71% welfare loss in consumption equivalent terms for the average worker, with a 3.85% loss conditional on non-collection. With an endogenous take-up rate, the unemployment rate and average duration of unemployment respond significantly slower to changes in the UI bene?t level, relative to the standard model with a 100% take-up rate.
    Keywords: unemployment insurance, take-up, matching frictions, search, experience rating
    JEL: E61 J32 J64 J65
    Date: 2017–07–12
  4. By: German Cubas (Department of Economics, University of Houston); Pedro Silos (Department of Economics, Temple University)
    Abstract: This paper studies how insurance from progressive taxation improves the matching of workers to occupations. We propose an equilibrium dynamic assignment model to illustrate how social insurance encourages mobility. Workers experiment to find their best occupational fit in a process filled with uncertainty. Risk aversion and limited earnings insurance induce workers to remain in unfitting occupations. We estimate the model using microdata from the United States and Germany. Higher earnings uncertainty explains the U.S. higher mobility rate. When workers in the United States enjoy Germany's higher progressivity, mobility rises. Output and welfare gains are large.
    Keywords: Progressive Taxation, Social Insurance, Occupational Choice
    JEL: E21 H24 J31
    Date: 2018–02
  5. By: Caroline Hillairet (ENSAE; Université Paris Saclay); Ying Jiao (Université Claude Bernard - Lyon 1; Institut de Science Financière et d’Assurances)
    Abstract: In this paper we provide a valuation formula for different classes of actuarial and financial contracts which depend on a general loss process, by using the Malliavin calculus. In analogy with the celebrated Black-Scholes formula, we aim at expressing the expected cash flow in terms of a building block. The former is related to the loss process which is a cumulated sum indexed by a doubly stochastic Poisson process of claims allowed to be dependent on the intensity and the jump times of the counting process. For example, in the context of Stop-Loss contracts the building block is given by the distribution function of the terminal cumulated loss, taken at the Value at Risk when computing the Expected Shortfall risk measure.
    Date: 2017–07–13
  6. By: Richard G. Frank; Richard J. Zeckhauser
    Abstract: Drug pricing in the U.S. is a persistently vexing policy problem. While there is agreement among many policy analysts that supra competitive prices are necessary to promote innovation; significant disagreements arise over how much pricing discretion prescription drug manufacturers should be permitted, and what portion of the sum of producer plus consumer surplus in the prescription drug market should be claimed by manufacturers relative to consumers and other payers. This paper focuses on an extremely costly component of the Medicare Part D program the region of coverage that kicks in once a consumer has spent $4,950 on drugs in a calendar year (roughly $8,100 in total drug spending). At that point there are high levels of insurance for the consumer and reinsurance for the prescription drug plan. Consumers pay 5% of costs; plans pay 15% and the government 80%. That design generates serious inefficiencies. The significant subsidies to plans in the reinsurance region combined with the launch of unique high cost prescription drugs could be expected to lead to and has led to substantial departures from cost-effective outcomes in treatments delivered. We investigate two, possibly complementary, strategies for reducing these inefficiencies. The first follows on the MedPac recommendation that the government reduce its share of risk bearing for the Part D reinsurance benefit. The second focuses on curbing price inefficiencies. It has two components: eliminating monopolistic overpricing, and rewarding the quality of drugs brought to market. It is grounded in the economics of two part tariffs, research on innovation prizes, performance-based contracts, and draws on the mechanism design literature.
    JEL: I11 I18
    Date: 2018–01
  7. By: Victoria Prowse; Daniel Kemptner; Peter Hahn
    Abstract: In this paper, we study how the tax-and-transfer system reduces the inequality of lifetime income by redistributing lifetime earnings between individuals with different skill endowments and by providing individuals with insurance against lifetime earnings risk. Based on a dynamic life-cycle model, we nd that redistribution through the tax-andtransfer system offsets around half of the inequality in lifetime earnings that is due to differences in skill endowments. At the same time, taxes and transfers mitigate around 60% of the inequality in lifetime earnings that is attributable to employment and health risk. Progressive taxation of annual earnings provides little insurance against lifetime earnings risk. The lifetime insurance effects of taxation may be improved by moving to a progressive tax on lifetime earnings. Similarly, the lifetime insurance and redistributive effects of social assistance may be improved by requiring wealthy individuals to repay any social assistance received when younger.
    Keywords: Lifetime earnings; lifetime income; tax-and-transfer system; taxation; unemployment insurance; disability bene ts; social assistance; inequality; redistribution; insurance; endowments; risk; dynamic life-cycle models.
    JEL: D63 H23 I24 I38 J22 J31
    Date: 2017–12
  8. By: Auray Stéphane (CREST-ENSAI ; ULCO); Eyquem Aurélien (ENSAI-CREST ; Université Lumière Lyon 2 ; CNRS (GATE))
    Abstract: In this paper, we develop a tractable incomplete-market model with unemployment and borrowing constraints. We analyze the effects of ?scal and unemployment insurance policies in reaction to a large economic downturn. Policy instruments are government spending and the unemployment replacement rate. First, our incomplete-market model magnifies ?uctuations in the unemployment rate after various shocks, compared to a standard complete-market model. Second, in response to a large shock that replicates the effects of a crisis, we find that government spending should increase substantially and that the replacement rate should drop. The sign and size of government interventions are quite different in a model with complete markets. Unemployment and borrowing constraints happen to matter quite a lot in determining the aggregate effects of large shocks, the design of optimized policies in response to these shocks and the corresponding welfare gains/losses.
    Keywords: unemployment, borrowing constraints, incomplete markets, unemployment insurance, public spending
    JEL: D52 E21 E62 J64 J65
    Date: 2017–09–01
  9. By: Alexandre Brouste (Laboratoire Manceau de Mathématiques, - Aucune); Christophe Dutang (LMM - Laboratoire Manceau de Mathématiques - UM - Le Mans Université)
    Abstract: Insurance reserving is a key topic for both actuaries and academics. In the present paper, we present an efficient way to compute all the key indicators in a unified approach of the ruin theory and claim reserving methods. The proposed framework allows to derive closed-form formulas for both ruin theory and claim reserves indicators. A numerical illustration of these indicators is carried out on a real dataset from a private insurer. Résumé Le provisionnement en assurance non-vie est un sujet clé pour les actuaires et les académiques. Dans le présent article, nous présentons une méthode efficace pour calculer les indicateurs par une approche unifiée de la théorie de la ruine et du provisionnement non-vie. Le cadre proposé permet de déduire des formules fermées pour les indicateurs de provisionnement et de ruine. Une illustration de ces indicateurs est réalisée sur un jeu de données réellles. Mots-clés : théorie de la ruine, provisionnement non-vie, processus de Poisson, assurance non vie.
    Keywords: ruin theory,claim reserving,Poisson process,non-life insurance
    Date: 2016–01
  10. By: John Schurrer; Ann O'Malley; Claire Wilson; Nancy McCall; Neetu Jain
    Abstract: In January 2015, the Centers for Medicare & Medicaid Services (CMS) introduced a separately billable non-face-to-face Chronic Care Management (CCM) service.
    Keywords: Medicare, CCM, chronic condition management, chronic care management services, CMS, 99490, 99487, 99489
    JEL: I
  11. By: Benjamin Fischer; Jane Ahn; Claire Brindley; Kathryn Dovgala; Cyrus Jadun; Sean Kirk; Rebecca Lester; Jenna Libersky; Debra Lipson; Jessica Nysenbaum; Karina Wagnerman
    Abstract: The data and information presented in this report were collected directly from all states, the District of Columbia, and US territories
    Keywords: Medicaid managed care, primary care case management, primary care provider, enrollment data, Medicare-Medicaid eligibles, dual eligibles, MLTSS, managed long-term services and supports, Section 1115, Section 1902, Section 1905, Affordable Care Act, ACA, behavioral health organization, fee-for-service, Medicaid waivers, mental health
    JEL: I
  12. By: Crystal Blyler; Priyanka Anand; Melissa Azur; Emily Caffery; Grace Ferry; Benjamin Fischer; Angela Gerolamo; Rosalind Keith; Jung Kim; Brenda Natzke; Bonnie O'Day; Allison Siegwarth
    Abstract: This report presents the initial steps taken to implement the demonstration and early evaluation results.
    Keywords: Report to Congress, Medicaid Emergency Psychiatric Demonstration
    JEL: I
  13. By: So O'Neil; Ella Douglas-Durham
    Abstract: This brief describes approaches that state Medicaid programs can consider when developing the benchmarks, or standards against which to judge performance, for value-based payment programs.
    Keywords: Benchmarking, performance, metrics, value-based, payment, Medicaid, IAP, Innovation Accelerator Program
    JEL: I
  14. By: van den Bremer, Ton; van der Ploeg, Frederick
    Abstract: Leading-order results from asymptotic analysis for the optimal price of carbon under uncertainty are derived from a macroeconomic continuous-time DSGE model with AK growth, energy use, adjustment costs, recursive utility and costs of global warming. We consider non-climatic productivity growth uncertainty, atmospheric carbon uncertainty, climate sensitivity uncertainty and climate damage uncertainty. Explicit expressions are derived that show the leading-order dependence of the optimal carbon price on these uncertainties, the various climate betas, risk aversion, intergenerational inequality aversion and convexity of the climate damage specification. Our solution allows for skewness and mean reversion in stochastic shocks to the climate sensitivity and damage coefficients. The resulting rule for the optimal risk-adjusted carbon price incorporates precautionary, risk-insurance and risk-exposure effects to deal with future economic and climatic risks. The stochastic processes are calibrated and used to estimate and interpret the impact of each source of uncertainty on the optimal risk-adjusted carbon price.
    Keywords: climate betas; Insurance; mean reversion; precaution; Skewness
    JEL: H21 Q51 Q54
    Date: 2018–01

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