nep-ias New Economics Papers
on Insurance Economics
Issue of 2018‒04‒30
fifteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Effects of the Affordable Care Act on Health Behaviors after Three Years By Charles Courtemanche; James Marton; Benjamin Ukert; Aaron Yelowitz; Daniela Zapata
  2. Insurance Expansions and Children’s Use of Substance Use Disorder Treatment By Sarah Hamersma; Johanna Catherine Maclean
  3. Ambulance Utilization in New York City after the Implementation of the Affordable Care Act By Courtemanche, Charles; Friedson, Andrew I.; Rees, Daniel I.
  4. Earnings Responses to Disability Benefit Cuts By Garcia Mandico, Silvia; Garcia-Gomez, Pilar; Gielen, Anne C.; O'Donnell, Owen
  5. Intervening on the Data to Improve the Performance of Health Plan Payment Methods By Savannah L. Bergquist; Timothy J. Layton; Thomas G. McGuire; Sherri Rose
  6. An Apple a Day? Adult Food Stamp Eligibility and Health Care Utilization Among Immigrants By East, Chloe N.; Friedson, Andrew I.
  7. Non-Exclusive Insurance with Free Entry: A Pedagogical Note By Pradeep Dubey; John Geanakoplos
  8. Health insurance, endogenous medical progress, and health expenditure growth By Frankovic, Ivan; Kuhn, Michael
  9. Using a Kinked Policy Rule to Estimate the Effect of Experience Rating on Disability Inflow By Kyyrä, Tomi; Paukkeri, Tuuli
  10. Insurers as Asset Managers and Systemic Risk By Chotibhak, Jotikasthira; Ellul, Andrew; Kartasheva, Anastasia; Lundblad, Christian; Wagner, Wolf
  11. Framing Effects, Earnings Expectations, and the Design of Student Loan Repayment Schemes By Katharine G. Abraham; Emel Filiz-Ozbay; Erkut Y. Ozbay; Lesley J. Turner
  12. Switching gains and health plan price elasticities: 20 years of managed competition reforms in the Netherlands By Rudy Douven; Katalin Katona; Erik Schut; Victoria Shestalova
  13. How Global Warming Can Affect Where People Live? Evidence from Flood Surprises By Petkov, Ivan
  14. The Type of Right-wing Government and the Decline of Middle-Income Strata in Industrialized Democracies By Young-hwan Byun
  15. The value of biodiversity as an insurance device By Augeraud-Véron, E.; Fabbri, G.; Schubert, K.

  1. By: Charles Courtemanche; James Marton; Benjamin Ukert; Aaron Yelowitz; Daniela Zapata
    Abstract: This paper examines the impacts of the Affordable Care Act (ACA) – which substantially increased insurance coverage through regulations, mandates, subsidies, and Medicaid expansions – on behaviors related to future health risks after three years. Using data from the Behavioral Risk Factor Surveillance System and an identification strategy that leverages variation in pre-ACA uninsured rates and state Medicaid expansion decisions, we show that the ACA increased preventive care utilization along several dimensions, but also increased risky drinking. These results are driven by the private portions of the law, as opposed to the Medicaid expansion. We also conduct subsample analyses by income and age.
    JEL: I12 I13 I18
    Date: 2018–04
  2. By: Sarah Hamersma; Johanna Catherine Maclean
    Abstract: This study provides the first evidence on the effects of U.S. state-level private and public insurance expansions on specialty substance use disorder (SUD) treatment use among children ages 12 to 18. We examine both private and public expansions over the period 1996 to 2010. Public insurance expansions are measured by changes in income thresholds for Medicaid and the State Children’s Health Insurance Program (SCHIP). Private expansions are generated by state laws that compel private insurers to cover SUD treatment services at ‘parity’ with general healthcare services. We apply differences-in-differences regression models and leverage an all-payer admissions dataset. Our findings suggest that expansions, both private and public, lead to increases in admissions to treatment and increased insurance coverage among children in treatment. After public expansions, we find that treated children are more likely to be younger and to have previous experience with treatment, but less likely to be referred by the criminal justice system. We find no evidence that public expansions crowd out adult admissions, and in fact both public and private expansions increase at least some types of admissions among adults.
    JEL: I1 I13 I18
    Date: 2018–04
  3. By: Courtemanche, Charles (Georgia State University); Friedson, Andrew I. (University of Colorado Denver); Rees, Daniel I. (University of Colorado Denver)
    Abstract: Expanding insurance coverage could, by insulating patients from having to pay full cost, encourage the utilization of arguably unnecessary medical services. It could also eliminate (or at least diminish) the need for emergency services through increasing access to preventive care. Using publicly available data from New York City for the period 2013-2016, we explore the effect of the Affordable Care Act (ACA) on the volume and composition of ambulance dispatches. Consistent with the argument that expanding insurance coverage encourages the utilization of unnecessary medical services, we find that, as compared to dispatches for more severe injuries, dispatches for minor injuries rose sharply after the implementation of the ACA. By contrast, dispatches for pre-labor pregnancy complications decreased as compared to dispatches for women in labor.
    Keywords: Affordable Care Act, ambulance, emergency medical service, health insurance, moral hazard
    JEL: I11 I13 I18
    Date: 2018–03
  4. By: Garcia Mandico, Silvia (Erasmus University Rotterdam); Garcia-Gomez, Pilar (Erasmus University Rotterdam); Gielen, Anne C. (Erasmus University Rotterdam); O'Donnell, Owen (Erasmus University Rotterdam)
    Abstract: Using Dutch administrative data, we assess the work and earnings capacity of disability insurance (DI) recipients by estimating employment and earnings responses to benefit cuts. Reassessment of DI entitlement under more stringent criteria removed 14.4 percent of recipients from the program and reduced benefits by 20 percent, on average. In response, employment increased by 6.7 points and earnings rose by 18 percent. Recipients were able to increase earnings by €0.64 for each €1 of DI income lost. Female and younger recipients, as well as those with more subjectively defined disabilities, were able to increase earnings most. The earnings response declined as claim duration lengthened, suggesting that earnings capacity deteriorates while on DI. The deterioration was steepest for male, younger and fully disabled recipients. Working while claiming partial disability benefits appears to slow the deterioration of earnings capacity.
    Keywords: disability insurance, health, employment, earnings
    JEL: H53 H55 J14 J22
    Date: 2018–03
  5. By: Savannah L. Bergquist; Timothy J. Layton; Thomas G. McGuire; Sherri Rose
    Abstract: The conventional method for developing health care plan payment systems uses existing data to study alternative algorithms with the purpose of creating incentives for an efficient and fair health care system. In this paper, we take a different approach and modify the input data rather than the algorithm, so that the data used for calibration reflect the desired levels of spending rather than the observed spending levels typically used for setting health plan payments. We refer to our proposed method as “intervening on the data.” We first present a general economic model that incorporates the previously overlooked two-way relationship between health plan payment and insurer actions. We then demonstrate our approach in two applications in Medicare: an inefficiency example focused on underprovision of care for individuals with chronic illnesses, and an unfairness example addressing health care disparities by geographic income levels. We empirically compare intervening on the data to two other methods commonly used to address inefficiencies and disparities: adding risk adjustor variables, and introducing constraints on the risk adjustment coefficients to redirect revenues. Adding risk adjustors, while the most common policy approach, is the least effective method in our applications. Intervening on the data and constrained regression are both effective. The “side effects” of these approaches, though generally positive, vary according to the empirical context. Intervening on the data is an easy-to-use, intuitive approach for addressing economic efficiency and fairness misallocations in individual health insurance markets.
    JEL: I13
    Date: 2018–04
  6. By: East, Chloe N. (University of Colorado Denver); Friedson, Andrew I. (University of Colorado Denver)
    Abstract: In this study, we document the effect of Food Stamp access on adult health care utilization. While Food Stamps is one of the largest safety net programs in the U.S. today, the universal nature of the program across geographic areas and over time limits the potential for quasi-experimental analysis. To circumvent this, we use variation in documented immigrants' eligibility for Food Stamps across states and over time due to welfare reform in 1996. Our estimates indicate that access to Food Stamps reduced the likelihood of an adult visiting a physician more than twice in one year, but had no significant effect on the likelihood of having any physician visits. This result does not appear to be due to changes in physical or mental health, or due to individuals with common chronic health conditions, leaving open the possibility that changes in nutrition or resources may reduce the need for physician visits. Additionally, we find that for single women, Food Stamps increased the affordability of specialty health care, which may have further reduced the need for physician visits. These findings have important implications for cost-benefit analyses of the Food Stamp program, as reductions in health care utilization due to Food Stamps may offset some of the program's impact on the overall government budget due to the existence of government-provided health insurance programs such as Medicaid.
    Keywords: Food Stamps, immigrants, health care
    JEL: H51 H53 H75 I11 I18 Q18
    Date: 2018–03
  7. By: Pradeep Dubey; John Geanakoplos
    Abstract: We consider the Rothschild-Stiglitz model of insurance but without the exclusivity constraint. It turns out that there always exists a unique equilibrium, in which the reliable and unreliable consumers take out a primary insurance up to its quantity limit, and the unreliable take out further secondary insurance at a higher premium. We provide a simple proof of this result (extended to multiple types of consumers) with the hope that it may be pedagogically useful.
    Date: 2018
  8. By: Frankovic, Ivan; Kuhn, Michael
    Abstract: We study the impact of health insurance expansion in the US on health expenditure, longevity growth and welfare in an overlapping generations economy in which individuals purchase health care to lower mortality. We consider three sectors: final goods production; a health care sector, selling medical services to individuals; and an R&D sector, selling increasingly effective medical technology to the health care sector. We calibrate the model to match the development of the US economy/health care system from 1965 to 2005 and study numerically the impact of the insurance expansion on health expenditures, medical progress and longevity. We find that more extensive health insurance accounts for a large share of the rise in US health spending but also boosts the rate of medical progress. A welfare analysis shows that while the moral hazard associated with subsidized health care creates excessive health care expenditure, the gains in life expectancy brought about by induced medical progress more than compensate for this. By mitigating an intergenerational externality associated with the longevity benefits from current medical innovation the expansion of health insurance constitutes a Pareto improvement.
    Keywords: life-cycle model,health care spending,health insurance,medical progress,moral hazard,overlapping generations
    JEL: I11 I12 I18 J11 J17 O31 O41
    Date: 2018
  9. By: Kyyrä, Tomi (VATT, Helsinki); Paukkeri, Tuuli (VATT, Helsinki)
    Abstract: We study whether the experience rating of employers' disability insurance premiums affects the inflow to disability benefits in Finland. To identify the causal effect of experience rating, we exploit "kinks" in the rule that specifies the degree of experience rating as a function of firm size. Using comprehensive matched employer-employee panel data, we estimate the effects of experience rating on the inflow to sickness and disability benefits. Our results suggest that experience rating has reduced the disability inflow among men under age 50. For other groups we find no significant effects, yet we cannot rule out relatively small effects.
    Keywords: experience rating, disability insurance, early retirement
    JEL: J14 J26 H32
    Date: 2018–03
  10. By: Chotibhak, Jotikasthira; Ellul, Andrew; Kartasheva, Anastasia; Lundblad, Christian; Wagner, Wolf
    Abstract: Financial intermediaries often provide guarantees that resemble out-of-the-money put options, exposing them to tail risk. Using the U.S. life insurance industry as a laboratory, we present a model in which variable annuity (VA) guarantees and associated hedging operate within the regulatory capital framework to create incentives for insurers to overweight illiquid bonds ("reach-for-yield"). We then calibrate the model to insurer-level data, and show that the VA-writing insurers' collective allocation to illiquid bonds exacerbates system-wide fire sales in the event of negative asset shocks, plausibly erasing up to 20-70% of insurers' equity capital.
    Keywords: Insurance companies.; Inter-connectedness; Systemic risk; Financial stability
    JEL: G11 G12 G14 G18 G22
    Date: 2018–04
  11. By: Katharine G. Abraham; Emel Filiz-Ozbay; Erkut Y. Ozbay; Lesley J. Turner
    Abstract: Income-driven student loan repayment (IDR) plans provide protection against unaffordable loan payments and default by linking loan payments to borrowers’ earnings. Despite the advantages IDR would offer to many borrowers, take-up remains low. We investigate how take-up is affected by the framing of IDR through a survey of University of Maryland undergraduates. When the insurance aspects of IDR are emphasized, students are significantly more likely to participate, while participation is significantly lower when costs are emphasized. IDR framing interacts with expected labor market outcomes. Emphasizing the insurance aspects of IDR has larger effects on students who anticipate a higher probability of not being employed and/or low earnings at graduation. In contrast, when costs are emphasized, IDR take-up is uncorrelated with students’ expected labor market outcomes. Simulation results suggest that a simple change in the framing of IDR could generate substantial reductions in loan defaults with little cost to long-run federal revenue.
    JEL: D14 D82 H52 H81 I22
    Date: 2018–04
  12. By: Rudy Douven (CPB Netherlands Bureau for Economic Policy Analysis); Katalin Katona; Erik Schut; Victoria Shestalova
    Abstract: In this paper we estimate health plan price elasticities and financial switching gains for consumers over a 20 years period in which managed competition was introduced in the Dutch health insurance market. The period is characterised by a major health insurance reform in 2006 to provide health insurers with more incentives and tools to compete, and to provide consumers with a more differentiated choice of products. Prior to the reform, in the period 1995-2005, we find a low number of switchers, between 2-4% a year, modest average total switching gains of 2 million euro per year and short-term health plan price elasticities ranging from -0.1 to -0.4. The major reform in 2006 resulted in an all-time high switching rate of 18%, total switching gains of 130 million euro, and a high short-term price elasticity of -5.7. During 2007-2015 switching rates returned to lower levels between 4-8% per year, with total switching gains in the order of 40 million euro per year on average. Total switching gains could have been 10 times higher if all consumers would have switched to one of the cheapest plans. We find short-term price elasticities ranging between -0.9 and -2.2. Our estimations suggest substantial consumer inertia throughout the entire period as we find degrees of choice persistence ranging from about 0.8 to 0.9.
    JEL: I18 C33
    Date: 2017–02
  13. By: Petkov, Ivan
    Abstract: This paper challenges the notion that changes in flood risk will have a minimal impact on population because of the availability of insurance and that most of the effect, if any, will be borne out by the real estate market. Insurance premiums even when subsidized are a cost that a household will need to pay with the increase in flood risk. The evidence suggests that flood events, historical and contemporaneous, play a role in the determination of the local perceived flood risk. Attractive communities that have positive growth before the flood surprise are hardest hit. They see a persistent 1.4\% dip in population with a 0.7\% decrease in the pre-flood trend. Flooding does not affect population in the rest of the high surprise locations. Instead, they see close to 4\% drop real estate values with the biggest effect among higher tier housing. There is also evidence that flood incidence in these communities is higher among the low-income population as suggested by relief payments by FEMA.
    Keywords: Population, Flood Surprises, Climate Change Real Estate, Natural Disasters
    JEL: J61 Q54 R11 R30
    Date: 2018–03–26
  14. By: Young-hwan Byun
    Abstract: Although the decline of middle-income strata (or polarization in income distribution) is an increasingly widespread phenomenon across industrialized democracies, it remains understudied compared to other forms of income inequality. I analyzed the decline of middle-income strata among 18 industrialized democracies between 1971 and 2010. Whereas previous research claimed that income polarization is a common development, brought upon by global market integration or skill-biased technological change, I found significant cross-country variation in the extent of polarization among the 18 cases. My findings suggest that that the type of party government—in particular, whether the dominant right-wing party is Christian or secular—is associated with divergent outcomes in the degree of income polarization. I argue that secular-right governments have facilitated income polarization by undermining centralized wage-bargaining and social-insurance benefit generosity. In contrast, by maintaining these institutional arrangements, Christian Democratic governments have tempered polarization trends in the market, resulting in relatively larger middle-income strata.
    Date: 2018–01
  15. By: Augeraud-Véron, E.; Fabbri, G.; Schubert, K.
    Abstract: This paper presents a benchmark stochastic endogenous growth model of an agricultural economy. Producing food requires land, and increasing the share of total land devoted to farming mechanically reduces the share of land devoted to biodiversity conservation. However, safeguarding a greater number of species guarantees, through spatial exchanges, better ecosystem services which, in turn, ensure lower volatility of agricultural productivity. The optimal conversion/conservation rule is explicitly characterized, as well as the total value of biodiversity in terms of the welfare gain from biodiversity conservation, and the marginal value of biodiversity in terms of risk premium reduction, namely its insurance value. The Epstein-Zin-Weil specification of preferences allows us to disentangle the effects of risk aversion and aversion to fluctuations.
    JEL: Q56 Q58 Q10 Q15 O13 O20 C73
    Date: 2018

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