nep-ias New Economics Papers
on Insurance Economics
Issue of 2018‒11‒05
fourteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Response Error & the Medicaid undercount in the CPS By James M. Noon; Leticia E. Fernandez; Sonya R. Porter
  2. Labor Market Effects of the Affordable Care Act: Evidence from a Tax Notch By Kavan Kucko; Kevin Rinz; Benjamin Solow
  3. Unemployment Insurance and Labour Productivity over the Business Cycle By W. Similan Rujiwattanapong
  4. Information frictions and adverse selection: policy interventions in health insurance markets By Handel, Benjamin R.; Kolstad, Jonathan T.; Spinnewijn, Johannes
  5. Tail-dependent Rainfall Risk and Demand for Index based Crop Insurance By Negi, Digvijay S.
  6. Does Bancassurance Affect Performance of Non-life Insurance Sector ? Case of EU Countries By Tomislava Pavic Kramaric; Ivan Pavic
  7. Crop Insurance under Restricted Access to Financial Markets By Voica, Daniel C.
  8. On the role of probability weighting on WTP for crop insurance with and without yield skewness By Bougherara, Douadia; Piet, Laurent
  9. Better understanding of Demand for Weather Index Insurance among Smallholder Farmers under Prospect Theory By Shin, Soye
  10. Nonlinear household earnings dynamics, self-insurance, and welfare By De Nardi, Mariacristina; Fella, Giulio; Paz-Pardo, Gonzalo
  11. Tenure Choice, Portfolio Structure and Long-term Care - Optimal Risk Management in Retirement By Hofmann, Maurice; Fehr, Hans
  12. Minimum Asset and Liability Insurance Requirements on Judgment-Proof Individuals When Harm is Endogenous By Chulyoung Kim; Paul S. Koh
  13. Reporting of Indian Health Service Coverage in the American Community Survey By Renuka Bhaskar; Rachel M. Shattuck; James Noon
  14. Medicare Coverage and Reporting By Renuka Bhaskar; James Noon; Brett O'Hara; Victoria Velkoff

  1. By: James M. Noon; Leticia E. Fernandez; Sonya R. Porter
    Abstract: The Current Population Survey Annual Social and Economic Supplement (CPS ASEC) is an important source for estimates of the uninsured population. Previous research has shown that survey estimates produce an undercount of beneficiaries compared to Medicaid enrollment records. We extend past work by examining the Medicaid undercount in the 2007-2011 CPS ASEC compared to enrollment data from the Medicaid Statistical Information System for calendar years 2006-2010. By linking individuals across datasets, we analyze two types of response error regarding Medicaid enrollment - false negative error and false positive error. We use regression analysis to identify factors associated with these two types of response error in the 2011 CPS ASEC. We find that the Medicaid undercount was between 22 and 31 percent from 2007 to 2011. In 2011, the false negative rate was 40 percent, and 27 percent of Medicaid reports in CPS ASEC were false positives. False negative error is associated with the duration of enrollment in Medicaid, enrollment in Medicare and private insurance, and Medicaid enrollment in the survey year. False positive error is associated with enrollment in Medicare and shared Medicaid coverage in the household. We discuss implications for survey reports of health insurance coverage and for estimating the uninsured population.
    Date: 2016–12
  2. By: Kavan Kucko; Kevin Rinz; Benjamin Solow
    Abstract: States that declined to raise their Medicaid income eligibility cutoffs to 138 percent of the federal poverty level (FPL) under the Affordable Care Act (ACA) created a "coverage gap'' between their existing, often much lower Medicaid eligibility cutoffs and the FPL, the lowest level of income at which the ACA provides refundable, advanceable "premium tax credits'' to subsidize the purchase of private insurance. Lacking access to any form of subsidized health insurance, residents of those states with income in that range face a strong incentive, in the form of a large, discrete increase in post-tax income (i.e. an upward notch) at the FPL, to increase their earnings and obtain the premium tax credit. We investigate the extent to which they respond to that incentive. Using the universe of tax returns, we document excess mass, or bunching, in the income distribution surrounding this notch. Consistent with Saez (2010), we find that bunching occurs only among filers with self-employment income. Specifically, filers without children and married filers with three or fewer children exhibit significant bunching. Analysis of tax data linked to labor supply measures from the American Community Survey, however, suggests that this bunching likely reflects a change in reported income rather than a change in true labor supply. We find no evidence that wage and salary workers adjust their labor supply in response to increased availability of directly purchased health insurance.
    Date: 2017–07
  3. By: W. Similan Rujiwattanapong (Centre for Macroeconomics (CFM); Aarhus University)
    Abstract: This paper quantifies the effects of the increasing maximum unemployment insurance (UI) duration during recessions no the drop in the correlation between output and labour productivity in the U.S. since the early 1980’s – the so-called productivity puzzle. Using a general equilibrium search and matching model with stochastic UI duration, heterogeneous match quality, variable search intensity and on-the-job search. I demonstrate that the model can explain over 40 percent of the drop in this correlation (28 percent when the Great Moderation is taken into account). More generous UI extensions during recent recessions cause workers to be more selective with job offers and lower job search effort. The former channel raises the overall productivity in bad times. The later prolongs UI extensions since in the U.S. they are triggered by high unemployment.
    Keywords: Business cycles, Labour productivity, Unemployment insurance
    JEL: E32 J24 J64 J65
    Date: 2018–08
  4. By: Handel, Benjamin R.; Kolstad, Jonathan T.; Spinnewijn, Johannes
    Abstract: Despite evidence that many consumers in health insurance markets are subject to information frictions, approaches used to evaluate these markets typically assume informed, active consumers. This gap between actual behavior and modeling assumptions has important consequences for positive and normative analysis. We develop a general framework to study insurance market equilibrium in the presence of choice frictions and evaluate key policy interventions, designed to combat adverse selection or to combat poor choices. We identify sufficient relationships between the underlying distributions of consumer (i) costs, (ii) surplus from risk protection and (iii) choice frictions that determine whether friction-reducing policies will be on net welfare increasing, due to improved consumer matching, or welfare reducing, due to increased adverse selection. We show that the impact of insurer risk-adjustment transfers, a supply-side policy designed to combat adverse selection, depends crucially on how effective consumer choices are, and is generally complementary to choice-improving policies. We implement our approach empirically, show how these key sufficient objects can be measured in practice, and illustrate the theoretically-motivated link between these objects and key policy outcomes.
    JEL: J1 F3 G3
    Date: 2018–01–24
  5. By: Negi, Digvijay S.
    Keywords: Risk and Uncertainty, Food and Agricultural Policy Analysis, International Development
    Date: 2018–06–20
  6. By: Tomislava Pavic Kramaric (University of Split - University Department of Professional Studies); Ivan Pavic (University of Split - Faculty of Economics)
    Abstract: The aim of this paper is to test the influence of bancassurance as a distribution channel on performance of non-life insurance sector in selected European countries. The analysis refers to 2009 ? 2015 period and it is conducted using static panel analysis. Performance measures employed comprise of sales profitability as well as of profitability ratio of technical activity whereas independent variables used in the model include share of bancassurance, market share, gross written premium growth rate, claims growth rate, insurance density, share of premium in GDP, share of reinsurance and number of insurance companies. The results of the analysis in both models reveal that market share prove to be statistically significant determinant of insurance sector performance negatively affecting performance. Furthermore, insurance density has statistically significant and positive influence on performance measured with profitability ratio of technical activity.
    Keywords: bancassurance, non-life insurance industry performance, EU countries, static panel analysis
    JEL: G22 L10 O16
    Date: 2018–07
  7. By: Voica, Daniel C.
    Keywords: Food and Agricultural Policy Analysis, Production Economics, Risk and Uncertainty
    Date: 2018–06–20
  8. By: Bougherara, Douadia; Piet, Laurent
    Abstract: A growing number of studies in finance and economics seek to explain insurance choices us- ing the assumptions advanced by behavioral economics. One recent example in agricultural economics is the use of cumulative prospect theory (CPT) to explain farmer choices regarding crop insurance coverage levels (Babcock, 2015). We build upon this framework by deriving willingness to pay (WTP) for insurance programs under alternative assumptions, thus extend- ing the model to incorporate farmer decisions regarding whether or not to purchase insurance. Our contribution is twofold. First, we study the sensitivity of farmer WTP for crop insurance to the inclusion of CPT parameters. We find that loss aversion and probability distortion in- crease WTP for insurance while risk aversion decreases it. Probability distortion in losses plays a particularly important role. Second, we study the impact of yield distribution skewness on farmer WTP assuming CPT preferences. We find that WTP decreases when the distribution of yields moves from negatively- to positively-skewed and that the combined effect of proba- bility weighting in losses and skewness has a large negative impact on farmer WTP for crop insurance.
    Keywords: Risk and Uncertainty
    Date: 2018
  9. By: Shin, Soye
    Keywords: Risk and Uncertainty, Experimental Economics, International Development
    Date: 2018–06–20
  10. By: De Nardi, Mariacristina; Fella, Giulio; Paz-Pardo, Gonzalo
    Abstract: Earnings dynamics are much richer than typically assumed in macro models with heterogeneous agents. This holds for individual-pre-tax and household-post-tax earnings and across administrative (Social Security Administration) and survey (Panel Study of Income Dynamics) data. We study the implications of two processes for household, post-tax earnings in a standard life-cycle model: a canonical earnings process (that includes a persistent and a transitory shock) and a rich earnings dynamics process (that allows for age-dependence of moments, non-normality, and nonlinearity in previous earnings and age). Allowing for richer earnings dynamics implies a substantially better fit of the evolution of cross-sectional consumption inequality over the life cycle and of the individual-level degree of consumption insurance against persistent earnings shocks. Richer earnings dynamics also imply lower welfare costs of earnings risk, but, as the canonical earnings process, do not generate enough concentration at the upper tail of the wealth distribution.
    Keywords: earnings risk; savings; consumption; inequality; life cycle
    JEL: D14 D31 E21 J31
    Date: 2018–06–15
  11. By: Hofmann, Maurice; Fehr, Hans
    Abstract: Our study analyzes the savings behavior of elderly and highlights the interplay between tenure decisions, stock market investment and long-term care risk. Housing equity serves a dual purpose as a consumption good and as an asset, consequently it is important for the optimal risk structure of the financial portfolio. In addition, recent contributions also point out its implicit insurance provision to buffer long-term care shocks. Our stylized life cycle model captures these links and indicates that in Germany long-term care risks may be an important driver for homeownership. In our preferred set-up housing equity is a rather low-risky investment that even encourages stockmarket participation among elderly homeowners.
    Keywords: Homeownership,Life-cycle models,Stock market participation,Long-term care insurance provision
    JEL: C61 G11 H55
    Date: 2018
  12. By: Chulyoung Kim (Yonsei University); Paul S. Koh (Columbia University)
    Abstract: Minimum asset requirements are an increasingly common form of regulation intended to motivate better decision making by individuals who participate in potentially harmful ac- tivities. Shavell (2005) studied the optimality of this type of regulation within a framework in which an individual can influence the probability of an accident but not the magnitude of the resultant harm. We reinvestigate Shavell's model for the opposite accident scenario, in which an individual can influence the magnitude of harm but not the probability of an accident, and find policy implications different than Shavell's. In particular, we show that in certain situations it could be optimal to completely ban judgment-proof individuals from participating in a potentially harmful activity. We also examine the effect of liability insurance, and find that regulatory authorities should tighten standards relative to the pure asset requirement and that liability insurance increases social welfare.
    Keywords: minimum asset requirement; liability insurance; judgment proof; endogenous harm.
    JEL: G28 K13 K20 L51
    Date: 2018–10
  13. By: Renuka Bhaskar; Rachel M. Shattuck; James Noon
    Abstract: Response error in surveys affects the quality of data which are relied on for numerous research and policy purposes. We use linked survey and administrative records data to examine reporting of a particular item in the American Community Survey (ACS) - health coverage among American Indians and Alaska Natives (AIANs) through the Indian Health Service (IHS). We compare responses to the IHS portion of the 2014 ACS health insurance question to whether or not individuals are in the 2014 IHS Patient Registration data. We evaluate the extent to which individuals misreport their IHS coverage in the ACS as well as the characteristics associated with misreporting. We also assess whether the ACS estimates of AIANs with IHS coverage represent an undercount. Our results will be of interest to researchers who rely on survey responses in general and specifically the ACS health insurance question. Moreover, our analysis contributes to the literature on using administrative records to measure components of survey error.
    Date: 2018–05
  14. By: Renuka Bhaskar; James Noon; Brett O'Hara; Victoria Velkoff
    Abstract: Medicare coverage of the older population in the United States is widely recognized as being nearly universal. Recent statistics from the Current Population Survey Annual Social and Economic Supplement (CPS ASEC) indicate that 93 percent of individuals aged 65 and older were covered by Medicare in 2013. Those without Medicare include those who are not eligible for the public health program, though the CPS ASEC estimate may also be impacted by misreporting. Using linked data from the CPS ASEC and Medicare Enrollment Database (i.e., the Medicare administrative data), we estimate the extent to which individuals misreport their Medicare coverage. We focus on those who report having Medicare but are not enrolled (false positives) and those who do not report having Medicare but are enrolled (false negatives). We use regression analyses to evaluate factors associated with both types of misreporting including socioeconomic, demographic, and household characteristics. We then provide estimates of the implied Medicare-covered, insured, and uninsured older population, taking into account misreporting in the CPS ASEC. We find an undercount in the CPS ASEC estimates of the Medicare covered population of 4.5 percent. This misreporting is not random - characteristics associated with misreporting include citizenship status, year of entry, labor force participation, Medicare coverage of others in the household, disability status, and imputation of Medicare responses. When we adjust the CPS ASEC estimates to account for misreporting, Medicare coverage of the population aged 65 and older increases from 93.4 percent to 95.6 percent while the uninsured rate decreases from 1.4 percent to 1.3 percent.
    Date: 2016–12

This nep-ias issue is ©2018 by Soumitra K. Mallick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.