nep-ias New Economics Papers
on Insurance Economics
Issue of 2018‒11‒12
twenty-one papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Working Toward Solutions for Integration: Updates from Guidance and Proposed Rules (Presentation) By Nancy Archibald; Erin Weir Lakhmani; Michelle Herman Soper
  2. Does High Cost-Sharing Slow the Long-term Growth Rate of Health Spending? Evidence from the States By Molly Frean; Mark Pauly
  3. Background Information on Integration and Medicaid MLTSS Market Trends for Panel Discussion on How States Are Positioning for Integration (Presentation) By Danielle Chelminsky; Jim Verdier
  4. Unequal Use of Social Insurance Benefits: The Role of Employers By Sarah Bana; Kelly Bedard; Maya Rossin-Slater; Jenna Stearns
  5. Patient vs. Provider Incentives in Long Term Care By Martin B. Hackmann; R. Vincent Pohl
  6. Partial Rating Area Offering in the ACA Marketplaces: Facts, Theory and Evidence By Hanming Fang; Ami Ko
  7. Asset-liability management in life insurance: Evidence from France By victor Lyonnet
  8. Gone with the Windfall - Germany‘s Second LTC Strengthening Act and its Intergenerational Implications By Lewe Bahnsen; Stefan Fetzer; Fabian Franke; Christian Hagist
  9. Incentivizing Efficient Utilization Without Reducing Access: The Case Against Cost-Sharing in Insurance By Fels, Markus
  10. Unemployment Insurance Take-up Rates in an Equilibrium Search Model By Stéphane Auray; David L. Fuller; Damba Lkhagvasuren
  11. On the role of probability weighting on WTP for crop insurance with and without yield skewness. By Douadia, Bougherara; Laurent, Piet
  12. Optimal continuous-time ALM for insurers: a martingale approach By Rafael Serrano; Camilo Castillo
  13. Banking on the Boom, Tripped by the Bust: Banks and the World War I Agricultural Price Shock By Matthew S. Jaremski; David C. Wheelock
  14. "Assessing the degree of international consumption risk sharing " By Constantino Hevia; Luis Serven
  15. Fiscal Insurance and the Mitigation of Generational Risk By Bruce Mizrach
  16. Effect of index-based livestock insurance (IBLI) on herd offtake: Evidence from Borena zone-southern Ethiopia By Jing, W.; Gebrekidan, T.; Sheng, B.; Yixin, G.; Chi, Z.; Qianyue, Z.; Yongchao, D.; Tamura, Y.; Neglo, K.; Lyu, K.
  17. A martingale concept for non-monotone information in a jump process framework By Marcus C. Christiansen
  18. Estimating the Hospital Costs of Inpatient Harms By Priyanka Anand; Keith Kranker; Arnold Y. Chen
  19. Perceived brand reliability of insurance companies as customer loyalty factor By Petra Leonora Cvitanović
  20. Health Shocks and the Evolution of Consumption and Income over the Life-Cycle By Michael Keane; Elena Capatina; Shiko Maruyama
  21. Risk Attitude, Technical Efficiency and Adoption: An Integrated Approach to Climate-Smart Rice Production in the Jianghan Plain, China By Tong, Q.; Swallow, B.; Zhang, L.; Zhang, J.

  1. By: Nancy Archibald; Erin Weir Lakhmani; Michelle Herman Soper
    Abstract: Mathematica and colleagues from the Center for Health Care Strategies review Centers for Medicare & Medicaid Services guidance and proposed rules on state and health plan options to better integrate Medicaid and Medicaid services for dually eligible beneficiaries in managed care plans.
    Keywords: Integration, SNP Alliance
    JEL: I
  2. By: Molly Frean; Mark Pauly
    Abstract: Multiple studies have shown that high-deductible health plans lower spending levels, however, less is known about whether such plans have an effect on spending growth. We begin with a model of the relationship between levels of insurance coverage and both spending levels and spending growth, highlighting the role of new technology adoption in the latter. Next, we leverage cross-sectional variation in private deductibles across states (and over time) to estimate whether areas with relatively higher deductibles experience lower spending growth. We use publicly available data from the Centers for Medicare and Medicaid Services and the Agency for Healthcare Research and Quality from 2002-2016, a period during which deductibles among privately insured employees more than tripled in magnitude and real spending growth exceeded 40%. Consistent with prior empirical work, we find that current period spending growth is significantly lower in states with higher deductible levels but non-responsive to changes in such levels over time. We observe these relationships in models of both private and total spending (including that on behalf of publicly insured and uninsured individuals), suggestive of potential spillovers. Future work should explore the role of other plan benefit characteristics in explaining spending growth and mechanisms underlying any observed effects.
    JEL: I11 I13
    Date: 2018–10
  3. By: Danielle Chelminsky; Jim Verdier
    Abstract: In this presentation, prepared as background for a panel discussion titled "How Are States Positioning for Integration," reviews market trends for Medicare Advantage Dual Eligible Special Needs Plans (D-SNPs) that provide integrated Medicare and Medicaid services for beneficiaries dually eligible for both programs through linkages with Medicaid managed care plans.
    Keywords: integration, Medicaid, MLTSS, States, SNP
    JEL: I
  4. By: Sarah Bana; Kelly Bedard; Maya Rossin-Slater; Jenna Stearns
    Abstract: California's Disability Insurance (DI) and Paid Family Leave (PFL) programs have become important sources of social insurance, with benefit payments now exceeding those of the state's Unemployment Insurance program. However, there is considerable inequality in program take-up. While existing research shows that firm-specific factors explain a significant part of the growing earnings inequality in the U.S., little is known about the role of firms in determining the use of public leave-taking benefits. Using administrative data from California, we find strong evidence that DI and PFL program take-up is substantially higher in firms with high earnings premiums. A one standard deviation increase in the firm premium is associated with a 57 percent higher claim rate incidence. Our results suggest that changes in firm behavior have the potential to impact social insurance use and thus reduce an important dimension of inequality in America.
    JEL: J31 J32 J38
    Date: 2018–10
  5. By: Martin B. Hackmann; R. Vincent Pohl
    Abstract: How do patient and provider incentives affect mode and cost of long-term care? Our analysis of 1 million nursing home stays yields three main insights. First, Medicaid-covered residents prolong their stays instead of transitioning to community-based care due to limited cost-sharing. Second, nursing homes shorten Medicaid stays when capacity binds to admit more profitable out-of-pocket payers. Third, providers react more elastically to financial incentives than patients, so moving to episode-based provider reimbursement is more effective in shortening Medicaid stays than increasing resident cost-sharing. Moreover, we do not find evidence for health improvements due to longer stays for marginal Medicaid beneficiaries.
    JEL: H51 H75 I11 I13 I18 J14
    Date: 2018–10
  6. By: Hanming Fang; Ami Ko
    Abstract: In the health insurance marketplaces established by the Affordable Care Act (ACA), each state is divided into a set number of geographic ``rating areas." The ACA mandates that an insurer price its health insurance plan uniformly in all counties within the same rating area, conditional on insurees' age and smoking status. However, the ACA does \textit{not} require that an insurer sell its plan in all counties in a rating area. Using the federal marketplace data, we quantify the prevalence of a phenomenon, which we refer to as partial rating area offering, where insurers enter some but not all of the counties in a rating area. To understand why insurers selectively enter a subset of the counties in a rating area, we develop a simple model of insurer competition. The model implies that if common county characteristics, such as the county's risk distribution, market size and provider availability, are the primary drivers for the partial rating area offering phenomenon, then there would be a positive correlation among insurers' entry decisions. In contrast, if the partial rating area offering phenomenon is driven by market segmentation, then there would be a negative correlation. We develop a novel nonparametric correlation test and apply it to the federal marketplace data. We find strong evidence for a positive correlation of insurers' entry decisions, suggesting that common cost factors are the main driver for the partial rating area offering phenomenon. To the extent that it is a concern that many counties now have few insurers, our result suggests that it is important to offer insurers subsidies that are tied to county characteristics.
    JEL: I11 I13 L1
    Date: 2018–10
  7. By: victor Lyonnet (CREST; HEC Paris)
    Abstract: This paper studies the asset-liability management of life insurers. We start with a life insurance investor’s problem of the optimal date to redeem; as a function of taxes and rates of return. The model predicts that life insurers whose investors’ contract age is relatively young should be more exposed to redemption risk. We then build a novel confidential dataset and test whether life insurers’ portfolio choice is responsive to redemption risk. Using different measures of redemption risk and controlling for year fixed effects; we find that a one standard deviation increase in redemption risk is associated with an average decrease in the share of directly-held stocks by 2.3% or slightly more than one-half of its standard deviation (4.5%). This result remains valid when accounting for indirect stock investment through funds. Finally; we check our model’s prediction that redemption risk depends on insurers’ investor contract age and use this to propose and exogenous measure of redemption risk and make a causal attempt.
    Keywords: Insurance companies, life insurance, surrender risk, redemption risk.
    JEL: G22 G28 G32
    Date: 2018–08–05
  8. By: Lewe Bahnsen; Stefan Fetzer; Fabian Franke; Christian Hagist
    Abstract: Due to the debate about the generosity of LTC insurance benefits the German government decided to increase benefits and widen the circle of LTC beneficiaries with the Second LTC Strengthening Act. In this paper, we evaluate the long-term implications of this recent reform for the German LTC insurance scheme. Using the framework of generational accounting we show that the reform has led to a widening of the short-term gap between revenues and expenditure and that the LTC insurance is not sustainably financed, neither pre- nor post-reform. By the early 2020s there will be fiscal pressure for further reforms. From an intergenerational perspective, the reform can be seen as a windfall to current beneficiaries increasing the intergenerational redistribution through the pay-as-you-go system.
    Keywords: Generational accounting, long-term care insurance, intergenerational distribution
    JEL: H51 I13 J14
    Date: 2018–10–26
  9. By: Fels, Markus
    Abstract: Cost-sharing is regarded as an important tool to reduce moral hazard in health insurance. Contrary to standard prediction, however, such requirements are found to decrease utilization both of efficient and of inefficient care. I employ a simple model that incorporates two possible explanations - consumer mistakes and limited access - to assess the welfare implications of different insurance designs. I find cost-sharing never to be an optimal solution as it produces two novel inefficiencies by limiting access. An alternative design, relying on bonuses, has no such side effects and achieves the same incentivization.
    Keywords: Moral Hazard,Limited Access,Cost-Sharing,Insurance Rebates
    JEL: D82 I13 I14
    Date: 2018
  10. By: Stéphane Auray (CREST; ENSAI ; ULCO); David L. Fuller (University of Wisconsin-Oshkosh); Damba Lkhagvasuren (Concordia University; CIREQ)
    Abstract: From 1989-2012; on average 23% of those eligible for unemployment insurance (UI) benefits in the US did not collect them. In a search model with matching frictions; private information associated with the UI non-collectors implies the market equilibrium is not Pareto optimal. The cause of the Pareto inefeciency is characterized along with the key features of collector vs. non-collector outcomes. Non-collectors transition to employment at a faster rate and a lower wage relative to the Pareto optimal arrival rates and wages. Quantitatively; this implies 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 benefit level; relative to the standard model with a 100% take-up rate.
    Keywords: Unemployment insurance, take-up, calibration, matching frictions, search.
    JEL: E61 J32 J64 J65
    Date: 2018–09–16
  11. By: Douadia, Bougherara; Laurent, Piet
    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: crop insurance, cumulative prospect theory, premium subsidy, Skewnes
    JEL: D81 Q10 Q12 Q18
    Date: 2018
  12. By: Rafael Serrano; Camilo Castillo
    Abstract: We study a continuous-time asset-allocation problem for a firm in the insurance industry that backs up the liabilities raised by the insurance contracts with the underwriting profits and the income resulting from investing in the financial market. Using the martingale approach and convex duality techniques we characterize strategies that maximize expected utility from consumption and final wealth under CRRA preferences. We present numerical results for some distributions of claims/liabilities with policy limits.
    Date: 2018–10
  13. By: Matthew S. Jaremski; David C. Wheelock
    Abstract: Bank lending booms and asset price booms are often intertwined. Although possibly triggered by a fundamental shock, rising asset prices can stimulate lending that pushes asset prices higher, leading to more lending, and so on. Such a dynamic seems to have characterized the agricultural land boom surrounding World War I. This paper examines i) how banks responded to the boom and were affected by the bust; ii) how various banking regulations and policies influenced those effects; and iii) how bank closures contributed to falling land prices in the bust. We find that rising crop prices encouraged bank entry and balance sheet expansion in agricultural counties (with new banks accounting disproportionately for growth in lending and banking system risk). State deposit insurance systems amplified the impact of rising crop prices on bank portfolios, while higher minimum capital requirements dampened the effects. When farmland prices collapsed, banks that had responded most aggressively to the asset boom had a higher probability of closing, and counties with more bank closures experienced larger declines in land prices.
    JEL: E58 N21 N22
    Date: 2018–10
  14. By: Constantino Hevia; Luis Serven
    Abstract: This paper examines the extent of risk sharing for a group of 50 industrial and developing countries. The analysis is based on a model of partial consumption insurance whose parameters have the natural interpretation of coefficients of partial risk sharing even when the null hypothesis of perfect risk sharing is rejected. Results show that rich countries exhibit higher degrees of risk sharing than developing countries, and that the gap has widened over time. Other things equal, the degree of risk sharing is higher in smaller, more financially-open economies and in those possessing flexible exchange rate regimes.
    Keywords: Incomplete risk sharing, Financial globalization
    JEL: E21 F36 F41
    Date: 2018–03
  15. By: Bruce Mizrach (Boston College)
  16. By: Jing, W.; Gebrekidan, T.; Sheng, B.; Yixin, G.; Chi, Z.; Qianyue, Z.; Yongchao, D.; Tamura, Y.; Neglo, K.; Lyu, K.
    Abstract: When weather shock strike in agrarian economies, households are often used to offtake, perhaps their productive livestock as major risk coping strategy. However, distressful asset offtake could result difficulties to recover after shock, consequently, the macro economy of a subsistence agriculture dependent country could slows down for longer years. In this paper, we analysed the dynamic effect of the index based livestock insurance on the herd offtake behaviour of herders in Borena zone, southernmost part of Ethiopia using three rounds panel data. Our results using fixed effect model analysis shows that households who purchased index-based livestock insurance coverage are less likely to offtake their herds. Empirically, it is appeared to have positive and significant effect on reducing the herd offtake behaviour of the households. This finding suggests that the coverage can help in reducing fear and worry of the herding households about the possible incidence of covariate herd loss. As a result, distressful herd offtake can be reduced and sustain the household s economic growth. Acknowledgement : We are very thankfull to Index Based Livestock Insurance (IBLI) project consortium members for making available rich panel data which enable us to write this paper. We also like to convey our special esteem to the ILRI for taking the initiative for realising the IBLI project. We gratefully acknowledges the valuable contributions of the financial innovation and rural development program research team members of Chinese Academy of Agricultural Sciences (GSCAAS). We would like to extend our appreciation to the International Association of Agricultural Economists (IAAE) for its continual effort to foster agricultural economics and facilitating information exchanges among scholars.
    Keywords: Livestock Production/Industries
    Date: 2018–07
  17. By: Marcus C. Christiansen
    Abstract: The classical concept of martingales and compensators bases on the monotony of filtrations. This paper looks at the situation where innovations can have an expiry date such that the information dynamics becomes non-monotone. By focussing on the properties that martingales and compensators show on infinitesimally small intervals, the classical martingale concept is extended and corresponding martingale representations are developed. The extended martingale representations lead to a new type of Thiele-Feynman-Kac equations, which are exemplarily discussed for two example from life insurance mathematics.
    Date: 2018–11
  18. By: Priyanka Anand; Keith Kranker; Arnold Y. Chen
    Abstract: The authors analysis represents rigorous estimates of the hospital costs of a variety of inpatient harms; these should be of interest to health care administrators and policy makers to identify areas for cost savings to the health care system.
    Keywords: acute inpatient care, health care costs, inpatient harm, quality of care, readmissions
    JEL: I
  19. By: Petra Leonora Cvitanović
    Abstract: A regular obstacle in insurance business is the problem of attracting new users of insurance products/services while it is getting more difficult to keep the existing clients. Beside financial risk and barriers to exit which restrain clients contractually and legally from leaving an insurance provider and switching to another, there aren't many reasons why they should not do it, and the possibilities are vast. That is why it is important to continually strengthen the emotional bond with the clients and to affect their perception of insurance provider’s brand strength, brand reliability and quality. Another limitation in attracting new clients is a significant similarity in the offer of all insurance providers, which is why they have to make effort to create a recognizable differential advantage which will be noticed by the clients and not easily imitated by the competitors. Not enough attention is given to strengthening the brand of insurance providers and brand equity is exactly what can affect the opinion of clients when choosing or changing an insurance provider. The feeling of belonging to a particular insurance provider is the most important factor because it is a generator strong bond with the brand. In order for insurance users to gain trust in the insurance provider, it has to make sure that users have solid understanding of types of insurance coverage and exclusions in their insurance policies. In practice it is often the opposite, which creates lower level of satisfaction on clients' side due to high expectations. By analysing market research results, the author examines aspects of perceived stability, trust and reliability of insurance providers’ brands on Croatian market. After collecting insurance users' attitudes and opinions based on their previous experiences and perception, the author makes conclusions regarding their current and future loyalty by methods of synthesis and induction.
    Keywords: perceived brand reliability, brand strength, brands of insurance companies, customer retention, customer loyalty factors, reliability assessment, service company marketing mix
    JEL: M31
    Date: 2018–11–06
  20. By: Michael Keane (School of Economics, UNSW Business School, UNSW Sydney); Elena Capatina (Research School of Economics, Austrlian National University); Shiko Maruyama (Economics Discipline Group, UTS Business School, University of Technology Sydney)
    Abstract: This paper studies the effects of health on earnings dynamics and on consumption inequality over the life-cycle. We build and calibrate a life-cycle model with idiosyncratic health, earnings and survival risk where individuals make labor supply and asset accumulation decisions, adding two novel features. First, we model health as a complex multi-dimensional concept. We differentiate between functional health and underlying health risk, temporary vs. persistent health shocks, and predictable vs. unpredictable shocks. Second, we study the interactions between health and human capital accumulation (learning-by-doing). These features are important in allowing the model to capture the degree to which, and the pathways through which, health impacts earnings and consumption patterns. They are also very important in estimating the value of health insurance and social insurance. A key finding is that health shocks account for roughly half of the growth in offer wage inequality over the life cycle. Eliminating health shocks leads to a 5.5% decline in the variance of the present value of earnings across all individuals.
    Keywords: Health, Income Risk, Precautionary Saving, Health Insurance, Welfare
    JEL: D91 E21 I14 I31
    Date: 2018–05
  21. By: Tong, Q.; Swallow, B.; Zhang, L.; Zhang, J.
    Abstract: Rice production in China is under pressure to adapt to changing weather conditions and mitigate greenhouse gas emissions. This paper explores the possibilities for achieving climate-smart agriculture among rice farmers in the Jianghan Plain of China. Data for 873 rice plots are analyzed using Stochastic Frontier Analysis to simultaneously estimate a production function and factors associated with technical efficiency. The production analysis shows the importance of climate variables to production, while use of climate-smart practices, including insurance, conservation tillage, and crop rotations all have the extra benefit of reducing technical inefficiency. However, risk aversion complicates these relationships. We found that most farmers are risk averse and that risk aversion has a negative effect on technical efficiency and U-shaped effects on the purchase of insurance and use of soil-conserving practices. Soil conserving practices are least likely to be used by risk neutral farmers, while insurance is most likely to be purchased by risk neutral farmers. Crop insurance that appeals to the most risk averse farmers appears to be a high priority for encouraging climate-smart agriculture in this region where climate has such large impacts on crop production. Acknowledgement : The authors gratefully acknowledge ?nancial support from the Natural Sciences Foundation of China (41501213); the Fundamental Research Funds for the Central Universities (2662017PY045); the Key Project for Studies of Philosophy and Social Sciences by Ministry of Education (15JZD014); the program of China Scholarship Council (No. 201706760038).
    Keywords: Crop Production/Industries
    Date: 2018–07

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.