nep-ias New Economics Papers
on Insurance Economics
Issue of 2018‒11‒19
nineteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. The Impact of Insurance Expansions on the Already Insured: The Affordable Care Act and Medicare By Colleen M. Carey; Sarah Miller; Laura R. Wherry
  2. Unequal Use of Social Insurance Benefits: The Role of Employers By Bana, Sarah; Bedard, Kelly; Rossin-Slater, Maya; Stearns, Jenna
  3. Reducing Medical Spending of the Publicly Insured: The Case for a Cash-Out Option By Svetlana Pashchenko; Ponpoje Porapakkarm
  4. Partial Rating Area Offering in the ACA Marketplaces: Facts, Theory and Evidence By Hanming Fang; Ami Ko
  5. Who Benefits From Free Health Insurance: Evidence from Mexico By Conti, Gabriella; Ginja, Rita
  6. Equilibrium Labor Market Search and Health Insurance Reform, Third Version By Naoki Aizawa; Hanming Fang
  7. The Feasibility of Picture-Based Crop Insurance (PBI): Smartphone Pictures for Affordable Crop Insurance By Ceballos, F.; Kramer, B.; Robles, M.
  8. How Important Is Price Variation Between Health Insurers? By Stuart V. Craig; Keith Marzilli Ericson; Amanda Starc
  9. Insurance-markets Equilibrium with a Non-convex Labor Supply decision, Unobservable Effort, and Incentive ("Fair") Wages By Vasilev, Aleksandar
  10. Labor-market Frictions, Incomplete Insurance and Severance Payments By Etienne Lalé
  11. Does Deposit Insurance Matter? Behavioral Evidence from Indonesia By Chaikal Nuryakin; Natanael Waraney Gerald Massie
  12. Long-term Care Risk Misperceptions By M. Martin Boyer; Claude Fluet; Marie-Louise Leroux; Pierre-Carl Michaud; Philippe De Donder
  13. Job Displacement, Family Dynamic, and Spousal Labor Supply By Halla, Martin; Schmieder, Julia; Weber, Andrea
  14. Does Disability Insurance Improve Health and Well-Being? By Börsch-Supan, Axel; Bucher-Koenen, Tabea; Hanemann, Felizia
  15. A Canadian Parlor Room-Type Approach to the Long-Term Care Insurance Puzzle By M. Martin Boyer; Philippe De Donder; Claude Fluet; Marie-Louise Leroux; Pierre-Carl Michaud
  16. Wages and the Value of Nonemployment By Simon Jäger; Benjamin Schoefer; Samuel G. Young; Josef Zweimüller
  17. Talent discovery, layoff risk and unemployment insurance By Pagano, Marco; Picariello, Luca
  18. Financial Dollarization in Emerging Markets: An Insurance Arrangement By Husnu C. Dalgic
  19. Regret in the Small and in the Large By Sushil Bikhchandani; Uzi Segal

  1. By: Colleen M. Carey; Sarah Miller; Laura R. Wherry
    Abstract: Some states that have not adopted the Affordable Care Act (ACA) Medicaid expansions have stated concerns that the expansions may impair access to care and utilization for those who are already insured. We investigate such negative spillovers using a large panel of Medicare beneficiaries. Across many subgroups and outcomes, we find no evidence that the expansions reduced utilization among Medicare beneficiaries, and can rule out all but very small changes in utilization or spending. These results suggest that the expansions in Medicaid did not impair access to care or utilization for the Medicare population.
    JEL: H51 I1 I11
    Date: 2018–10
  2. By: Bana, Sarah (University of California, Santa Barbara); Bedard, Kelly (University of California, Santa Barbara); Rossin-Slater, Maya (Stanford University); Stearns, Jenna (University of California, Davis)
    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.
    Keywords: disability insurance, paid family leave, social insurance, firm premium
    JEL: J31 J32 J38
    Date: 2018–10
  3. By: Svetlana Pashchenko (University of Georgia); Ponpoje Porapakkarm (National Graduate Institute for Policy Studies)
    Abstract: Individuals' medical spending has both necessary and discretionary components which are not, however, separately observable. This paper studies ways to improve upon existing public health insurance policies by using a framework where both the discretionary and necessary components of medical spending are explicitly modeled. First, using a simple theoretical framework the paper shows that the key to reducing discretionary medical spending is to introduce a trade-off between non-medical and medical consumption. Next, using a rich quantitative life-cycle model the paper shows that this trade-off can be successfully implemented by introducing an option to substitute public health insurance with cash transfers.
    Keywords: medical spending, health insurance, optimal taxation, life-cycle model, ex-post moral hazard
    JEL: D52 D91 E21 H53 I13 I18
    Date: 2018–11
  4. By: Hanming Fang (Department of Economics, University of Pennsylvania); Ami Ko (Department of Economics, Stanford University)
    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 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.
    Keywords: Affordable Care Act; Health Insurance Marketplace; Rating Area; Service Area
    JEL: I11 I13 L1
    Date: 2018–10–01
  5. By: Conti, Gabriella (University College London, Department of Economics); Ginja, Rita (University of Bergen, Department of Economics)
    Abstract: We present the first comprehensive evidence on the health impacts of the introduction and expansion of a large non-contributory health insurance program in Mexico, the Seguro Popular (SP). SP provided access to health services without co-pays to individuals with no Social Security protection. To identify the impacts of the program we use its staggered rollout across municipalities between 2002 and 2010. Our intent-to-treat estimates show that SP reduced infant mortality by 10% in poor municipalities. We are unable to detect program impacts on mortality for children ages 1-4, adults or elderly. The decline in infant mortality is driven by reductions in deaths due to perinatal conditions, congenital malformations, diarrhea and respiratory infections. Also in poor municipalities, the introduction of SP is associated with an immediate 7% increase in obstetric-related hospital admissions and with a 6% increase in hospital admissions due to diarrhea and respiratory infections among infants. The decline in infant mortality attributed to SP closes 84% of the gap in infant mortality rates between poor and rich Mexican municipalities.
    Keywords: Health Insurance; Child Mortality; Health Care Utilization; Mexico
    JEL: H10 I12 I13 J13 O18
    Date: 2017–11–01
  6. By: Naoki Aizawa (Department of Economics, University of Wisconsin-Madison); Hanming Fang (Department of Economics, University of Pennsylvania)
    Abstract: We present and empirically implement an equilibrium labor market search model where risk averse workers facing medical expenditure shocks are matched with ï¬ rms making health insurance coverage decisions. Our model delivers a rich set of predictions that can account for a wide variety of phenomenon observed in the data including the correlations among ï¬ rm sizes, wages, employer-sponsored health insurance offering rates, turnover rates and workers’ health compositions. We estimate our model by Generalized Method of Moments using a combination of micro datasets including the Survey of Income and Program Participation, the Medical Expenditure Panel Survey and the Kaiser Family Employer Health Insurance Beneï¬ ts Survey. We use our estimated model to evaluate the equilibrium impact of the 2010 Affordable Care Act (ACA) and compare it with other health care reform proposals. We also use the estimates of the early impact of the ACA as a model validation. We ï¬ nd that the full implementation of the ACA would reduce the uninsured rate among the workers in our estimation sample from about 21.3% in the pre-ACA benchmark economy to 6.6%. We also ï¬ nd that income-based premium subsidies for health insurance purchases from the exchange play an important role for the sustainability of the ACA; without the premium subsidies, the uninsured rate would be around 15.8%. In contrast, as long as premium subsidies and health insurance exchanges with community ratings stay intact, ACA without the individual mandate, or without the employer mandate, or without both mandates, could still succeed in reducing the uninsured rates to 11.4%, 7.5% and 12.9% respectively.
    Keywords: Health, Health Insurance, Health Care Reform, Labor Market Equilibrium
    JEL: G22 I11 I13 J32
    Date: 2018–06–11
  7. By: Ceballos, F.; Kramer, B.; Robles, M.
    Abstract: This paper describes and tests the feasibility of Picture-Based Crop Insurance (PBI), a new way to deliver affordable and easy-to-understand insurance. Under PBI, loss assessments are based on damage visible from a time-series of pictures taken by the farmer using regular smartphones. PBI aims at boosting uptake, trust, and understanding of insurance by reducing basis risk as well as costs of and delays in loss assessment, and by engaging farmers to participate directly, with one s own pictures being more tangible than other indices. Results from a pilot implementation in the rice-wheat belt of India speak to PBI being a feasible and valuable alternative to existing insurance products. Damage is visible from smartphone pictures, farmers can take pictures of sufficient quality for loss assessment, and PBI helps reduce severe downside basis risk at minimal cost. Acknowledgement : We gratefully acknowledge Braulio Britos and Matt Krupoff for excellent research assistance; and Azad Mishra, Siddhesh Karekar, Dr. Mann S. Toor, Koen Hufkens, Michael Mann, and Eli Melaas. We received valuable suggestions from participants at G ttingen University, PARM K-Sharing and Learning Workshop; IPA s 3rd Annual Researcher Gathering on Financial Inclusion and Social Protection; CEAR Academic Pre-Conference in Microinsurance; and the Regional Dialogue on The Role of Agricultural Research in the Design, Implementation, and Evaluation of Agricultural Insurance. Funding support was provided by the CGIAR Research Program on Policies, Institutions, and Markets (PIM) and the International Initiative for Impact Evaluation (3ie).
    Keywords: Risk and Uncertainty
    Date: 2018–07
  8. By: Stuart V. Craig; Keith Marzilli Ericson; Amanda Starc
    Abstract: Prices negotiated between payers and providers affect a health insurance contract's value via enrollees' cost-sharing and self-insured employers' costs. However, price variation across payers is hard to observe. We measure negotiated prices for hospital-payer pairs in Massachusetts and characterize price variation. Between-payer price variation is similar in magnitude to between-hospital price variation. Administrative-services-only contracts, in which insurers do not bear risk, have higher prices. We model negotiation incentives and show that contractual form and demand responsiveness to negotiated prices are important determinants of negotiated prices.
    JEL: D4 I11 I13 L11 L4
    Date: 2018–10
  9. By: Vasilev, Aleksandar
    Abstract: The purpose of this note is to describe the lottery- and insurance-market equilibrium in an economy with non-convex labor supply decision, unobservable effort, and incentive ("fair") wages. The presence of indivisible labor creates a market incompleteness, which requires that an insurance market for employment be put in operation to "complete" the market.
    Keywords: Indivisible labor,Lotteries,Insurance,Unobservable effort,fair wages
    JEL: E1 J22
    Date: 2018
  10. By: Etienne Lalé
    Abstract: We analyze the effects of government-mandated severance payments in a rich life-cycle model with search-matching frictions in the labor market, risk-averse agents and imperfect insurance against idiosyncratic shocks. Our model emphasizes a tension between worker-firm bargains and consumption smoothing: entry wages are tilted downwards as a response to future severance payments, which runs counter to having a smooth consumption path. Consequently, we find that severance payments produce mostly negative welfare effects. We use the model to characterize the determinants of these welfare losses. We show that even when optimized jointly with unemployment insurance benefits, large government-mandated severance payments should be avoided.
    Keywords: Severance Payments,Labor-market Frictions,Precautionary Savings,Welfare,
    JEL: E21 I38 J63 J65
    Date: 2018–04–26
  11. By: Chaikal Nuryakin; Natanael Waraney Gerald Massie (Economics Department, Department of Economics, Faculty of Economics and Business, Universitas Indonesia)
    Abstract: This study aims to observe the relationship between deposit insurance characterizations and behavioral aspects (i.e. time and risk preferences) towards withdrawal decisions under hypothesized economic shock. Our sample is drawn from 154 depositors in Indonesia, 42 percent of which is classified as prime depositors – those holding a significant amount of third-party fund in savings. The findings suggest that the above-mentioned aspects have significant influences on withdrawal decisions conditional on certain scenarios of economic shocks. Furthermore, we found evidence showing that not only deposit insurance characterizations influence initial withdrawals, it also have important implications in deterring the contagion effect of massive withdrawal that may lead to the case of bank runs.We discuss our findings in relevance to the current developments of banking sector and financial issues in Indonesia.
    Keywords: Bank runs — deposit insurance characterization — time preferences — risk preferences — contagion
    JEL: D81 G01 G21
    Date: 2018
  12. By: M. Martin Boyer; Claude Fluet; Marie-Louise Leroux; Pierre-Carl Michaud; Philippe De Donder
    Abstract: This paper reports survey evidence on long-term care (LTC) risk misperceptions and demand for long-term care insurance (LTCI) in Canada. LTC risk misperceptions is divided into three different risks: needing help for at least one activity of daily life, needing access to a nursing home, and living to be 85 years old. We contrast subjective (i.e. stated) probabilities with actual probabilities for these three dimensions. We first provide descriptive statistics of how objective and subjective probabilities differ and correlate to each other. Second, we study cross-correlations between different types of risks. We then study how risk misperceptions correlate with individual characteristics, and evaluate how misperceptions affect intentions and actual purchase of LTCI. Our conclusions are two-fold. First, we find that most subjects are not well informed about their individual LTC risks, making it difficult for them to take the correct LTCI decisions. Second, and even though misperceptions explain an individuals actual or his intentions to take-up LTCI, misperceptions are unlikely to explain the poor take-up rate of LTCI in our sample.
    Keywords: Long-term Care Insurance Puzzle,Disability,Misperceptions,Subjective Probability,
    JEL: D91 I13
    Date: 2018–05–31
  13. By: Halla, Martin; Schmieder, Julia; Weber, Andrea
    Abstract: We study the effectiveness of intra-household insurance among married couples when the husband loses his job due to a mass layoff or plant closure. Empirical results based on Austrian administrative data show that husbands suffer persistent employment and earnings losses, while wives' labor supply increases moderately due to extensive margin responses. Wives' earnings gains recover only a tiny fraction of the household income loss and, in the short-term, public transfers and taxes are a more important form of insurance. We show that the presence of children in the household is a crucial determinant of the wives' labor supply response.
    Keywords: Added Worker Effect; Firm Events; Household Labor Supply; Intra-household Insurance
    JEL: D19 J22 J6
    Date: 2018–10
  14. By: Börsch-Supan, Axel; Bucher-Koenen, Tabea; Hanemann, Felizia (Munich Center for the Economics of Aging (MEA))
    Abstract: The purpose of disability insurance (DI) is to protect people with health problems that limit their ability to work. We evaluate the effectiveness of DI benefit programs in delivering this protection by following people’s health and financial well-being after the take-up of DI benefits. This paper takes advantage of internationally harmonized panel data and the differences across DI programs in Europe and the United States, as well as their changes over time. We use several econometric approaches to account for the potential endogeneity of DI enrollment and sample selectivity. We find that self-reported health stabilizes after DI benefit receipt. Mental health improves more for DI benefit recipients than non-recipients relative to the beginning of DI benefit receipt. This effect is stronger in countries with more generous DI systems. The effects on objective health measures are positive but largely insignificant.
    JEL: H55 J21 J26
    Date: 2017–12–18
  15. By: M. Martin Boyer; Philippe De Donder; Claude Fluet; Marie-Louise Leroux; Pierre-Carl Michaud
    Abstract: We examine the different hypotheses which have been put forward to explain the low demand for long-term care insurance using the results from a survey of 2000 Canadians that was conducted in the autumn of 2016. Defining the natural market of long-term care insurance buyers as the one catering to individuals aged between 50 and 70, we find that a remarkable proportion of this natural market has never been approached to purchase such protection. We estimate that approximately 60% of this natural market is currently under-served. After eliminating risk perception and demand side explanations for the low market penetration of long-term care insurance, we conclude that supply-side factors and the crowding-out by government programs are the most likely culprits in explaining the low proportion of Canadians that purchase LTC insurance from private providers.
    Keywords: Long-term Care Puzzle,Risk Perceptions,Supply and Demand of Insurance,Government Programs,
    JEL: G02 G12 C14
    Date: 2018–04–25
  16. By: Simon Jäger; Benjamin Schoefer; Samuel G. Young; Josef Zweimüller
    Abstract: Nonemployment is often posited as a worker's outside option in wage setting models such as bargaining and wage posting. The value of this state is therefore a fundamental determinant of wages and, in turn, labor supply and job creation. We measure the effect of changes in the value of nonemployment on wages in existing jobs and among job switchers. Our quasi-experimental variation in nonemployment values arises from four large reforms of unemployment insurance (UI) benefit levels in Austria. We document that wages are insensitive to UI benefit levels: point estimates imply a wage response of less than $0.01 per $1.00 UI benefit increase, and we can reject sensitivities larger than 0.03. In contrast, a calibrated Nash bargaining model predicts a sensitivity of 0.39 – more than ten times larger. The empirical insensitivity holds even among workers with a priori low bargaining power, with low labor force attachment, with high predicted unemployment duration, among job switchers and recently unemployed workers, in areas of high unemployment, in firms with flexible pay policies, and when considering firm-level bargaining. The insensitivity of wages to the nonemployment value we document presents a puzzle to widely used wage setting protocols, and implies that nonemployment may not constitute workers' relevant threat point. Our evidence supports wage-setting mechanisms that insulate wages from the value of nonemployment.
    JEL: D43 D83 E0 E2 E24 H0 H22 H55 J0 J2 J3 J30 J31 J41 J42 J5 J6 J64 J65 M5 M52
    Date: 2018–11
  17. By: Pagano, Marco; Picariello, Luca
    Abstract: In talent-intensive jobs, workers' quality is revealed by their performance. This enhances productivity and earnings, but also increases layoff risk. Firms cannot insure workers against this risk if they compete fiercely for talent. In this case, the more risk-averse workers will choose less quality-revealing jobs. This lowers expected productivity and salaries. Public unemployment insurance corrects this inefficiency, enhancing employment in talent-sensitive industries, consistently with international evidence. Unemployment insurance dominates legal restrictions on firms' dismissals, which penalize more talent-sensitive firms and thus depress expected productivity. Finally, unemployment insurance fosters education, by encouraging investment in risky human capital that enhances talent discovery.
    Keywords: talent,learning,layoff risk,unemployment insurance
    JEL: D61 D83 I20 J24 J63 J65
    Date: 2018
  18. By: Husnu C. Dalgic
    Abstract: Households in emerging markets hold significant amounts of dollar deposits while firms have significant amounts of dollar debt. Motivated by the perceived dangers, policymakers often develop regulations to limit dollarization. In this paper, I draw attention to an important benefit of dollarization, which should be taken into account when crafting regulations. I argue that dollarization repre- sents an insurance arrangement in which the entrepreneurs that own firms pro- vide income insurance to households. Emerging market exchange rates tend to depreciate in a recession so that dollar deposits in effect provide households with income insurance. With their preference for holding deposits denominated in dol- lars, households effectively starve local financial markets of local currency, which raises local interest rates. By raising local currency interest rates, they cause entrepreneurs to borrow in dollars. Consistent with my argument, countries in which the exchange depreciates in a recession have a higher level of deposit and credit dollarization. In those countries, I verify that the premium of the local interest rate over the dollar interest rate is higher. This premium is the price paid by households for insurance.
    Keywords: Emerging Markets. Financial Dollarization. Corporate Dollar Debt.
    JEL: E32 E43 E44 F32 F41 F43
    Date: 2018–11
  19. By: Sushil Bikhchandani (UCLA Anderson School of Management); Uzi Segal (Boston College)
    Abstract: We propose a model of local-regret behavior that allows the separation of regret behavior between random variables that are close to each other and between random variables that are far apart. This enables a reinterpretation of evidence related to intransitive behavior in the laboratory. When viewed through this paper’s analysis of regret, the laboratory evidence need not imply intransitive behavior for large risky decisions such as investment choices and insurance.
    Keywords: Regret, intransitivity, preference reversal
    JEL: D81
    Date: 2018–10–15

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