nep-ias New Economics Papers
on Insurance Economics
Issue of 2019‒01‒14
fifteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. The Long-run Effect of Geopolitical Risks on Insurance Premiums By Muhammad Shahbaz; Godwin Olasehinde-Williams; Mehmet Balcilar
  2. An Update on Medicare's Finances By Alicia H. Munnell; Anqi Chen
  3. Impact of private health insurance on a public healthcare system: the case of cesarean deliveries By Carine Milcent; Saad Zbiri
  4. On discrimination in health insurance By Thomas Boyer-Kassem; Sébastien Duchêne
  5. Altruism and Risk Sharing in Networks By Renaud Bourlès; Yann Bramoullé; Eduardo Perez-Richet
  6. Micro-insurance at Scale: Evidence on Impact from Rwanda By Anuj Pratap Singh
  7. BOND Implementation and Evaluation: 2017 Stage 1 Interim Process, Participation, and Impact Report By Sarah Croake; Priyanka Anand; Christopher Jones; Katherine Morrison; Cara Orfield; David Stapleton; Denise Hoffman; David R. Mann; Judy Geyer; Daniel Gubits; Stephen Bell; Andrew McGuirk; Tyler Rose; David Wittenburg
  8. The Affordable Care Act and the IRS Iterative Fixed Point Procedure By Samuel J. Ferguson
  9. Optimal Insurance with Limited Commitment in a Finite Horizon By Junkee Jeon; Hyeng Keun Koo; Kyunghyun Park
  10. Does State-Dependent Wage Setting Generate Multiple Equilibria? By Shuhei Takahashi
  11. The Disability Option: Labor Market Dynamics with Macroeconomic and Health Risks By Amanda Michaud; David Wiczer
  12. Using Predictive Analytics for Early Identification of Short-Term Disability Claimants Who Exhaust Their Benefits By Kara Contreary; Yonatan Ben-Shalom; Brian Gifford
  13. Consumer Spending During Unemployment: Positive and Normative Implications By Peter Ganong; Pascal J. Noel
  14. How Much Do Households Really Know About Their Future Income? By Swapnil Singh; Christian A. Stoltenbergz
  15. Financial advice for funding later life care: a scoping review of evidence from England By Heavey, Emily; Baxter, Kate; Birks, Yvonne

  1. By: Muhammad Shahbaz (Montpelier Business School, Montpelier, France); Godwin Olasehinde-Williams (Department of Economics, Eastern Mediterranean University); Mehmet Balcilar (Department of Economics, Eastern Mediterranean University)
    Abstract: This paper deals with the estimation of the risk-insurance nexus. We specifically examined the effect of geopolitical risk on insurance premium in a panel of 18 countries while controlling for the effect of real income. We did this by employing second generation econometric methods. We found strong evidence of a positive impact of geopolitical risks on insurance premiums. We specifically found that the impact of geopolitical risks on non-life insurance premium is higher than the impact on life insurance premium. Real income was also found to have a significantly positive effect on insurance premiums, and the impact on non-life insurance premium similarly larger than the impact on life insurance premium. On the basis of the income elasticity, we found that insurance has the semblance of a luxury good, and on the basis of the panel causality tests, we confirmed the feedback hypothesis. We therefore conclude that exposure to geopolitical risks raises insurance premiums either as a result of increased insurance demand to hedge against geopolitical uncertainty or as a result of uncertainty tax factored into insurance premiums in unstable environments.
    Keywords: Geopolitical risks, insurance market, panel data, panel bootstrap causality
    JEL: C33 G22 G32 O16
    Date: 2018
  2. By: Alicia H. Munnell; Anqi Chen
    Abstract: The headline from the 2018 Medicare Trustees Report was that the program’s Hospital Insurance trust fund will run out of money in 2026, three years earlier than was estimated last year. That headline suggests that Medicare is facing increasing financial troubles. In fact, the outlook for program costs is considerably more favorable than it was a decade ago, and that picture persists even under an alternative scenario in the Trustees Report that assumes that Congress phases out some of the cost controls in recent legislation. This brief summarizes the current state of Medicare’s finances. The discussion proceeds as follows. The first section provides a brief overview of Medicare financing. The second section describes the 2018 Trustees Report projections that use current-law assumptions. The third section explains why observers think some of the cost control provisions in recent legislation are not sustainable. The fourth section compares the current-law projections to an alternative scenario prepared by Medicare’s Office of the Actuary. The fifth section tries to put the relatively sanguine assessment of Medicare finances in perspective. The final section concludes that while Medicare’s finances – even under the alternative assumptions – have been improving considerably, Medicare operates in a country with extraordinarily high health care costs; its out-of-pocket expenses absorb a large and growing share of Social Security benefits; and it has some serious gaps in protection.
    Date: 2018–10
  3. By: Carine Milcent (CEPREMAP - Centre pour la recherche économique et ses applications, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Saad Zbiri (RISCQ - Risques cliniques et sécurité en santé des femmes et en santé périnatale - UVSQ - Université de Versailles Saint-Quentin-en-Yvelines)
    Keywords: Private health insurance,Public healthcare system,Activity-based payment,Cesarean delivery
    Date: 2018–11
  4. By: Thomas Boyer-Kassem; Sébastien Duchêne
    Abstract: In many countries, private health insurance companies are allowed to vary their premiums based on some information on individuals. This practice is intuitively justified by the idea that people should pay the premium corresponding to their own known risk. However, one may consider this as a form of discrimination or wrongful differential treatment. Our goal in this paper is to assess whether profiling is ethically permissible in health insurance. We go beyond the existing literature in considering a wide range of parameters, be they genetic, non-genetic, or even non-medical such as age or place of living. Analyzing several ethical concerns, and tackling the difficult question of responsibility, we argue that profiling is generally unjust in health insurance.
    Keywords: discrimination; health profiling; health insurance; ethics; responsibility
    Date: 2018–12
  5. By: Renaud Bourlès (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Yann Bramoullé (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - Ecole Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Eduardo Perez-Richet (IEP Paris - Sciences Po Paris - Institut d'études politiques de Paris, CEPR)
    Abstract: We provide the first analysis of the risk-sharing implications of altruism networks. Agents are embedded in a fixed network and care about each other. We study whether altruistic transfers help smooth consumption and how this depends on the shape of the network. We identify two benchmarks where altruism networks generate efficient insurance: for any shock when the network of perfect altruism is strongly connected and for any small shock when the network of transfers is weakly connected. We show that the extent of informal insurance depends on the average path length of the altruism network and that small shocks are partially insured by endogenous risk-sharing communities. We uncover complex structural effects. Under iid incomes, central agents tend to be better insured, the consumption correlation between two agents is positive and tends to decrease with network distance, and a new link can decrease or increase the consumption variance of indirect neighbors. Overall, we show that altruism in networks has a first-order impact on risk and generates specific patterns of consumption smoothing.
    Keywords: altruism,networks,risk sharing,informal insurance
    Date: 2018–11
  6. By: Anuj Pratap Singh (Department of Economics, Trinity College Dublin)
    Abstract: Health insurance protects households from costly health shocks, and by encouraging health seeking behaviour, can safeguard earnings and assets. We confirm that micro-insurance serves as a social safety net by increasing health seeking behavior and reducing out of pocket medical expenses. We find evidence for complementarity between health micro-insurance membership and formal savings activity, confirming positive spillovers between formal financial products. We find substitution between health micro-insurance and informal financial services, where microinsurance crowds out both informal savings and informal borrowings. In obtaining these results, we use instrument variable estimation to correct for the issue of self-selection, an issue that undermines many previous studies. The study uses nationally representative cross-sectional data from Rwandan Integrated Living Conditions Survey conducted in 2005-06 and 2010-11.
    Keywords: Micro-insurance, CBHI, Health Service Utilisation, OOP Expenses, Hardship Financing, Financial Status
    JEL: I13 I31 O16 D81 G22
    Date: 2018–10
  7. By: Sarah Croake; Priyanka Anand; Christopher Jones; Katherine Morrison; Cara Orfield; David Stapleton; Denise Hoffman; David R. Mann; Judy Geyer; Daniel Gubits; Stephen Bell; Andrew McGuirk; Tyler Rose; David Wittenburg
    Abstract: As part of the Ticket to Work (TTW) and Work Incentives Improvement Act of 1999, Congress directed the Social Security Administration (SSA) to test alternative Social Security Disability Insurance (SSDI) work rules designed to increase the incentive for SSDI beneficiaries to work and reduce their reliance on benefits.
    Keywords: BOND, Benefit Offset National Demonstration, TTW, Ticket to Work
    JEL: I J
  8. By: Samuel J. Ferguson
    Abstract: We model the quantities appearing in Internal Revenue Service (IRS) tax guidance for calculating the health insurance premium tax credit created by the Patient Protection and Affordable Care Act, also called Obamacare. We ask the question of whether there is a procedure, computable by hand, which can calculate the appropriate premium tax credit for any household with self-employment income. We give an example showing that IRS tax guidance, which has had self-employed taxpayers use an iterative fixed point procedure to calculate their premium tax credits since 2014, can lead to a divergent sequence of iterates. As a consequence, IRS guidance does not calculate appropriate premium tax credits for tax returns in certain income intervals, adversely affecting eligible beneficiaries. A bisection procedure for calculating premium tax credits is proposed. We prove that this procedure calculates appropriate premium tax credits for a model of simple tax returns; and apparently, this procedure has already been used to prepare accepted tax returns. We outline the problem of finding a procedure which calculates appropriate premium tax credits for models of general tax returns. While the bisection procedure will work with the tax code in its current configuration, it could fail, in states which have not expanded Medicaid, if a certain deduction were to revert to an earlier form. Future policy objectives might also lead to further problems.
    Date: 2018–10
  9. By: Junkee Jeon; Hyeng Keun Koo; Kyunghyun Park
    Abstract: We study a finite horizon optimal contracting problem of a risk-neutral principal and a risk-averse agent who receives a stochastic income stream when the agent is unable to make commitments. The problem involves an infinite number of constraints at each time and each state of the world. Miao and Zhang (2015) have developed a dual approach to the problem by considering a Lagrangian and derived a Hamilton-Jacobi-Bellman equation in an infinite horizon. We consider a similar Lagrangian in a finite horizon, but transform the dual problem into an infinite series of optimal stopping problems. For each optimal stopping problem we provide an analytic solution by providing an integral equation representation for the free boundary. We provide a verification theorem that the value function of the original principal's problem is the Legender-Fenchel transform of the integral of the value functions of the optimal stopping problems. We also provide some numerical simulation results of optimal contracting strategies
    Date: 2018–12
  10. By: Shuhei Takahashi (Institute of Economic Research, Kyoto University)
    Abstract: Does wage setting exhibit strategic complementarity and produce multiple equilib- ria? This study constructs a discrete-time New Keynesian model in which the timing of individual wage adjustments is endogenous. I explore steady-state equilibrium of the state-dependent wage-setting model both analytically and numerically. For reasonable parameter values, complementarity in wage setting is weak and multiple equilibria are unlikely to exist at the steady state. The uniqueness of equilibrium is robust to imperfect consumption insurance.
    Keywords: State-dependent wage setting, New Keynesian model, Multiple equilibria, Strategic complementarity, Incomplete markets, Deflation
    JEL: E24 E31 E32 E52
    Date: 2018–05
  11. By: Amanda Michaud; David Wiczer
    Abstract: We evaluate the contribution of changing macroeconomic conditions and demographics to the increase in Social Security Disability Insurance (SSDI) over recent decades. Within our quantitative framework, multiple sectors differentially expose workers to health and economic risks, both of which affect individuals' decisions to apply for SSDI. Over the transition, falling wages at the bottom of the distribution increased awards by 27% in the 1980s and 90s and aging demographics rose in importance thereafter. The model also implies two-thirds of the decline in working-age male employment from 1985 to 2013, three-fourths of which eventually goes on SSDI.
    Date: 2018
  12. By: Kara Contreary; Yonatan Ben-Shalom; Brian Gifford
    Abstract: Early interventions can help short-term disability insurance (STDI) claimants return to work following onset of an off-the-job medical condition.
    Keywords: Disability insurance, Predictive analytics , Early intervention
    JEL: I J
  13. By: Peter Ganong; Pascal J. Noel
    Abstract: Using de-identified bank account data, we show that spending drops sharply at the large and predictable decrease in income arising from the exhaustion of unemployment insurance (UI) benefits. We use the high-frequency response to a predictable income decline as a new test to distinguish between alternative consumption models. The sensitivity of spending to income we document is inconsistent with rational models of liquidity-constrained households, but is consistent with behavioral models with present-biased or myopic households. Depressed spending after exhaustion also implies that the consumption-smoothing gains from extending UI benefits are four times larger than from raising UI benefit levels.
    JEL: E21 E24 J65
    Date: 2019–01
  14. By: Swapnil Singh (Center for Excellence in Finance and Economic Research (CEFER), Bank of Lithuania); Christian A. Stoltenbergz (University of Amsterdam and Tinbergen Institute)
    Abstract: We develop a consumption-savings model that distinguishes households’ perceived income uncertainty from income uncertainty as measured by an econometrician. Households receive signals on their future disposable income that can drive a gap between the two uncertainties. With an uncertainty gap that is consistent with direct estimates stemming from subjective income expectations, the model jointly explains three consumption inequality and insurance measures in US micro data that are not captured without the difference: (i) the cross-sectional variance of households’ consumption, (ii) the covariance of current consumption and income growth and (iii) the income-conditional mean of household consumption.
    Keywords: Risk sharing, Advance information, Consumption insurance, Endogenous borrowing constraints, Limited commitment
    JEL: E21 D31 D52
    Date: 2018–12–21
  15. By: Heavey, Emily; Baxter, Kate; Birks, Yvonne
    Abstract: Context: Ageing populations across the world make the provision of long-term care a global challenge. A growing number of people in England are faced with paying for later life social care costs, but do little to plan for these costs in advance. Recent legislation in the form of the Care Act 2014 gave local authorities new responsibilities to provide information on how people can access independent financial advice on matters relating to care needs. Objectives: This scoping review aimed to identify existing evidence about people’s engagement with financial advice in relation to paying for later life care in England. Methods: Electronic and manual searching identified seventeen papers reporting empirical evidence on the topic, published between 2002 and 2017. Findings: We found evidence of low numbers accessing regulated financial advice. Barriers included limited consumer awareness, preferences for other sources of advice such as friends an d family, and poor signposting and referrals by local authorities. Most papers indicated that financial advice would be useful in helping people to plan for care costs. Robust research evidence on this topic is limited, with particular gaps in evidence about stakeholders’ experiences of the barriers to, and usefulness of, financial advice about paying for long-term care in later life. Limitations: The paper does not include a formal quality assessment of the included research papers. Our interpretation of study findings was hindered by lack of methodological transparency in some papers and lack of studies focusing specifically on the topic of financial planning for long-term care. Implications: An improved evidence base could assist financial advisers specialising in this area and local authorities that are now obliged to signpost people to such advice. With better evidence they would be better placed to explain to members of the public the financial and non-financial implications of obtaining financial advice about care costs. It might also enable those organisations to overcome barriers and facilitate access to appropriate advice.
    Keywords: self-funders; financial advice; later life care; paying for care; older people; scoping review; Care Act 2014
    JEL: E6
    Date: 2019–01

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