nep-ias New Economics Papers
on Insurance Economics
Issue of 2019‒02‒04
nineteen papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. The Impact of the Affordable Care Act: Evidence from California's Hospital Sector By Mark Duggan; Atul Gupta; Emilie Jackson
  2. How CBO Defines and Estimates Health Insurance Coverage for People Under Age 65 By Congressional Budget Office
  3. Subsidizing labor hoarding in recessions: the employment and welfare effects of short time work By Giupponi, Giulia; Landais, Camille
  4. Federal Subsidies for Health Insurance Coverage for People Under Age 65: 2018 to 2028 By Congressional Budget Office
  5. Lump-sum severance grants and the duration of unemployment By Andersson, Josefine
  6. Insurance premium calculation under continuous cumulative prospect theory By Martina Nardon; Paolo Pianca
  7. Exploring the Growth of Medicaid Managed Care By Congressional Budget Office
  8. Measuring the Costs of Federal Insurance Programs: Cash or Accrual? By Congressional Budget Office
  9. Wage Insurance, Part-Time Unemployment Insurance and Short-Time Work in the XXI Century By Cahuc, Pierre
  10. Employer and Employee Preferences for Worker Benefits: Evidence from a Matched Survey on the Bangladesh Informal Sector By Kumar, Krishna B.; Mahmud, Minhaj; Nataraj, Shanthi; Cho, Yoon Y.
  11. The Interest Rate Sensitivity of Institutional Real Estate Investments By Michael Heinrich; Thomas Schreck
  12. Mothers' Care: Reversing Early Childhood Health Shocks through Parental Investments By Cristina Bellés-Obrero; Antonio Cabrales; Sergi Jimenez-Martin; Judit Vall-Castello
  13. The Complex Art of Making It Simple: Factors Affecting Enrollment in Integrated Care Demonstrations for Dually Eligible Beneficiaries By Debra J. Lipson; Erin Weir Lakhmani; Alena Tourtellotte; Danielle Chelminskiy
  14. The Health of Disability Insurance Enrollees: An International Comparison By Enrica Croda; Jonathan Skinner; Laura Yasaitis
  15. The Complex Art of Making It Simple: Factors Affecting Enrollment in Integrated Care Demonstrations for Dually Eligible Beneficiaries, Appendices By Debra J. Lipson; Erin Weir Lakhmani; Alena Tourtellotte; Danielle Chelminsky
  16. Effects of Solvency II on Portfolio Efficiency, The Case of Real Estate and Infrastructure Investments By Michael Heinrich; Thomas Schreck
  17. Development, Adoption, and Management of Drought-Tolerant Corn in the United States By McFadden, Jonathan; Smith, David; Wechsler, Seth; Wallander, Steven
  18. The Insurance is the Lemon: Failing to Index Contracts By Barney Hartman-Glaser; Benjamin M. Hébert
  19. Redistribution in Whose Favor? Preferences with Regard to Nationality and Type of Beneficiaries By Neustadt, Ilja; Zweifel, Peter

  1. By: Mark Duggan; Atul Gupta; Emilie Jackson
    Abstract: The Affordable Care Act (ACA) authorized the largest expansion of public health insurance in the U.S. since the mid-1960s. We exploit ACA-induced changes in the discontinuity in coverage at age 65 using a regression discontinuity based design to examine effects of the expansion on health insurance coverage, hospital use, and patient health. We then link these changes to effects on hospital finances. We show that a substantial share of the federally-funded Medicaid expansion substituted for existing locally-funded safety net programs. Despite this offset, the expansion produced a substantial increase in hospital revenue and profitability, with larger gains for government hospitals. On the benefits side, we do not detect significant improvements in patient health, although the expansion led to substantially greater hospital and emergency room use, and a reallocation of care from public to private and better-quality hospitals.
    JEL: H51 I13 L33
    Date: 2019–01
  2. By: Congressional Budget Office
    Abstract: In addition to describing how CBO defines and estimates health insurance coverage for people under 65, the agency explains its sources of data, their limitations, and how it adjusts for such limitations when preparing its estimates.
    JEL: I13 I18
    Date: 2018–05–15
  3. By: Giupponi, Giulia; Landais, Camille
    Abstract: The Great Recession has seen a revival of interest in policies encouraging labor hoarding by firms. Short time work (STW) policies, which consist in offering subsidies for hours reductions to workers in firms experiencing temporary shocks, are the most emblematic of these policies, and have been used aggressively during the recession. Yet, very little is known about their employment and welfare consequences. This paper leverages unique administrative social security data from Italy and quasiexperimental variation in STW policy rules to offer compelling evidence of the effects of STW on firms' and workers' outcomes, and on reallocation in the labor market. Our results show large and significant negative effects of STW treatment on hours, but large and positive effects on headcount employment. Results also show that employment effects disappear when the program stops, and that STW offers no long term insurance to workers. Finally, we identify the presence of significant negative reallocation effects of STW on employment growth of untreated firms in the same local labor market. We develop a simple conceptual framework to rationalize this empirical evidence, from which we derive a general formula for the optimal STW subsidy that clarifies the welfare trade-offs of STW policies. Calibrating the model to our empirical evidence, we conduct counterfactual policy analysis and show that STW stabilized employment during the Great Recession in Italy, and brought (small) positive welfare gains.
    Keywords: short-time work; employment; reallocation; social insurance; optimal policy
    JEL: H20 J20 J65
    Date: 2018–12
  4. By: Congressional Budget Office
    Abstract: CBO and the staff of the Joint Committee on Taxation project that the federal subsidies, taxes, and penalties associated with health insurance coverage for people under age 65 will result in a net subsidy from the federal government of $685 billion, or 3.4 percent of GDP, in 2018. For the 2019–2028 period, the projected net subsidy is $9.3 trillion. This document updates the preliminary projections of subsidies for insurance purchased through the marketplaces as well as revenues related to health insurance coverage that were published in the Budget and Economic Outlook last month.
    JEL: H30 I13 I18
    Date: 2018–05–23
  5. By: Andersson, Josefine (IFAU - Institute for Evaluation of Labour Market and Education Policy)
    Abstract: The well-known positive relationship between the unemployment benefit level and unemployment duration can be separated into two potential sources; a moral hazard effect, and a liquidity effect pertaining to the increased ability to smooth consumption. The latter is a socially optimal response due to credit and insurance market failures. These two effects are difficult to separate empirically, but the social optimality of an unemployment insurance policy can be evaluated by studying the effect of a non-distortionary lump-sum severance grant on unemployment durations. In this study, I evaluate the effects on unemployment duration and subsequent job quality of a lump-sum severance grant provided to displaced workers, by means of a Swedish collective agreement. I use a regression discontinuity design, based on the strict age requirement to be eligible for the grant. I find that the lump-sum grant has a positive effect on the probability of becoming unemployed and the length of the completed unemployment duration, but no effect on subsequent job quality. My analysis also indicates that spousal income is important for the consumption smoothing abilities of displaced workers, and that the grant may have a greater effect in times of more favorable labor market conditions.
    Keywords: Employment Security Agreements; collective agreement; lump-sum severance grant; unemployment insurance; moral hazard; liquidity effect; regression discontinuity design
    JEL: J59 J63 J65
    Date: 2018–12–07
  6. By: Martina Nardon (Department of Economics, Cà Foscari University Of Venice); Paolo Pianca (Department of Economics, Cà Foscari University Of Venice)
    Abstract: We define a premium principle under the continuous cumulative prospect theory which extends the equivalent utility principle. In prospect theory risk attitude and loss aversion are shaped via a value function, whereas a transformation of objective probabilities, which is commonly referred as probability weighting, models probabilistic risk perception. In cumulative prospect theory, probabilities of individual outcomes are replaced by decision weights, which are differences in transformed, through the weighting function, counter-cumulative probabilities of gains and cumulative probabilities of losses, with outcomes ordered from worst to best. Empirical evidence suggests a typical inverse-S shaped function: decision makers tend to overweight small probabilities, and underweight medium and high probabilities; moreover, the probability weighting function is initially concave and then convex. We study some properties of the behavioral premium principle. We also assume an alternative framing of the outcomes; then we discuss several applications to the pricing of insurance contracts.
    Keywords: Continuous Cumulative Prospect Theory, Insurance Premium Principles, Zero Utility Principle, Framing, Probability Weighting Function
    JEL: D81 G22
    Date: 2019
  7. By: Congressional Budget Office
    Abstract: Medicaid is a joint federal-state program that provides health care benefits to over 70 million people with low income. In 2017, it accounted for $375 billion of federal spending and $230 billion of state spending. States typically use two types of payment systems to provide those benefits: fee for service and managed care.
    JEL: I38
    Date: 2018–08–07
  8. By: Congressional Budget Office
    Abstract: Following on a January 2018 report about using cash or accrual measures in federal budgeting, CBO assesses the advantages and disadvantages of those measures for federal insurance programs, including deposit insurance, flood insurance, and pension insurance. The report also describes a range of options for the expanding the use of accrual measures in the budget process.
    JEL: G00 H50 H81 H83
    Date: 2018–12–19
  9. By: Cahuc, Pierre (Sciences Po, Paris)
    Abstract: At the start of the XXI century, characterized by the rise of new forms of employment and of skills requirements, many countries need to adapt their labor market institutions to accompany technological changes and globalization. In this context, unemployment insurance is an essential tool to foster and smooth career paths. Its core components comprise unemployment benefits paid to full-time unemployed workers, monitoring, and counseling. But it is clear that they are not sufficient to cover all risks properly. To deal with this issue, part-time unemployment insurance, short-time work and wage insurance have been tried, at different scales, in several countries over the last decades. This paper surveys the evaluations of these schemes and draws lessons from their results for future research and for labor market institutions.
    Keywords: part-time unemployment insurance, wage insurance, short-time work
    JEL: H5 J6
    Date: 2018–12
  10. By: Kumar, Krishna B. (RAND); Mahmud, Minhaj (Bangladesh Institute of Development Studies (BIDS)); Nataraj, Shanthi (RAND); Cho, Yoon Y. (World Bank)
    Abstract: Informality is ubiquitous in the labor markets of developing countries, and requiring that firms formally register, pay taxes, and provide employee benefits stipulated in labor regulations to reduce such informality is challenging. However, a matched survey on employer-employee preferences suggests that mutually beneficial job benefits exist, and that encouraging their adoption might be feasible. Carefully designed discrete choice experiments on combinations of benefits related to compensation, leave and termination policies, working conditions, and accident insurance, along with incentives for employers, reveal the relative values that workers and employers attach to each benefit. The results show that workers tend to value advance notice for job termination and accident insurance, and that employers are not averse to providing these benefits. In contrast, workers find long working hours without overtime compensation to be highly undesirable, whereas many employers are generally unwilling to provide shorter hours or overtime pay unless they face the threat of fines or are offered substantial incentives for doing so. Our findings therefore suggest that encouraging the provision of termination notice and accident insurance may be relatively easy, but that increasing compliance with legal limits on working hours and overtime compensation is likely to require increased enforcement or substantial incentives.
    Keywords: informality, worker benefits, discrete choice experiments
    JEL: J32 J81
    Date: 2019–01
  11. By: Michael Heinrich; Thomas Schreck
    Abstract: Real estate is known for high risk-adjusted returns and its diversification qualities. However, apart from traditional volatility-based risk measures, institutional investors also have to manage the interest rate risk of their portfolios. In practice, the interest rate sensitivity of the assets must be matched with the interest rate sensitivity of the companies’ liabilities. Regulation standards like Solvency II incentivize life insurance companies to minimize their interest rate risk exposure by requiring large amounts of economic capital to cover remaining interest rate risk. Furthermore, the current low interest environment raises the question of how sensitively real estate assets react to positive interest rate shocks. We estimate the interest rate sensitivity of real estate empirically, using a panel regression model. We find a strong link between the level and the term structure of market interest rates and the valuation of real estate. By dividing our sample into different subsamples, we identify both interest shock sensitive and interest shock robust submarkets. To the best of our knowledge, this is the first study analyzing the influence of interest rate shocks on real estate valuations based on actual portfolio data of a major life insurance company.
    Keywords: Duration; Interest Rate Sensitivity; Life Insurance; Pension funds; Risk Management
    JEL: R3
    Date: 2018–09–01
  12. By: Cristina Bellés-Obrero; Antonio Cabrales; Sergi Jimenez-Martin; Judit Vall-Castello
    Abstract: We explore the effects of a child labor regulation that changed the legal working age from 14 to 16 over the health of their offspring. We show that the reform was detrimental for the health of the son’s of affected parents at delivery. Yet, in the medium run, the effects of the reform are insignificant for both male and female children. The sons of treated mothers are perceived as still having worse health at older ages, even if their objective health status has recovered. These boys are also more likely to have private health insurance, which suggests more concerned mothers.
    Keywords: minimum working age, education, child health, gender
    JEL: J81 I25 I12 J13
    Date: 2019
  13. By: Debra J. Lipson; Erin Weir Lakhmani; Alena Tourtellotte; Danielle Chelminskiy
    Abstract: This study used both quantitative and qualitative data analysis to identify factors associated with enrollment in 11 Financial Alignment Demonstrations in 10 states. These Demonstrations provide integrated care for dually eligible beneficiaries through Medicare-Medicaid Plans (MMPs).
    Keywords: dual eligibles, Medicare, Medicaid, integrated care, Financial Alignment Initiative, enrollment
    JEL: I
  14. By: Enrica Croda (Department of Economics, University Of Venice Cà Foscari); Jonathan Skinner (Dartmouth College, Hanover); Laura Yasaitis (Leonard David Institute, University of Pennsylvania)
    Abstract: Rising costs of disability insurance (DI) programs are putting increased strain on central government budgets, yet little is known about how well countries target those in the poorest health. In this paper, we use the SHARE and HRS surveys to measure the average health of people aged 50-64 receiving DI, and the effectiveness of the DI safety net in covering those in poor health. The U.S. and Denmark appear successful at targeting benefits, with France and Belgium less so. These measures can also be used over time to evaluate country-level policy changes.
    Keywords: Health, Disability Insurance, Europe, US, SHARE, HRS
    JEL: H55 J14 J J26
    Date: 2018
  15. By: Debra J. Lipson; Erin Weir Lakhmani; Alena Tourtellotte; Danielle Chelminsky
    Abstract: This study used both quantitative and qualitative data analysis to identify factors associated with enrollment in 11 Financial Alignment Demonstrations in 10 states. These Demonstrations provide integrated care for dually eligible beneficiaries through Medicare-Medicaid Plans (MMPs).
    Keywords: dual eligibles, Medicare, Medicaid, integrated care, Financial Alignment Initiative, enrollment
    JEL: I
  16. By: Michael Heinrich; Thomas Schreck
    Abstract: We examine the potential effects of Solvency II on general portfolio efficiency, and specifically on the allocation of alternative assets by European insurers. The paper starts with a brief intro- duction to the Solvency II Directive, focusing on the rules for calculating the Solvency capital requirements (SCR), according to the standard formula. The following empirical analysis en- tails several portfolio optimizations considering six relevant asset classes for the time period from 1993-2013. We derive optimal portfolios with respect to portfolio risk and capital require- ments, and finally combine both optimization problems. Our results suggest that, although the capital charges for real estate and infrastructure assets are not adequately calibrated, a signifi- cant shift of portfolio weights is not expected for the majority of European insurers. However, after Solvency II comes into effect, undercapitalized insurers may often not be capable of hold- ing risk-optimal allocations of alternative assets.
    Keywords: Financial Crisis; Infrastructure; Life Insurance; real estate; Risk Based Regulation
    JEL: R3
    Date: 2017–09–01
  17. By: McFadden, Jonathan; Smith, David; Wechsler, Seth; Wallander, Steven
    Abstract: Drought, a recurring source of crop yield losses and crop failure, often prompts Federal natural disaster and crop insurance payments to U.S. farmers. Few ways exist to substantially reduce yield losses due to drought, although a new tool has recently become available. Drought tolerance produced using conventional breeding methods was first commercially introduced in U.S. corn hybrids in 2011. Genetically engineered (GE) drought tolerance was introduced in hybrids in 2012 but did not become broadly available until 2013. However, the vast majority of drought-tolerant (DT) corn planted in 2016 had one or more GE traits (e.g., herbicide tolerance and/or insect resistance). By 2016, 22 percent of total U.S. planted corn acreage was drought tolerant. Adoption is more concentrated in drought-prone regions of the United States, despite the hybrids’ limited abilities to protect against extreme-or-worse droughts. Significant DT corn acreage is also located in non-drought-prone regions and the broader Corn Belt. This report documents the development, adoption, and management of DT corn in the United States, emphasizing the roles of recent and frequent exposure to drought; moisture-conservation practices; GE seed traits and pricing; and irrigation.
    Keywords: Crop Production/Industries
  18. By: Barney Hartman-Glaser; Benjamin M. Hébert
    Abstract: We model the widespread failure of contracts to share risk using available indices. A borrower and lender can share risk by conditioning repayments on an index. The lender has private information about the ability of this index to measure the true state the borrower would like to hedge. The lender is risk averse, and thus requires a premium to insure the borrower. The borrower, however, might be paying something for nothing, if the index is a poor measure of the true state. We provide sufficient conditions for this effect to cause the borrower to choose a non-indexed contract instead.
    JEL: D82 D86 G21
    Date: 2019–01
  19. By: Neustadt, Ilja; Zweifel, Peter
    Abstract: In this paper, we elicit preferences for the allocation of income redistribution to different uses through a Discrete Choice Experiment performed with a representative sample of Swiss citizens. The total desired amount of income redistribution is estimated as a share of disposable income. Further, we estimate marginal willingness-to-pay values for recipients' nationalities (Swiss, citizens of western European countries, citizens of other countries) as well as their types (old-age pensioners, people with ill health, the unemployed, working poor, and families with children). Swiss citizens are found to have a positive willingness to pay for a reallocation of social expenditure in favor of themselves or Western European citizens to the detriment of citizens of other countries, who are perceived to be culturally distant.
    Keywords: Income redistribution, preferences, willingness to pay, discrete choice experiments, conjoint analysis, social status, immigration debate, insurance motive.
    JEL: C35 C93 D63 H29
    Date: 2018–11–21

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