nep-ias New Economics Papers
on Insurance Economics
Issue of 2019‒07‒15
23 papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Accounting for the Impact of Medicaid on Child Poverty By Sanders Korenman; Dahlia K. Remler; Rosemary T. Hyson
  2. How Did Expansions of Children’s Public Health Insurance Affect Participation in the Supplemental Security Income Program? By Michael Levere; Sean Orzol; Lindsey Leininger; Nancy Early
  3. Losing Insurance and Behavioral Health Hospitalizations: Evidence from a Large-scale Medicaid Disenrollment By Johanna Catherine Maclean; Sebastian Tello-Trillo; Douglas Webber
  4. The Affordable Care Act’s Effects on Patients, Providers and the Economy: What We’ve Learned So Far By Jonathan Gruber; Benjamin D. Sommers
  5. Learning More for Children from Medicaid and CHIP Policy Experiments By Joseph S. Zickafoose
  6. How do Humans Interact with Algorithms? Experimental Evidence from Health Insurance By Kate Bundorf; Maria Polyakova; Ming Tai-Seale
  7. A cross-sectional examination of the impact of health shocks on wealth: Evidence from English Panel data By Ashok Thomas; Aditya Kumar
  8. Why Unions Survive: Understanding How Unions Overcome The Free-Rider Problem By Richard Murphy
  9. Deposit insurance, market discipline and bank risk By Karas, Alexei; Pyle, William; Schoors, Koen
  10. A Closer Look: Perspectives on the 2019 Marketplace Open Enrollment Period By Sheila Hoag; Stefanie Pietras; Cara Orfiled; Jennifer Dickey
  11. The Long-Term Effects of Childhood Exposure to the Earned Income Tax Credit on Health Outcomes By Braga, Breno; Blavin, Fredric; Gangopadhyaya, Anuj
  12. The Effects of Multispecialty Group Practice on Health Care Spending and Use By Laurence C. Baker; M. Kate Bundorf; Anne Beeson Royalty
  13. Doing safe by doing good: ESG investing and corporate social responsibility in the U.S. and Europe By Bannier, Christina E.; Bofinger, Yannik; Rock, Björn
  14. Insurance Policy Thresholds for Economic Growth in Africa By Simplice A. Asongu; Nicholas M. Odhiambo
  15. Modernizing Medicare Savings Programs to Better Serve Dually Eligible Beneficiaries: Alignment of Medicare Savings Program Eligibility with the Medicare Part D Low Income Subsidy Program By Erin Weir Lakhmani
  16. The impact of flood management policies individual adaptation actions: insights from a French case study By Claire Richert; Katrin Erdlenbruch; Frédéric Grelot
  17. How Do Alternative Work Arrangements Affect Income Risk After Workplace Injury? By Nicholas Broten; Michael Dworsky; David Powell
  18. An improved approach for estimating large losses in insurance analytics and operational risk using the g-and-h distribution By Marco Bee; Julien Hambuckers; Luca Trapin
  19. Full Information Estimation of Household Income Risk and Consumption Insurance By Arpita Chatterjee; James Morley; Aarti Singh
  20. Weak Limits of Random Coefficient Autoregressive Processes and their Application in Ruin Theory By Yuchao Dong; Jérôme Spielmann
  21. The Social Costs of Side Trading By Andrea Attar; Thomas Mariotti; François Salanié
  22. Insurance, public assistance and household flood risk reduction: a comparative study of Austria, England and Romania By Hanger, Susanne; Bayer, Joanne; Surminski, Swenja; Nenciu, Cristina; Lorant, Anna; Ionescu, Radu; Patt, Anthony
  23. Physician’s altruism in incentive contracts: Medicare’s quality race By Galina Besstremyannaya; Sergei Golovan

  1. By: Sanders Korenman; Dahlia K. Remler; Rosemary T. Hyson
    Abstract: US Census Bureau poverty measures do not include an explicit need for health care or insurance nor do they consider health insurance benefits to be resources. Consequently, they cannot measure the direct impact of health insurance benefits on poverty. This paper reviews conceptual and practical considerations in incorporating health benefits and needs into poverty measures. We analyze the advantages and disadvantages of various approaches including variants of the Official Poverty Measure (OPM); the Supplemental Poverty Measure (SPM); using a threshold with medical out-of-pocket (MOOP) expenditures; a Medical Care Expenditure Risk (MCER) Index; willingness to pay (WTP) for Medicaid; and the Health-Inclusive Poverty Measure (HIPM; Korenman and Remler 2016). We present estimates of Medicaid’s impacts on child poverty, based on the HIPM. This paper was prepared as a background paper for the Committee on Building an Agenda to Reduce the Number of Children in Poverty by Half in 10 Years, of the Board of Children, Youth and Families of the National Academy of Sciences. The paper was submitted in October 2017 and embargoed until the release of the Committee’s report, A Roadmap to Reducing Child Poverty, in March of 2019.
    JEL: H51 H53 I13 I14 I32
    Date: 2019–06
  2. By: Michael Levere; Sean Orzol; Lindsey Leininger; Nancy Early
    Abstract: We assess how increased Medicaid generosity affects children’s participation in SSI. In states where SSI recipients did not automatically receive Medicaid, expansions in public health insurance coverage significantly decreased youth applications and awards.
    Keywords: SSI, CHIP, health insurance, substitution
    JEL: I J
  3. By: Johanna Catherine Maclean; Sebastian Tello-Trillo; Douglas Webber
    Abstract: We study the effects of losing insurance on behavioral health – mental health and substance use disorder (SUD) – community hospitalizations. We leverage variation in public insurance coverage eligibility offered by a large-scale and unexpected Medicaid disenrollment in Tennessee. Losing insurance decreased SUD-related hospitalizations but mental illness hospitalizations were unchanged. Use of Medicaid to pay for behavioral health, mental illness and SUD, hospitalizations declined post-disenrollment. Mental illness hospitalization financing shifted to private insurance, Medicare, and patients, while SUD treatment financing shifted entirely to patients. We also investigate the implications of reliance on data that is not representative at the level of the treatment variable and propose a possible solution.
    JEL: I1 I11 I18
    Date: 2019–06
  4. By: Jonathan Gruber; Benjamin D. Sommers
    Abstract: As we approach the tenth anniversary of the passage of the Affordable Care Act, it is important to reflect on what has been learned about the impacts of this major reform. In this paper we review the literature on the impacts of the ACA on patients, providers and the economy. We find strong evidence that the ACA’s provisions have increased insurance coverage. There is also a clearly positive effect on access to and consumption of health care, with suggestive but more limited evidence on improved health outcomes. There is no evidence of significant reductions in provider access, changes in labor supply, or increased budgetary pressures on state governments, and the law’s total federal cost through 2018 has been less than predicted. We conclude by describing key policy implications and future areas for research.
    JEL: H3 H51 I13 I18
    Date: 2019–06
  5. By: Joseph S. Zickafoose
    Abstract: Experiments in Medicaid policy are common, and likely to become more common in the future.
    Keywords: Medicaid, Children's Health Insurance Program, health policy, evaluation and research
    JEL: I
  6. By: Kate Bundorf; Maria Polyakova; Ming Tai-Seale
    Abstract: Algorithms increasingly assist consumers in making their purchase decisions across a variety of markets; yet little is known about how humans interact with algorithmic advice. We examine how algorithmic, personalized information affects consumer choice among complex financial products using data from a randomized, controlled trial of decision support software for choosing health insurance plans. The intervention significantly increased plan switching, cost savings, time spent choosing a plan, and choice process satisfaction, particularly when individuals were exposed to an algorithmic expert recommendation. We document systematic selection - individuals who would have responded to treatment the most were the least likely to participate. A model of consumer decision-making suggests that our intervention affected consumers’ signals about both product features (learning) and utility weights (interpretation).
    JEL: D1 D12 D8 D81 D82 D83 D9 D90 D91 G22 H51 I13
    Date: 2019–06
  7. By: Ashok Thomas (Indian Institute of Management, Kozhikode); Aditya Kumar (Indian Institute of Management, Kozhikode)
    Abstract: The study of individuals with low wealth and in particular with intense amount of decline in wealth holdings late in life is particularly relevant for the analysis of social security and public health insurance programmes. Individuals reached retirement with substantial saving, however drained wealth rapidly; perhaps in response to unexpectedly large expenditure shocksare our subject of this study. In this study we examine health problems and associated health care expenses impose on wealth on older individuals in England. The results point out that chronic conditions both existing and new health events significantly reduce the wealth as compared to mild conditions. The age of the chronic diseases additionally has impact on wealth negatively. In particular, severe existing chronic diseases aged of more than 3 years has greater impact than severe chronic diseases associated with individuals for more than 1 year. The empirical evidence exhibit no significant changes in wealth if the individual is having a mild chronic disease irrespective of the fact that they are diagnosed more than 3 years or 1 year ago. Additional health insurance, highly educated and remaining in a marriage seems to have mitigating effect on wealth decline in older ages.
    Keywords: Elders Chronic condition, Personal Wealth
    Date: 2019–03
  8. By: Richard Murphy
    Abstract: This paper provides evidence for why individuals join unions instead of free-riding. I model membership as legal insurance. To test the model, I use the incidence of news stories concerning allegations against teachers in the UK as a plausibly exogenous shock to demand for such insurance. I find that, for every five stories occurring in a region, teachers are 2.2 percentage points more likely to be members in the subsequent year. These effects are larger when teachers share characteristics with the news story and can explain 45 percent of the growth in teacher union membership between 1992 and 2010.
    JEL: I20 J45 J51
    Date: 2019–06
  9. By: Karas, Alexei; Pyle, William; Schoors, Koen
    Abstract: Using evidence from Russia, we explore the effect of the introduction of deposit insurance on bank risk. Drawing on within-bank variation in the ratio of firm deposits to total household and firm deposits, so as to capture the magnitude of the decrease in market discipline after the introduction of deposit insurance, we demonstrate for private, domestic banks that larger declines in market discipline generate larger increases in traditional measures of risk. These results hold in a difference-in-difference setting in which state and foreign-owned banks, whose deposit insurance regime does not change, serve as a control.
    JEL: E65 G21 G28 P34
    Date: 2019–06–27
  10. By: Sheila Hoag; Stefanie Pietras; Cara Orfiled; Jennifer Dickey
    Abstract: To better understand how various policies unfolded during open enrollment for ACA-related coverage in 2019, the Robert Wood Johnson Foundation (RWJF) engaged Mathematica to assess outreach and enrollment strategies and outcomes.
    Keywords: Marketplace open enrollment, outreach and enrollment, Affordable Care Act, ACA, Health
    JEL: I
  11. By: Braga, Breno (Urban Institute); Blavin, Fredric (Urban Institute); Gangopadhyaya, Anuj (Urban Institute)
    Abstract: The Earned Income Tax Credit (EITC) is a central component of the U.S. safety net, benefiting about 27 million families. Using variation in the federal and state EITC, this paper evaluates the long-term impact of EITC exposure during childhood on the health of young adults. We find that an additional $100 in the average annual EITC exposure between ages 0 and 18 increases the likelihood of reporting very good or excellent health by 2.7 percentage points and decreases the likelihood of being obese by 1.0 percentage point between ages 22 and 27. Direct program transfers, increases in pre-tax family earnings, and increases in health insurance coverage are channels through which the EITC improves health.
    Keywords: children, health outcomes, EITC
    JEL: H24 I12 I14
    Date: 2019–06
  12. By: Laurence C. Baker; M. Kate Bundorf; Anne Beeson Royalty
    Abstract: U.S. physicians are increasingly joining multispecialty group practices. In this paper, we analyze how a primary care physician’s practice type – single (SSP) versus multispecialty practice (MSP) – affects health care spending and use. Focusing on Medicare beneficiaries who change their primary care physician due to a geographic move, we compare changes in practice patterns before and after the move between patients who switch practice types and those who do not. We use instrumental variables to address potential selection by patients into practice types after the move. We find that changing from a single to a multi-specialty primary care group practice decreases annual Medicare-financed per capita expenditures by about $1,600 - a 28% reduction. The effect is driven primarily by changes in hospital expenditures and is concentrated among patients with two or more chronic conditions, suggesting that MSP improves care delivery by reducing hospitalizations among relatively sick patients. The results imply that, while research has shown the potential for physician consolidation to increase prices in some settings, large multispecialty groups also have the potential to lower costs.
    JEL: I11
    Date: 2019–06
  13. By: Bannier, Christina E.; Bofinger, Yannik; Rock, Björn
    Abstract: This paper examines the profitability of investing according to environmental, social and governance (ESG) criteria in the U.S. and Europe. Based on data from 2003 to 2017, we show that a portfolio long in stocks with the highest ESG scores and short in those with the lowest scores yields a significantly negative abnormal return. Interestingly, this is caused by the strong positive return of firms with the lowest ESG activity. As we find that increasing ESG scores reduce firm risk (particularly downside risk), this hints at an insurance-like character of corporate social responsibility: Firms with low ESG activity need to offer a corresponding risk premium. The perception of ESG as an insurance can be shown to be stronger in more volatile capital markets for U.S. firms, but not for European firms. Socially responsible investment may therefore be of varying attractiveness in different market phases.
    Keywords: ESG,corporate social responsibility,sustainability,downside risk,insurance,Fama-French model,dynamic panel GMM estimation
    JEL: G11 G32 G34 O16 Q56
    Date: 2019
  14. By: Simplice A. Asongu (Yaoundé/Cameroon); Nicholas M. Odhiambo (Pretoria, South Africa)
    Abstract: This study investigates the role of insurance in economic growth on a panel of forty-eight countries in Africa for the period 2004-2014. The research question the study seeks to answer is the following: what thresholds of insurance penetration positively affect economic growth in Africa? The empirical evidence is based on Generalized Method of Moments. Life insurance increases economic growth while the effect of non-life insurance is not significant. Increasing both life insurance and non-life insurance has negative net effects on economic growth. From an extended analytical exercise, 4.149 of life insurance premium (% of GDP) is the minimum critical mass required for life insurance to positively affect economic prosperity while 1.805 of non-life insurance premium (% of GDP) is the minimum threshold required for non-life insurance to positively affect economic prosperity. Thresholds are also provided from the Hansen (1999) Panel Threshold Regression technique using a balanced sample of 28 countries.
    Keywords: Insurance; Economic Growth
    JEL: I28 I30 G20 O16 O55
    Date: 2019–01
  15. By: Erin Weir Lakhmani
    Abstract: This tip sheet details opportunities for states to improve the Medicare Savings Programs (MSPs) eligibility determination process and streamline enrollment into MSP benefits by aligning MSP eligibility criteria with those used for Medicare Part D Low-Income Subsidy (LIS) program.
    Keywords: Medicare Savings Programs, MSP, Low Income Subsidy, LIS, Dual Eligible, Dually Eligible Beneficiary(ies), Integrated Care
    JEL: I
  16. By: Claire Richert (UMR G-EAU - Gestion de l'Eau, Acteurs, Usages - IRD - Institut de Recherche pour le Développement - IRSTEA - Institut national de recherche en sciences et technologies pour l'environnement et l'agriculture - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - AgroParisTech - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement); Katrin Erdlenbruch (UMR G-EAU - Gestion de l'Eau, Acteurs, Usages - IRD - Institut de Recherche pour le Développement - IRSTEA - Institut national de recherche en sciences et technologies pour l'environnement et l'agriculture - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - AgroParisTech - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement, CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier); Frédéric Grelot (UMR G-EAU - Gestion de l'Eau, Acteurs, Usages - IRD - Institut de Recherche pour le Développement - IRSTEA - Institut national de recherche en sciences et technologies pour l'environnement et l'agriculture - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - AgroParisTech - CIRAD - Centre de Coopération Internationale en Recherche Agronomique pour le Développement)
    Abstract: Floods can be managed at the collective and individual level. Knowing the interaction between measures taken at both scales can help design more efficient flood risk management policies. Here, we combine the data collected during a survey of 331 inhabitants of flood-prone areas in the South of France and spatial databases to empirically examine the interaction between individual adaptation measures and three types of collective management tools: a national insurance scheme, dikes, and zoning instruments. In line with the levee effect hypothesis, we found that dike protection reduces the probability to have or take individual adaptation measures and that this effect could be mitigated by zoning instruments. Moreover, we found that the national insurance scheme does not crowd out individual adaptation.
    Keywords: Flood policies,Levee effect,Individual adaptation decisions,Zoning Mechanism,Insurance
    Date: 2019
  17. By: Nicholas Broten; Michael Dworsky; David Powell
    Abstract: Alternative work arrangements, including temporary and contract work, have become more widespread. There is interest in understanding the effects of these types of arrangements on employment and earnings risk for workers and the potential for existing social insurance programs to address this risk. We study employment and earnings risk in the context of workplace injuries among temporary and contract workers. We link administrative workers' compensation claims to earnings records to measure the employment and earnings risk posed by workplace injuries, comparing labor market outcomes after injury between temporary and contract workers and direct-hire workers injured doing the same job. We use a triple-difference identification strategy to isolate the effect of alternative work arrangements. We find that temporary workers have significantly lower probabilities of employment post-injury relative to similar direct-hire workers; temporary workers also have more severe earnings losses, which persist for at least three years after injury. This difference in income risk cannot be explained by differences in employment dynamics between temporary and direct-hire workers. We find evidence that the additional earnings losses suffered by temporary workers are offset by workers' compensation benefits, suggesting that the program provides insurance for the incremental risk faced by temporary workers.
    JEL: J28 J81
    Date: 2019–06
  18. By: Marco Bee; Julien Hambuckers; Luca Trapin
    Abstract: In this paper, we study the estimation of parameters for g-and-h distributions. These distributions find applications in modeling highly skewed and fat-tailed data, like extreme losses in the banking and insurance sector. We first introduce two estimation methods: a numerical maximum likelihood technique, and an indirect inference approach with a bootstrap weighting scheme. In a realistic simulation study, we show that indirect inference is computationally more efficient and provides better estimates in case of extreme features of the data. Empirical illustrations on insurance and operational losses illustrate these findings.
    Keywords: Intractable likelihood, indirect inference, skewed distribution, tail modeling, bootstrap
    JEL: C15 C46 C51 G22
    Date: 2019
  19. By: Arpita Chatterjee (UNSW Business School, UNSW); James Morley (University of Sydney); Aarti Singh (University of Sydney)
    Abstract: Blundell, Pistaferri, and Preston (2008) report an estimate of household consumption insurance with respect to permanent income shocks of 36%. Their estimate is distorted by an error in their code and is not robust to weighting scheme for GMM. We propose instead to use quasi maximum likelihood estimation (QMLE), which produces a more precise and significantly higher estimate of consumption insurance at 55%. For sub-groups by age and education, differences between estimates are even more pronounced. Monte Carlo experiments with non-Normal shocks demonstrate that QMLE is more accurate than GMM, especially given a smaller sample size.
    Keywords: consumption insurance; weighting schemes; quasi maximum likelihood
    JEL: E21 C13 C33
    Date: 2019–07
  20. By: Yuchao Dong; Jérôme Spielmann (LAREMA - Laboratoire Angevin de Recherche en Mathématiques - UA - Université d'Angers - CNRS - Centre National de la Recherche Scientifique, UA - Université d'Angers)
    Abstract: We prove that a large class of discrete-time insurance surplus processes converge weakly to a generalized Ornstein-Uhlenbeck process, under a suitable re-normalization and when the time-step goes to 0. Motivated by ruin theory, we use this result to obtain approximations for the moments, the ultimate ruin probability and the discounted penalty function of the discrete-time process.
    Keywords: Invariance principle,Weak convergence,Autoregressive processes,Stochastic recurrence equations,Generalized Ornstein-Uhlenbeck process,Ruin probability,First passage time
    Date: 2019–07–02
  21. By: Andrea Attar (CEIS & DEF University of Rome "Tor Vergata"); Thomas Mariotti (Toulouse School of Economics, CNRS); François Salanié (Toulouse School of Economics, INRA)
    Abstract: We study resource allocation under private information when the planner cannot prevent bilateral side trading between consumers and firms. Adverse selection and side trading severely restrict feasible trades, as each marginal quantity must be fairly priced given the consumer types who purchase it. The resulting social costs are twofold. First, second-best efficiency and robustness to side trading are in general irreconcilable requirements. Second, there actually exists a unique budget-feasible allocation robust to side trading, which deprives the planner from any capacity to redistribute resources between different types of consumers. We discuss the relevance of our results for insurance and financial markets.
    Keywords: Adverse Selection, Side Trading, Second-Best Allocations.
    JEL: D43 D82 D86
    Date: 2019–07–10
  22. By: Hanger, Susanne; Bayer, Joanne; Surminski, Swenja; Nenciu, Cristina; Lorant, Anna; Ionescu, Radu; Patt, Anthony
    Abstract: In light of increasing losses from floods many researchers and policy makers are looking for ways to encourage flood risk reduction among communities, business, and households. In this study we investigate risk reduction behavior at the household level in three European Union (EU) Member States with fundamentally different insurance and compensation schemes. We try to understand if and how insurance and public assistance influence private risk reduction behavior. Data was collected using a telephone survey (n=1,849) of household decision makers in flood-prone areas. We show that insurance overall is positively associated with private risk reduction behavior. Warranties, premium discounts, and information provision with respect to risk reduction may be an explanation for this positive relationship in the case of structural measures. Public incentives for risk-reduction measures by means of financial and in-kind support, and particularly through the provision of information are also associated with enhancing risk reduction. In this study public compensation is not negatively associated with private risk reduction behavior. This does not disprove such a relationship, but the negative effect may be mitigated by factors related to respondent’s capacity to implement measures or social norms that were not included in the analysis. The data suggests that large-scale flood protection infrastructure creates a sense of security that is associated with a lower level of preparedness. Across the board there is ample room to improve both public and private policies to provide effective incentives for household level risk reduction.
    Keywords: flood insurance; public incentive; moral hazard; risk reduction; climate change adaptation; European Union FP7; ENHANCE
    JEL: G32
    Date: 2017–08–17
  23. By: Galina Besstremyannaya (New Economic School, Moscow); Sergei Golovan (New Economic School, Moscow)
    Abstract: The paper analyzes the impact of physicians' altruism and motivation on the outcomes of pay-for-performance schemes in healthcare, where a fixed price contract on quantity is supplemented with a relative performance contract on quality. Our theoretical model forecasts crowding out of most altruistic types. In an empirical application to the Medicare's nationwide natural experiment with a relative performance contract on quality for acute inpatient care since 2013, we observe the proof of this prediction. Namely, the quality dimensions, which are linked to patient's benefit, demonstrate higher deterioration among top-performing hospitals than other incentivized dimensions.
    Keywords: incentives contracts, altruism, dynamic panels, healthcare
    JEL: C22 C23 D21 D22 I18
    Date: 2019–03

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