nep-ias New Economics Papers
on Insurance Economics
Issue of 2022‒02‒07
seven papers chosen by
Soumitra K. Mallick
Indian Institute of Social Welfare and Business Management

  1. Buying Control? 'Locus of Control' and the Uptake of Supplementary Health Insurance By Eric Bonsang; Joan Costa-Font; Sonja DeNew
  2. The Role for Deposit Insurance Funds in Dealing with Failing Banks in the European Union By Mr. Marc C Dobler; Mr. Atilla Arda
  3. Age penalties and take-up of private health insurance By Nathan Kettlewell; Yuting Zhang
  4. Variation margins, fire-sales and information-constrained optimality By Biais, Bruno; Heider, Florian; Hoerova, Marie
  5. Impact of the Medicare Part D Coverage Gap Closure and Generic Entry on Medication Use By Judith Liu; Yuting Zhang; Cameron Kaplan
  6. The falling growth in the use of private hospitals in Australia By Tianshu Bai; Susan Méndez; Anthony Scott; Jongsay Yong
  7. Prescription Drugs: Spending, Use, and Prices By Congressional Budget Office

  1. By: Eric Bonsang; Joan Costa-Font; Sonja DeNew
    Abstract: This paper analyses the relationship between locus of control (LOC) and the demand for supplementary health insurance. Drawing on longitudinal data from Germany, we find robust evidence that individuals having an internal LOC are more likely to take up supplementary private health insurance (SUPP). The increase in the probability to have a SUPP due to one standard deviation increase in the measure of internal LOC is equivalent to an increase in household income by 14 percent. Second, we find that the positive association between self-reported health and SUPP becomes small and insignificant when we control for LOC, suggesting that LOC might be an unobserved individual trait that can explain advantageous selection into SUPP. Third, we find comparable results using data from Australia, which enhances the external validity of our results.
    Keywords: Private health insurance, health care use, risk aversion, locus of control, positive selection, supplementary insurance, Germany, Australia
    JEL: I12 I13 I18 D15
    Date: 2021
  2. By: Mr. Marc C Dobler; Mr. Atilla Arda
    Abstract: This paper argues that in the European Union (EU) deposit insurance funds are too difficult to use in bank resolution and too easy to use outside resolution. The paper proposes reforms in three areas for the effective management of bank failures of small and medium-sized banks in the European Union: making resolution the norm for dealing with failing banks; establishing a common DIS for the European Union; and increasing funding and backstops for deposit insurance while removing constraints on their use for resolution measures. Without these changes, the European Union will continue to be challenged by banks that are too small for resolution and too large for liquidation.
    Keywords: Deposit Insurance, Bank Resolution, Banking Union, Crisis Preparedness, Crisis Management, Euro Area, European Union, Financial Crisis, Financial Stability
    Date: 2022–01–07
  3. By: Nathan Kettlewell (Economics Discipline Group, University of Technology Sydney); Yuting Zhang (Melbourne Institute: Applied Economic & Social Research, the University of Melbourne)
    Abstract: Penalty mandates are used in many countries to encourage people to purchase health insurance. But are they effective? We use a large administrative dataset for a 10% random sample of all Australian tax-filers to study how people respond to a step-wise age-based mandate, and whether this has changed over time. The mandate creates discontinuities in the incentive to insure by age, which we exploit to estimate causal effects. People who do not insure before the penalty dates face higher premiums in the future, which should encourage them to bring forward purchases. We find that people respond as expected to the initial age penalty, but not to subsequent penalties. The 2% premium loading results in a 1-4% increase in take-up, with effects increasing after an annual government letter campaign that reminds people approaching the penalty deadline about the policy. We discuss the impact of the mandate on the overall efficiency of the market, and implications of potential reforms.
    Keywords: health insurance, age-based mandate, regression discontinuity, Australia
    JEL: I13 I18 I12
    Date: 2021–12
  4. By: Biais, Bruno; Heider, Florian; Hoerova, Marie
    Abstract: In order to share risk, protection buyers trade derivatives with protection sellers. Protection sellers’ actions affect the riskiness of their assets, which can create counter-party risk. Because these actions are unobservable, moral hazard limits risk sharing. To mitigate this problem, privately optimal derivative contracts involve variation mar-gins. When margins are called, protection sellers must liquidate some assets, depressing asset prices. This tightens the incentive constraints of other protection sellers and re-duces their ability to provide insurance. Despite this fire-sale externality, equilibrium is information-constrained efficient. Investors, who benefit from buying assets at fire-sale prices, optimally supply insurance against the risk of fire sales.
    Keywords: variation margins; fire sales; pecuniary externality; moral hazard, con-strained efficiency; regulation
    JEL: G18 D62 G13 D82
    Date: 2022–01–27
  5. By: Judith Liu (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Yuting Zhang (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Cameron Kaplan (Gehr Center for Health Systems Science & Innovation, University of Southern California)
    Abstract: The Affordable Care Act included a provision to eliminate the Medicare prescription drug coverage gap. The policy was phased in by gradually diminishing the gap each year between 2011-2020. This provides a natural experiment to conduct an in-depth study of how the policy affected medication use, which has implications for other benefit designs that vary cost sharing throughout the year. Using 2007-2016 Medicare claims data, we estimate the effects of closing-the-gap policy with a difference-in-differences approach that compares changes in medication use before and after policy between non-subsidized beneficiaries and a subset of Medicare beneficiaries who have not been affected by the policy. To account for the gradual phase-in of policy changes and possible learning effects, we examine the dynamic effects using an event study difference-in-differences model. Importantly, around the same time as the coverage gap closure, several blockbuster drugs that are commonly used by the Medicare population experienced patent expiration and began to see generic entry. To isolate the effect of coverage gap closure from patent expirations, we further use monthly prescription drug event data to more accurately track initial generic entry by therapeutic class. We find that filling the gap significantly reduced individuals’ out-of-pocket spending on branded drugs and increased the number of prescriptions filled for branded drugs. Consistent with the policy design, people who fell in the gap, were at older ages, or had coexisting chronic conditions saw a larger reduction in the amount they paid for prescription drugs. Without controlling for generic entry, the effect of the policy on utilization is underestimated for branded drugs and overestimated for generic drugs.
    Keywords: Medicare Part D; Coverage gap; Health insurance; Prescription Drugs; Generic entry
    JEL: I11 I12 I13
    Date: 2020–08
  6. By: Tianshu Bai (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Susan Méndez (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Anthony Scott (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne); Jongsay Yong (Melbourne Institute: Applied Economic & Social Research, The University of Melbourne)
    Abstract: Australia has a rich public-private mix of financing and provision of healthcare. Since mid-2015, the higher growth in out of pocket costs relative to the growth in wages began to reduce the affordability of private healthcare and marked the start of the drop in private health insurance coverage. Using publicly available data, this paper describes the decline in growth in the utilisation of private hospital care before and after 2015. Growth in the use of elective surgery in private hospitals fell with some indication of increased waiting times in public hospitals, and evidence of doctors spending more of their time in public hospitals rather than in private practice. Private hospitals’ profitability declined, share prices of for-profit private hospital operators fell, and there is evidence of reduced capacity and a fall in long-term investment in the private hospital sector. In 2020, COVID-19 has accelerated these trends and the economic recession is likely to exacerbate reduced affordability of private healthcare. Policy responses should depend on how these changes influence access, cost and quality of care for patients.
    Keywords: market structure, public-private mix, hospitals
    JEL: I11 I13 H11 H44
    Date: 2020–10
  7. By: Congressional Budget Office
    Abstract: Prescription drugs have become an increasingly important part of U.S. health care, as evidenced by the growth in nationwide spending on those drugs from 1980 to 2018. Over that period, such spending increased more than tenfold in real terms (that is, with the effects of economywide inflation excluded). This report by CBO discusses trends in nationwide spending on prescription drugs in the retail market from 1980 to 2018. It also presents a detailed analysis of trends in spending, use, and prices in the Medicare Part D and Medicaid programs over the 2009–2018 period.
    JEL: I11 I13 I18 L65
    Date: 2022–01–19

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