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on Insurance Economics |
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Issue of 2015‒02‒22
twenty papers chosen by Soumitra K. Mallick Indian Institute of Social Welfare and Business Management |
| By: | Jaap Bikker; Adelina Popescu |
| Abstract: | This paper investigates the cost efficiency and competitive behaviour of the non-life – or property and casualty – insurance market in the Netherlands over the period 1995-2012. We focus on the 2006 health care reform, where public health care insurance has been included in the non-life insurance sector. We start with estimating unused scale economies and find that after the health care reform in 2006, unused scale economies are, at 21%, much higher than before the reform (4%), pointing to a relative increase of fixed costs. Scale inefficiencies are generally higher for smaller insurance and lower for large insurance companies. As a benchmark, we also estimate scale economies for non-health lines of business (LOB), which range from 5% to 10%. To measure competition directly, we apply a novel approach that estimates the impact of marginal costs as indicator of inefficiency on either market shares or profits. Over time, competition in health insurance has increased significantly, but the inclusion of the (non-competitive) public health care funds in the health insurance sector in 2006 caused a fall in the average level of competitive pressure. After the reform, competition continued to improve. In the non-health LOB non-life insurance, we find similar significant effects of efficiency on both market shares. The non-life effects are weaker than in life insurance, banking and non-financial sectors, suggesting less heavy competition. |
| Keywords: | competition, concentration, efficiency, non-life insurance, performance conduct structure model, health care insurance, scale economies, scope economies |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1412&r=ias |
| By: | Thomas, RA; Li Donni, P |
| Date: | 2015–01–08 |
| URL: | http://d.repec.org/n?u=RePEc:imp:wpaper:18674&r=ias |
| By: | Lindbeck, Assar (Research Institute of Industrial Economics (IFN)); Persson, Mats (Institute for International Economic Studies (IIES)) |
| Abstract: | In this paper, we ask under what conditions norms can enhance welfare by mitigating moral hazard in income insurance. We point out a particular role of norms, namely to compensate for insurers’ difficulties in monitoring the behavior of insured individuals. Thus, the functioning of social norms depends crucially on information, in particular on what norm enforcers are able to observe about an insured individual’s behavior. Information is also decisive when distinguishing between social norms and internalized norms. We study how optimal insurance arrangements, the behavior of insured individuals, and welfare are influenced by norms. We also examine the optimal strength of norms. Generally speaking, the paper is a study of the interaction between norms and economic incentives. |
| Keywords: | Norms; Moral hazard; Insurance; Information |
| JEL: | D82 H55 H75 I13 J22 |
| Date: | 2015–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1058&r=ias |
| By: | Fossen, Frank M.; König, Johannes |
| Abstract: | We estimate the impact of a differential treatment of paid employees versus self-employed workers in a public health insurance system on the entry rate into entrepreneurship. In Germany, the public health insurance system is mandatory for most paid employees, but not for the selfemployed, who usually buy private health insurance. Private health insurance contributions are relatively low for the young and healthy, and until 2013 also for males, but less attractive at the other ends of these dimensions and if membership in the public health insurance allows other family members to be covered by contribution-free family insurance. Therefore, the health insurance system can create incentives or disincentives to starting up a business depending on the family situation and health. We estimate a discrete time hazard rate model of entrepreneurial entry based on representative household panel data for Germany, which include personal health information, and we account for non-random sample selection. We estimate that an increase in the health insurance cost differential between self-employed workers and paid employees by 100 euro per month decreases the annual probability of entry into selfemployment by 0.38 percentage points, i.e. about a third of the average annual entry rate. The results show that the phenomenon of entrepreneurship lock, which an emerging literature describes for the system of employer provided health insurance in the USA, can also occur in a public health insurance system. Therefore, entrepreneurial activity should be taken into account when discussing potential health care reforms, not only in the USA and in Germany. |
| Keywords: | health insurance,entrepreneurship lock,self-employment |
| JEL: | L26 I13 J2 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:20154&r=ias |
| By: | Zulauf, Carl; Orden, David |
| Abstract: | This chapter assesses the political economy of the 2014 farm bill, which eliminated annual fixed direct payments but offers enhanced downside risk protection against low prices or declining revenue. The farm bill secured substantial bipartisan majorities in a politically contentious Congress. The countercyclical structure of U.S. support is reaffirmed and crop insurance is enhanced as a safety net pillar. Open policy issues include the distribution of benefits among crops, the design of multiple year support around moving-average revenue benchmarks versus fixed references prices, and questions related to crop insurance, including the overall level of premium subsidies. In an international context, we conclude the 2014 farm safety net likely would not have been enacted had multilateral agreement been reached on the 2008 Doha Round negotiating documents; conversely, the 2014 safety net makes achieving those limits more difficult. |
| Keywords: | Agricultural policy, 2014 farm bill, farm subsidies, commodity programs, crop insurance, conservation, WTO, Agricultural and Food Policy, Q17, Q18, Q28, K33, N52, |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:ags:iats14:197160&r=ias |
| By: | Wuppermann, Amelie; Bauhoff, Sebastian; Grabka, Markus |
| Abstract: | We investigate two determinants of the price sensitivity of health plan demand among retirees in the German social health insurance (SHI): the size of the choice set and the salience of premium differences. We use variation in the choice set over time and between regions, and an increase in the salience of premium differences introduced by a recent reform that changed how premiums are framed. Using information on health plan switches in the German Socio Economic Panel, augmented with information on individuals choice sets we find that retirees are less likely to react to potential savings from switching when they have more plans to choose from and when differences between premiums are less salient. The results imply that simplifying choices could save retirees money and also improve the functioning of the health insurance market. |
| JEL: | I11 D12 C23 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100352&r=ias |
| By: | Haan, Peter; Prowse, Victoria |
| Abstract: | We specify and estimate a dynamic structural life-cycle model of labor supply, retirement and savings decisions of single-adult and couple households. Drawing on our model, we study the interplay between family labor supply and public insurance mechanisms. By including family labor supply, we recognize that the incentive effects and optimal design of public insurance programs may be impacted by a household's ability to adjust either one spouse's or both spouses' labor supply in response to wage and employment shocks. The analysis sheds new light on the optimal trade-off between insurance and incentives. In particular we show that family labor supply has quantitatively important implications for the optimal design of public insurance programs. |
| JEL: | J22 C35 H31 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100625&r=ias |
| By: | Dalton, Christina Marsh; Holland, Sara B. |
| Abstract: | When a firm offers health benefits to workers, it exposes the firm to the risk of making payments when workers get sick. A firm can either pay health expenses out of its general assets, keeping the risk inside the firm, or it can purchase insurance, shifting the risk outside the firm. We analyze the firm’s decision to manage this risk. Using data on the insurance decisions of publicly-traded firms, we find that smaller firms, firms with more investment opportunities, and firms that face a convex tax schedule are more likely to hedge the risk of health benefit payments. Health risk is common to all firms, making this application an important contribution to understanding firms’ hedging decisions. Additionally, we reveal new and important determinants of the hedging decision relative to regulatory regimes. We also show that hedging health risk mitigates investment-cash flow sensitivities. |
| Keywords: | Self-insure, self-fund, hedging, human capital risk, health insurance risk, investment |
| JEL: | G3 I13 |
| Date: | 2015–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:61952&r=ias |
| By: | Bardey, David (Universidad de los Andes); Cremer, Helmuth (Toulouse School of Economics); Lozachmeur, Jean-Marie (Toulouse School of Economics) |
| Abstract: | This paper studies the design of health insurance with ex post moral hazard, when there is imperfect competition in the market for the medical product. Various scenarios, such as monopoly pricing, price negotiation or horizontal differentiation are considered. The insurance contract specifies two types of copayments: an ad valorem coinsurance rate and a specific (per unit) copayment. By combining both copayment rates in an adequate way the insurer can effectively control the producer price, which is then set so that the producer's revenue just covers fixed costs. Consequently, a suitable regulation of the copayment instruments leads to the same reimbursement rule of individual expenditures as under perfect competition for medical products. Additional rationing of coverage because of imperfect competition as advocated by Feldstein (1973) is thus not necessary. Interestingly the optimal policy closely resembles a reference price mechanism in which copayment rates are low (possibly negative) and coinsurance rates are high. |
| Keywords: | ex post moral hazard, health insurance contracts, copayments, imperfect competition |
| JEL: | I11 I13 I18 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp8815&r=ias |
| By: | Bardey, David; Cremer, Helmuth; Lozachmeur, Jean-Marie |
| Abstract: | This paper studies the design of health insurance with ex post moral hazard, when there is imperfect competition in the market for the medical product. Various scenarios, such as monopoly pricing, price negotiation or horizontal differentiation are considered. The insurance contract specifies two types of copayments: an ad valorem coinsurance rate and a specific (per unit) copayment. By combining both copayment rates in an adequate way the insurer can effectively control the producer price, which is then set so that the producer’s revenue just covers fixed costs. Consequently, a suitable regulation of the copayment instruments leads to the same reimbursement rule of individual expenditures as under perfect competition for medical products. Additional rationing of coverage because of imperfect competition as advocated by Feldstein (1973) is thus not necessary. Interestingly the optimal policy closely resembles a reference price mechanism in which copayment rates are low (possibly negative) and coinsurance rates are high. |
| Keywords: | ex post moral hazard, health insurance contracts, copayments, imperfect competition. |
| JEL: | I11 I13 I18 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:28982&r=ias |
| By: | Elyse R. Park; Anne C. Kirchhoff; Giselle K. Perez; Wendy Leisenring; Joel S. Weissman; Karen Donelan; Ann C. Mertens; James D. Reschovsky; Gregory T. Armstrong; Leslie L. Robison; Mariel Franklin; Kelly A. Hyland; Lisa R. Diller; Christopher J. Recklitis; Karen A. Kuhlthau |
| Abstract: | The Patient Protection and Affordable Care Act (ACA) established provisions intended to increase access to affordable health insurance and thus increase access to medical care and long-term surveillance for populations with pre-existing conditions. However, childhood cancer survivors' coverage priorities and familiarity with the ACA are unknown. |
| Keywords: | Childhood Cancer, Affordable Care Act, Health |
| JEL: | I |
| Date: | 2015–02–02 |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:5eef42ddc754435daeaaac75fde3f7c7&r=ias |
| By: | Steffen Ahrens; Nooshin Nejati; Philipp L. Pfeiffer |
| Abstract: | This paper studies the role of labor market institutions in business cycle fluctuations. We develop a DSGE model with search and matching frictions and incorporate a US unemployment insurance experience rating system. Layoff taxes based on experience rating finance the cost of unemployment benefits and create considerable employment adjustment costs. Our framework helps realign the search and matching model with the empirical properties of its most salient variables. The model reproduces the negative correlation between vacancies and unemployment, i.e., the Beveridge curve. Simulations show that the model generates more cyclical volatility in its key variable - the ratio of job vacancies to unemployment (labor market tightness). Moreover, layoff taxes reduce the excess sensitivity of job destruction found in Krause and Lubik (2007) and strengthen the negative correlation of job creation and job destruction. Thus, the model matches key labor market data while incorporating an important feature of the US labor market |
| Keywords: | search and matching, experience rating, unemployment insurance, Beveridge curve |
| JEL: | E24 J64 J65 |
| Date: | 2015–01 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1988&r=ias |
| By: | Richard J. Manski; John F. Moeller; Haiyan Chen; Jody Schimmel; John V. Pepper Patricia A. St. Clair |
| Abstract: | Providing dental coverage to previously uninsured older adults would produce estimated monthly costs net of markups for administrative costs that comport closely to current market rates. Estimates also suggest that the total cost of providing dental coverage targeted specifically to nonusers of dental care may be less than similar costs for prior users. |
| Keywords: | Dental utilization, insurance, coverage, retirement |
| JEL: | I |
| Date: | 2015–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:31625bc7e1494ff2ad72dc54a5aa5530&r=ias |
| By: | Eling, Martin; Pankoke, David |
| Abstract: | We empirically analyze the costs and benefits of financial regulation based on a survey of 76 insurers from Austria, Germany and Switzerland. Our analysis includes both established and new empirical measures for regulatory costs and benefits. This is the first paper that tries to take costs and benefits combined into account using a latent class regression with covariates. Another feature of this paper is that it analyzes regulatory costs and benefits not only on an industry level, but also at the company level. This allows us to empirically test fundamental principles of financial regulation such as proportionality: the intensity of regulation should reflect the firm-specific amount and complexity of the risk taken. Our empirical findings do not support the proportionality principle; for example, regulatory costs cannot be explained by differences in business complexity. One potential policy implication is that the proportionality principle needs to be more carefully applied to financial regulation. |
| Keywords: | Insurance, Regulation, Cost-Benefit Analysis, Proportionality Principle |
| Date: | 2014–10 |
| URL: | http://d.repec.org/n?u=RePEc:usg:sfwpfi:2014:20&r=ias |
| By: | James Verdier; Alexandra Kruse; Michelle Herman Soper |
| Keywords: | Medicare, States |
| JEL: | I |
| Date: | 2015–01–29 |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:205f9e46eb524750bda80522465aab03&r=ias |
| By: | Alexander Ludwig (CMR, University of Cologne); Daniel Harenberg (ETH Zürich) |
| Abstract: | We ask whether a PAYG financed social security system is welfare improving in an economy with idiosyncratic and aggregate risk. We argue that interactions between the two risks are important for this question. One is a direct interaction in form of a countercyclical variance of idiosyncratic income risk. The other indirectly emerges over a household's life-cycle because retirement savings contain the history of idiosyncratic and aggregate shocks. We show that this leads to risk interactions even when risks are statistically independent. In our quantitative analysis, we find that introducing social security with a contribution rate of two percent leads to welfare gains of 2.2% of life-time consumption in expectation, despite substantial crowding out of capital. This welfare gain stands in contrast to the welfare losses documented in the previous literature which studies one risk in isolation. We show that jointly modeling both risks is crucial: 60% of the welfare benefits from insurance result from the interactions of risks. |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed014:936&r=ias |
| By: | Köhne, Sebastian; Abraham, Arpad; Pavoni, Nicola |
| Abstract: | Several frictions restrict the government s ability to tax assets. First of all, it is very costly to monitor trades on international asset markets. Moreover, agents can resort to non-observable low-return assets such as cash, gold or foreign currencies if taxes on observable assets become too high. This paper shows that limitations in asset observability have important consequences for the taxation of labor income. Using a dynamic moral hazard model of social insurance, we find that optimal labor income taxes typically become less progressive when assets are imperfectly observed. We evaluate the effect quantitatively in a model calibrated to U.S. data. |
| JEL: | H21 E21 D82 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100406&r=ias |
| By: | Napel, Stefan |
| Abstract: | Can fiscal policy raise utility for all in dynamic economies with unobservable agent heterogeneity, when missing credit and insurance markets affect incentives to invest in human capital? If so, should the state provide transfers to the poor in the form of cash or in kind? In an occupational choice model, we show (a) every competitive equilib- rium is interim-Pareto dominated by a policy providing education subsidies financed by income taxes, and (b) transfers conditional on educational investments similarly dom- inate unconditional transfers. The policies also result in macroeconomic improvements (higher per capita income and upward mobility, lower wage dispersion). |
| JEL: | C72 C73 D82 |
| Date: | 2014 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:vfsc14:100496&r=ias |
| By: | Todd L. Cherry (Appalachian State University, CICERO Center for International Climate and Environmental Research); E. Lance Howe (University of Alaska Anchorage); James J. Murphy (University of Alaska Anchorage, Nankai University, Chapman University) |
| Abstract: | In rural economies with missing or incomplete markets, idiosyncratic risk is frequently pooled through informal networks. Idiosyncratic shocks, however, are not limited to private goods but can also restrict an individual from partaking in or benefiting from a collective activity. In these situations, a group must decide whether to provide insurance to the affected member. In this paper, we describe results of a laboratory experiment designed to test whether a simple sharing institution can sustain risk pooling in a social dilemma with idiosyncratic risk. We test whether risk can be pooled without a commitment device and, separately, whether effective risk pooling induces greater cooperation in the social dilemma. We find that even in the absence of a commitment device or reputational considerations, subjects voluntarily pool risk thereby reducing variance in individual earnings. In spite of effective risk pooling, however, cooperation in the social dilemma is unaffected. |
| Keywords: | collective action; experimental economics; idiosyncratic risk; income smoothing; insurance; lab experiment; public goods; risk pooling; resource sharing; social dilemma; social-ecological systems; team production |
| JEL: | C92 D81 O13 Q20 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:15-03&r=ias |
| By: | Lara Hulsey; Anne Gordon; Joshua Leftin; Nicholas Beyler; Allen Schirm; Claire Smither-Wulsin; Will Crumbley |
| Keywords: | NSLP, School Lunch Program, School Breakfast Program, Direct Certification, Children, Medicaid Benefits |
| JEL: | I0 I1 |
| Date: | 2015–01–27 |
| URL: | http://d.repec.org/n?u=RePEc:mpr:mprres:60b99b345bf14b609348b48a60272c0c&r=ias |