Insurance Subsidies Research Articles

On the Optimal Timing of Benefits with Heterogeneous Workers and Human Capital Depreciation

This paper studies the optimal timing of unemployment insurance subsidies in a McCall search model. Risk-averse workers sequentially sample random job opportunities. Our model distinguishes unemployment subsidies from consumption during unemployment by allowing workers to save and borrow freely. When the insurance agency faces a group of homogeneous workers solving stationary search problems, the optimal subsidies are independent of unemployment duration. In contrast, when workers are heterogeneous or when human capital depreciates during the spell, the optimal subsidy is no longer constant. We explore the main determinants of the shape of the optimal subsidy schedule, isolating forces for subsidies to optimally rise or fall with duration.

The Impact of Crop Insurance Subsidies on Land Allocation and Production in Spain

The Impact of Crop Insurance Subsidies on Land Allocation and Production in Spain

The Third Wave Of Massachusetts Health Care Access Reform

In April 2006, Massachusetts passed its third major health care access reform law since 1988. This law establishes new structures and requirements that have never been attempted by any state. Key features include a shift of federal Medicaid dollars from institutional support to individual insurance subsidies, establishment of an insurance "Connector," individual and employer responsibility, a small-firm and individual insurance market merger, and provisions to address racial and ethnic health disparities. Massachusetts will engage in a multiyear implementation process. Only after this process is complete will the law's significance be clear.

AIDS and the American Health Polity: The History and Prospects of a Crisis of Authority

In 1981, a profound crisis of authority was transforming the American health polity. Changing priorities between infectious and chronic diseases, communal and individual responsibilities for health, and comprehensive services and cost control created a fragmented health polity, leaderless and ill-equipped to address the AIDS epidemic. The American health polity may best serve the public interest when institutions within it do not accept fragmentation as the goal and the norm of health affairs.

Work‐family challenges for low‐income parents and their children.

Work-Family Challenges for Low-Income Parents and Their Children. Ann C. Crouter & Alan Booth (Eds.). Mahwah, NJ: Lawrence Erlbaum. 2004. 304 pp. ISBN 0-8058-5077-5. $32.50 (paper). Based on the 10th national symposium in the Penn State University Family Issues Symposia Series, this volume follows the familiar format for this series: four major papers, each commented on by three discussants, with participants drawn from multiple disciplines. This time the symposium aims to illuminate how work and family affect one another among families with low incomes, and the four key chapters focus on the trends in the distribution of available jobs, by Jared Bernstein, an economist; nonstandard employment schedules, by Harriet B. Presser, a sociologist and demographer; nonparental child care, by Aletha Huston, a developmental psychologist; and problems in transitions from cash welfare to paid employment, by a team of sociologists headed by Susan Clampet-Lundquist. Overall, these lead chapters and discussants' comments provide interesting insights. There is some unevenness in maintaining a focus on families and even on how to define such families. For example, Bernstein discusses employed adults whose individual earnings are low, some of whom are not in families because of the presence of additional adult earners. He looks at those whose wage rates would bring individual earnings to the poverty threshold for a family of four if the worker worked 40 hours a week and 50 weeks a year; in 2001, this threshold is $18,096, earned at $8.70 an hour. Of course, one problem is that many workers at that wage level do not work that many hours each week nor that many weeks, so that they do not actually reach this threshold. And Bernstein argues that in fact there is reasonable consensus that families' consumption needs require 200% of the poverty threshold for their family size. He notes that this does not all have to come from market earnings: tax policies such as the Earned Income Credit, food stamps, health insurance, and housing and child-care subsidies or credits can substantially increase available income. Obviously, our estimates of how many families with children are families, and what their characteristics are, will vary considerably if we look at hourly wage rates of individual workers, total family earnings below poverty thresholds or less than twice the poverty threshold, or total available income after considering earnings, credits, and subsidies (and, seldom mentioned, child support from nonresident parents). Thus, precisely who are low-income families across various authors is often unclear or inconsistent. And as Paula England as well as Lynne Casper and Rosalind King comment, total family earnings crucially depend not just on individual wages but on the sum of wages from a varying number of earners, as well as the number of children in these families, so that Bernstein needs to consider how family composition may combine with labor market characteristics to shape family income adequacy. Nevertheless, Bernstein's focus on jobs actually available, and how many relatively poorly paying jobs versus better paying jobs are out there, provides a needed downward estimate to ideas about how much changing the education or skills of workers can change the percent of workers in poorly paying jobs. …

The Cross-Cohort Distribution of Government Non-Retirement Transfers and its Impact on Working and Earning

Gokhale examines whether federal non-retirement transfers in the US, such as unemployment insurance, education and training subsidies and child-care benefits, exert mainly “defensive”, “offensive”, or “regressive” economic effects on recipients; that is, whether they aim at supporting the needy and those experiencing bad economic outcomes (“defensive”), at improving the functioning of the economy and markets (“offensive”), or rather end up worsening future economic outcomes for recipients (“regressive”). For this purpose Gokhale constructs a dataset of cohort averages of earnings, labour-force participation, demographic characteristics and receipts of federal non-retirement transfers, spanning the years 1988-2001. The analysis bears on the ongoing debate on Social Security: if such transfers, which have more than doubled since the early Sixties from 1.9 to 4.2 per cent of GDP, fulfilled a significant offensive role, then Social Security surpluses could constitute an effective storage technology, expanding economic output and the future tax base to meet the government’s future Social Security obligations. However, the results provide little support to the idea that federal non retirement transfers improve the functioning of labour markets and of the economy. The transfers appear to play a predominantly defensives role.

Private health insurance and regional Australia

Since 1996, an increasing proportion of federal government expenditure has been directed into Australia's healthcare system via private health insurance (PHI) subsidies, in preference to Medicare and the direct funding of public health services. A central rationale for this policy shift is to increase the use of private hospital services and thereby reduce pressure on public inpatient facilities. However, the impact of this reform process on regional Australia has not been addressed. An analysis of previously unpublished Australian Bureau of Statistics data shows that regional Australians have substantially lower levels of private health fund membership. As a result, regional areas appear to be receiving substantially less federal government health funding, compared with cities, than if these funds were allocated on a per-capita basis. We postulate that the lower level of membership in regional areas is mainly due to the limited availability of private inpatient facilities, making PHI less attractive to rural Australians. We conclude that PHI as a vehicle for mainstream federal health financing has potential structural failures that disadvantage regional Australians.

Insurance, self-protection, and the economics of terrorism

This paper investigates the rationale for public intervention in the terrorism insurance market. It argues that government subsidies for terror insurance have the effect of discouraging self-protection and limiting the negative externalities associated with self-protection. Cautious self-protective behavior by a target can hurt public goods like national prestige if it is seen as “giving in” to the terrorists, and may increase the loss probabilities faced by others by encouraging terrorists to substitute toward more vulnerable targets. We argue that these externalities in protection are essential for normative analysis of government intervention in insurance markets and may also explain why availability problems in this market have engendered much stronger government responses than similar problems in other catastrophe insurance markets.

Response: public and private intervention rates in obstetric practice

TO THE EDITORS: Dodd and Robinson (2004) present a commentary on our recently published work (Shorten B & Shorten A 2004) which examines the trends in obstetric interventions within New South Wales (NSW) public and private hospitals from 1997-2001. We welcome discussion on this important issue which has both clinical and economic implications. They acknowledge that our emphasis on recent changes in subsidies for private health insurance adds a concerning new dimension to what is a well established debate regarding obstetric intervention rates in Australian private and public hospitals. Rather than being primarily a concern for the 'health funders', it has implications for all Australian taxpayers, who bear the opportunity costs associated with subsidising potentially ineffective, or even harmful, health care interventions or models of care at the expense of other worthy health care programs.In acknowledging that risks and benefits exist for all health care choices we must be cautious in recommending that as long as consumers are fully informed of the risks and benefits then it is acceptable to provide funding, ignoring the broader societal implications of such resource consumption. Therefore the need for transparency and accountability (Dodd & Robinson 2004, p. 11) within the private obstetric sector is both an economic and ethical imperative.One of the interesting contradictions in contemporary obstetrics is the use of the argument that consumer demand is a contributing factor behind the growing rate of birth intervention. However, practitioners simultaneously recommend funding of high quality research with the purpose of gaining better evidence upon which to base clinical practice. It is important for high quality evidence to be produced and disseminated, but the existence of that evidence alone will not address the current trend in obstetric interventions. Those who support the principles of evidence based practice will be aware of the challenges faced by those attempting to 'get evidence into practice'. The presence of evidence does not equate to evidence-based practice, and consumers are not necessarily aware of this. Further, the presumption that consumers are not well informed about the vitally important consequences of their health care choices is a central pillar underpinning extensive public regulation of, in particular, the health care professions. This provides further reason to be cautious in evaluating arguments relating to consumer choice as a factor in observed interventions and outcomes.If it is the case that most private obstetncians are also gynaecologists, and work in several settings; and ... non-clinical factors may have a greater impact on interventions than evidence from systematic reviews (Dodd & Robinson 2004, p. …

Commentary: public and private intervention rates in obstetric practice

Dr Jodie Dodd is a maternal fetal medicine fellow, and Professor Jeffrey Robinson is head of Department of Obstetrics & Gynaecology, University of Adelaide.The paper by Shorten and Shorten published in the last edition of Australian Health Review highlights differences in intervention rates (induction of labour, caesarean section, use of epidural analgesia) between women receiving private obstetric care and those receiving public obstetric care (Shorten & Shorten 2004).Similarly, the authors highlight the more frequent occurrence of "less favourable birth outcomes such as emergency CS, instrumental birth, episiotomy and (perineal) tear requiring suturing" in women giving birth in private hospital settings. These differences persisted after controlling for the risk profile of the woman or development of complications during birth (Shorten & Shorten 2004). These findings are not new in Australia, having been reported previously by King (1993 and 2000), and Roberts and colleagues (2000 and 2002). However, Shorten and Shorten's link to subsidies for private insurance raises a new concern.The global interest in obstetric intervention rates and in particular rates of caesarean section has been underpinned by the assumption that there is in fact an "ideal" rate of intervention, where benefits outweigh risks. Much of this discussion developed after the World Health Organization published a statement to the effect that a caesarean section rate of 15% was appropriate (WHO 1985). However there has been little critique of the derivation of this figure and there is a lack of evidence in the scientific literature supporting it. The rate of any particular intervention should not be considered in isolation - what is important is how the intervention relates to increasing or decreasing maternal and infant mortality and morbidity.

Terrorism insurance subsidies and social welfare

A model of the effects of terrorism risk on building construction suggests that subsidy of terrorism insurance can increase social welfare. Such a subsidy program should cover a fixed level of risk per location.

Policy change and private health insurance: did the cheapest policy do the trick?

From the introduction of Australia's national health insurance scheme (Medicare) in 1984 until recently, the proportion of the population covered by private health insurance declined steadily. Following an Industry Commission inquiry into the private health insurance industry in 1997, a number of policy changes were effected in an attempt to reverse this trend. The main policy changes were of two types: "carrots and sticks" financial incentives that provided subsidies for purchasing, or tax penalties for not purchasing, private health insurance; and lifetime community rating, which aimed to revise the community rating regulations governing private health insurance in Australia. This paper argues that the membership uptake that has occurred recently is largely attributable to the introduction of lifetime community rating which goes some way towards addressing the adverse selection associated with the previous community rating regulations. This policy change had virtually no cost to government. However, it was introduced after subsidies for private health insurance were already in place. The chronological sequencing of these policies has resulted in substantial increases in government expenditure on private health insurance subsidies, with such increases not being a cause but rather an effect of increased demand for private health insurance. The paper also considers whether the decline in membership that has occurred since the implementation of lifetime community rating presages the re-emergence of an adverse selection problem in private health insurance. Much of the decline to date may be attributable to failure on the part of some members to honour premium payments when they first fell due. However, the changing age composition of the insured pool since September 2000, resulting in an increasing average age of those insured, suggests the possible reappearance of an adverse selection dynamic. Thus the 'trick' delivered by lifetime community ratings may not be maintained in the longer term.

Expanding coverage via tax credits: trade-offs and outcomes.

In this paper we discuss various options for using refundable tax credits to reduce the number of uninsured persons. The effect of tax credits on the number of uninsured depends on the form of the credit scheme adopted. Moreover, since large subsidies for private insurance directed to low-income persons have never been implemented, there is considerable uncertainty about the effect of various tax credit proposals. We find that small credits will do little to reduce the number of uninsured but that credits covering about half of the premium for a benchmark policy might have a significant effect, especially if they take a fixed-dollar form and can be used for policies with few restrictions. Finally, we discuss the normative issues surrounding the "costs" of these credits schemes, and the policy issues raised by the uncertainty of the effects.

An Empirical Analysisi on Consistency and Incentive scheme in Iapanese National Health Insurance Subsidies

An Empirical Analysisi on Consistency and Incentive scheme in Iapanese National Health Insurance Subsidies

The new health insurance rebate: an inefficient way of assisting public hospitals.

Private health insurance subsidy is now estimated to cost $2.19 billion; government support for private health care includes a further $1.2 billion of Medicare benefits expenditure in hospitals. The subsidy cannot be justified on efficiency grounds, as, on the basis of available evidence and taking casemix into account, public hospitals are more efficient than private hospitals. The original stated objective of the subsidy was to "take pressure off public hospitals". If the insurance subsidy and the Medicare Benefit Schedule rebate expenditure were applied to purchasing public hospital treatment at full average cost, 58% of current private sector demand could be accommodated. If 10% of the demand were met at marginal cost, this would increase to 65%. The objective of "taking pressure off public hospitals" could be more efficiently achieved by direct funding of public hospitals rather than through subsidies for private health insurance.

Premium subsidies for health insurance: excessive coverage vs. adverse selection

The tax subsidy for employment-related health insurance can lead to excessive coverage and excessive spending on medical care. Yet, the potential also exists for adverse selection to result in the opposite problem–insufficient coverage and underconsumption of medical care. This paper uses the model of Rothschild and Stiglitz (R–S) to show that a simple linear premium subsidy can correct market failure due to adverse selection. The optimal linear subsidy balances welfare losses from excessive coverage against welfare gains from reduced adverse selection. Indeed, a capped premium subsidy may mitigate adverse selection without creating incentives for excessive coverage.

A comprehensive assessment of the cost of multiple sclerosis in the United States.

Comprehensive data on the costs of multiple sclerosis is sparse. We conducted a survey of 606 persons with MS who were members of the National Multiple Sclerosis Society to obtain data on their cost of personal health services, other services, equipment, and earnings. Compensation of such cost in the form of health insurance, income support, and other subsidies was measured. Survey data and data from several secondary sources was used to measure costs incurred by comparable persons without MS. Based on the 1994 data, the annual cost of MS was estimated at over $34,000 per person, translating into a conservative estimate of national annual cost of $6.8 billion, and a total lifetime cost per case of $2.2 million. Major components of cost were earnings loss and informal care. Virtually all persons with MS had health insurance, mostly Medicare/Medicaid. Health insurance covered 51 per cent of costs for services, excluding informal care. On average, compensation for earnings loss was 27 per cent. MS is very costly to the individual, health care system, and society. Much of the cost (57 per cent) is in the form of burdens other than personal health care, including earnings loss, equipment and alternations, and formal and informal care. These costs often are not calculated.

An evaluation of the deposit insurance subsidisation of Australian banks

To the extent that deposits in Australian banks are guaranteed, Australian banks receive deposit insurance at no cost. This cost is ultimately borne by the taxpayers of Australia. This paper examines the amount of subsidisation using techniques similar to studies of other deposit insurance systems. We show that the estimate for the deposit insurance premium depends critically upon the method of estimating the market value of assets and the asset volatility of the bank. We find that Australian banks received substantial insurance subsidies in 1990, 1991, and 1992.

Deposit insurance subsidies, moral hazard, and bank regulation

The model developed in the paper separates deposit insurance subsidies into two components: a premium-linked subsidy which arises from an ex-ante mispricing of the deposit insurance premium, and an asset-linked subsidy which arises from a lack of ex-post monitoring of the bank's actions. The identification of these two subsidies provides important insight into the relation between deposit-insurance subsidies and bank risk. The asset-linked subsidy is higher for banks of average risk and lower for very-high and very-low risk banks. The premium-linked subsidy behaves differently under risk-adjusted and fixed-rate premiums. The model also indicates that the implementation of a risk-adjusted insurance-rate schedule alone would not be sufficient to eliminate the bank's excessive risk-taking behavior. Thus, some combination of risk-sensitive deposit-insurance pricing and regulatory control is necessary to reduce the moral hazard problem.

The 1985 Ohio S&L Crisis: An Examination of S&L Stockholder Wealth Effects

AbstractThis paper examines the savings and loan (S&L) equity market reaction to the 1985 Ohio S&L Crisis. In contrast to the expectation of negative abnormal returns associated with contagion, the authors find, during the crisis period, significant positive abnormal returns that are larger for a portfolio of less solvent S&Ls, and a significant decline in systematic risk. The results are consistent with an insurance subsidy hypothesis whereby news of the FSLIC's inadequacy in conjunction with the crisis signaled greater future reluctance by regulators to close large federally‐insured S&Ls.