Variation In Premium Research Articles

Adverse Selection in ACA Exchange Markets: Evidence from Colorado

This study tests for adverse selection in the Affordable Care Act (ACA) health insurance exchanges established in 2014, and quantifies the welfare consequences. Using a new statewide dataset of medical claims from Colorado, I use plausibly exogenous premium variation generated by geographic discontinuities to test for selection. Specifically, each $1 increase in monthly premiums causes a $0.85–0.95 increase in annual medical expenditures of the insured population in 2014, with attenuated effects in 2015. These estimates are consistent with the prevalence of chronic conditions, and difference-in-differences estimates. The results offer the first quasi-experimental evidence of adverse selection in the ACA markets. (JEL D82, G22, H51, H75, I13, I18)

Factors affecting the Affordable Care Act Marketplace stand-alone pediatric dental plan premiums.

Children from lower income families have inadequate dental insurance coverage and poorer dental health in the United States. The Affordable Care Act (ACA) created Health Insurance Exchange Marketplaces to increase competition among health insurers and to provide low-income families with less costly health plans. The study examined Marketplace pediatric stand-alone dental plans (SADPs) and factors that affect their premiums. The data used were 2016 Federal-Facilitated and State-Partnership Marketplace pediatric SADP data. Ordinary least squares regressions were applied to estimate contributing factors' effects on SADP premiums. Great premium variation was found among low and high coverage level SADPs, respectively. Premiums of Health Maintenance Organization (HMO) SADPs were significantly less expensive than Preferred Provider Organization (PPO) SADPs. SADPs charged significantly higher premiums for more types of services covered. SADPs also charged higher premiums in states where there are larger proportions of low-income people who report poor dental health, more dentists per capita, or higher dentists' wages. The number of insurance companies offering pediatric SADPs in a Marketplace was negatively associated with premiums. The current Marketplace pediatric SADPs may have limited effects on increasing economically disadvantaged children's access to quality dental care. Marketplaces can promote competition among its pediatric dental insurers on providing lower-cost pediatric SADPs.

Public Liquidity Supply, Bank Run Risks, and Financial Crises

This paper studies the equilibrium effect of public liquidity on financial crises. Banks borrow from households via insured deposits and partially runnable debt, and suffer endogenous funding withdrawals from households in crises. Holding public liquidity alleviates banks' liquidity problems. In equilibrium, a larger public liquidity supply reduces crisis severity, expands bank lending, but crowds bank deposits and increases bank vulnerability to real shocks. The model quantitatively explains 40% of Treasury liquidity premium variations. Counterfactual analyses reveal that QE1 significantly improves output, 20 times larger than QE3. However, QE infinity during COVID-19 increases bank fragility to real shocks and reduces output.

Simulating Variation in Families' Spending across Marketplace Plans.

To examine variations in premium and cost-sharing across marketplace plans available to eligible families. 2011-2012 Medical Expenditure PanelSurvey (MEPS), 2014 health plan data from healthcare.gov, and the 2011 Medicare Part D public formulary file. We identified a nationally representative cohort of individuals in the MEPS who would have been eligible for marketplace coverage. For each family, we simulated the total out-of-pocket payment (premium plus cost-sharing) under each available plan in their county of residence, assuming their premarketplace use. Confidential state and county of residence identifiers were merged onto MEPS public use files and used to match MEPS families to the plans available in their county as reported in the publicly available data from healthcare.gov. We found substantial variation in total family health care spending, especially premium component, across marketplace plans. This is true even within a plan tier of the same minimum actuarial value, and for families eligible for subsidies. Variation among families with income below 250 percent of the FPL is larger than variation among families with higher income. Our simulations show substantial variations in net premium and out-of-pocket payments across marketplace plans, even within a plan tier.

Application of Data Mining Technology in the Loss of Customers in Automobile Insurance Enterprises

This paper is based on the customer churn data of auto insurance, construction of index system in three aspects: the customer information, the subject matter of the insurance information and hold product information; This paper uses decision tree and Logistic regression model to analyze the insurance company's customer data; The results show that: discount, total discount rate, total premium and other variables have a significant impact on customer churn, and get the loss probability of each customer and get some main features of lost customers.

Adverse Selection in ACA Exchange Markets: Evidence from Colorado

This study tests for adverse selection in the established Affordable Care Act (ACA) health insurance exchanges established in 2014, and quantifies the consequences for consumer welfare and market efficiency. Using a new statewide dataset of medical claims from Colorado, I use plausibly exogenous premium variation generated by geographic discontinuities to test for adverse selection. In this context, a positive relationship between premiums and medical spending of the insured population indicates adverse selection, as the lowest cost individuals are the first to drop out of the market in response to rising premiums. I find evidence of adverse selection in the non-group market, where a 1% increase in premiums leads to a 0.8% increase in the average annual medical expenditures of the insured population. I then estimate insurance demand using the same geographic premium variation. The demand and cost estimates can be combined in a framework to calculate the welfare loss due to selection, as well as an evaluation of policy interventions. My estimates indicate that providing additional premium subsidies would enhance welfare in this market, and moreover, due to heterogeneity across age groups in both demand and costs, I estimate that age-targeted premium subsidies would be a more cost-effective use of public funds to enhance welfare. These results offer the first quasi-experimental evidence of adverse selection in the new ACA Exchange markets, and conclusions from the policy evaluations have implications for the future effectiveness of this cornerstone of the ACA.

Leaving the market or reducing the coverage? A model-based experimental analysis of the demand for insurance

This study develops a theoretical, and experimental analysis addressing the issue of premium variations on the demand for insurance. Accounting for risk attitudes, our contribution disentangles the decision to buy insurance from the conditional demand (the non-null demand for insurance). Partially validating our theoretical predictions, our experimental results show that, when it has an effect, a non-massive increase in the premium (either in the unit price or the fixed cost) exclusively results in an exit from the insurance market (the risk lovers first, then the risk averters). Moreover, our study highlights a key feature of risk-seeking agents' behavior; they exhibit behavior consistent with gambling and opportunism rather than a lack of interest in insurance.

Does Uncertainty about a Closed-End Fund’s Holdings Lead to a Discount?

In a frictionless world, a closed-end fund’s (CEF’s) premium equals its price minus both its NAVPS (net asset value per share) and present value of the net benefits (PVNB) from liquidity enhancement, managerial abilities after costs, and leverage. The premium can differ further due to frictions resulting from uncertainties about a CEF’s PVNB and its holdings. Complete hedge positions between CEF prices and NAVPS are not possible since their concurrent daily directional changes are not perfectly integrated. We are able to explain over two-thirds of the variation in premiums or their changes for U.S. equity CEFs. As expected, the CEF premium is positively related to liquidity enhancement, CEF performance and net leverage, and negatively related to management fees, gross leverage, cash and bond holdings, and proxies for price equilibrating risks.

Estimating the Value of Public Insurance Using Complementary Private Insurance

The welfare associated with public insurance is often difficult to quantify. Relative to private insurance, a fundamental difficulty is that public insurance is typically compulsory, so the demand for coverage is unobserved and thus cannot be used to analyze welfare. However, in many public insurance settings, individuals can purchase private insurance to supplement their public coverage. In this paper, we outline an approach to use data and variation from private complementary insurance to quantify welfare associated with several counterfactuals related to compulsory public insurance. Using administrative data from one large firm on employee long-term disability insurance, we then apply this approach empirically to quantify the value of disability insurance among this population. We use premium variation among the employer-provided disability policies to quantify the surplus that would be generated by increasing the replacement rate of disability insurance for our sample population ― a counterfactual that is within the set of insurance contracts observed in this setting. In addition, we estimate a lower bound on the surplus generated by public disability insurance in this context. Our findings suggest that public disability insurance generates substantial surplus for this population, and there may be gains to increasing the generosity of coverage in this context.

Term Premium Variability and Monetary Policy

Two traditional explanations for the mean and variability of the term premium are: (i) time-varying risk premia on long bonds, and (ii) segmented markets between long- and short-term bonds. This paper integrates these two approaches into a medium-scale DSGE model. We consider two sources of business cycle variability: shocks to total factor productivity (TFP), and shocks to the marginal efficiency of investment (MEI). The ability of the risk approach to match the first moment of the term premium depends upon the relative importance of these two shocks. If MEI shocks are an important driver of the business cycle, then long bonds are a hedge against the business cycle so that the average term premium is negative. The opposite is the case for the TFP shocks. But for either source of shocks, the risk approach to the term premium predicts a trivial amount of variability in the term premium. In contrast, the segmented markets model can easily match both moments. The market segmentation reflects a real distortion, so that smoothing the term premium is typically welfare-improving. There are two difficulties with such a policy. First, the mean level of the term premium will not properly reflect the segmentation distortion because of the risk adjustment. Second, if the term premium is measured with error, the welfare gain of a term premium peg is naturally reduced. The paper demonstrates that both of these effects are quantitatively modest so that the welfare advantage to a term premium peg survives.

Political risk and the factors that affect international bids

This study examines the determinants of bidder returns, target premiums and the likelihood of winning a bid in cross-border acquisitions. We identify how risk associated with the target home country affects these outcomes. Expected improvement in efficiency is the more powerful factor explaining the variation in premiums, while returns to bidders reflect the information asymmetry. Foreign targets are more likely to accept first or lower bids if target countries are culturally close to the U.S. Targets in poor-governance nations are more likely to accept a lower bid, explained by the ability of a good-governance nation acquirer to create benefits for the target.

Large audit firm premium and audit specialisation in the public sector

AbstractThe outsourcing of public‐sector audits to the private sector is an important issue. This study examines the fee premium in the public sector by comparing audit fees between the government auditor and the Big5. The study (i) statistically adjusts for self‐selection bias, (ii) allows the slope coefficients in the audit fee model to vary between the Big5 and the government audit and (iii) estimates the counterfactual audit fee premium. The Big5 premium is around 23 percent. However, the variation in premium depends on whether the Big5 auditor is an industry or city specialist.

Could immigration explain wage inequality in a skill-biased technological model?

The aim of this paper is to evaluate how immigration of high-skilled workers affects the technological-knowledge bias and, in turn, the skill premium in the host countries, in particular bearing in mind the recent experience in a number of European countries. We study a skill-biased dynamic general equilibrium R&D growth model in which the standard R&D technology is modified so wage inequality results from the direction of the technological knowledge, which in turn is induced by the price channel. By solving the transitional dynamics numerically, we show that the rise of the skill premium arises from the price-channel effect, complemented with a mechanism that reflects the impact of immigration on R&D. According to our quantitative results, our model is able to account for a significant proportion of the dynamics of the skill premium in the data for a number of European countries, thus, suggesting that differences in labour skills between immigrants and natives are, in practice, an important source of skill premium variation over time.

Do insurers respond to risk adjustment? A long-term, nationwide analysis from Switzerland.

Community rating in social health insurance calls for risk adjustment in order to eliminate incentives for risk selection. Swiss risk adjustment is known to be insufficient, and substantial risk selection incentives remain. This study develops five indicators to monitor residual risk selection. Three indicators target activities of conglomerates of insurers (with the same ownership), which steer enrollees into specific carriers based on applicants' risk profiles. As a proxy for their market power, those indicators estimate the amount of premium-, health care cost-, and risk-adjustment transfer variability that is attributable to conglomerates. Two additional indicators, derived from linear regression, describe the amount of residual cost differences between insurers that are not covered by risk adjustment. All indicators measuring conglomerate-based risk selection activities showed increases between 1996 and 2009, paralleling the establishment of new conglomerates. At their maxima in 2009, the indicator values imply that 56% of the net risk adjustment volume, 34% of premium variability, and 51% cost variability in the market were attributable to conglomerates. From 2010 onwards, all indicators decreased, coinciding with a pre-announced risk adjustment reform implemented in 2012. Likewise, the regression-based indicators suggest that the volume and variance of residual cost differences between insurers that are not equaled out by risk adjustment have decreased markedly since 2009 as a result of the latest reform. Our analysis demonstrates that risk-selection, especially by conglomerates, is a real phenomenon in Switzerland. However, insurers seem to have reduced risk selection activities to optimize their losses and gains from the latest risk adjustment reform.

The Effect of Employer Health Insurance Offering on the Growth and Survival of Small Business Prior to the Affordable Care Act

Whether or not small businesses offer health insurance to their employees is a critical factor in the health care coverage of many Americans, yet many entrepreneurs and decision makers fear that the cost of offering health care coverage to their employees will diminish the growth and survival of small firms. While there is an emerging consensus among economists that small businesses both create and destroy a disproportionately large number of jobs, less is known about the relationship between health care costs and business growth. We examine this latter issue prior to the passage of the Affordable Care Act in 2010.We first review information on the relationship between small employers’ decisions to offer health insurance prior to 2010 and i) financial factors (including premium variability and tax advantages), ii) labor markets with a focus on employee characteristics and the demand for employer's health insurance, iii) insurance markets and products, discussing access and insurance options with lower premium costs, and iv) the health insurance regulatory environment with an examination of state-level reform and health insurance mandates. We then discuss employer reactions to rising health care costs, followed by a review of factors other than rising health care costs that often affect the growth and survival of a small business. In the remaining sections, we describe our longitudinal analysis of how health insurance offering (HIO) affected the expansion and survival of small businesses. Using 2001-05 linked data from the Longitudinal Business Database (LBD) and the Insurance Component of the Medical Expenditure Panel Survey (MEPS-IC), we look at how HIO affected four measures of business performance (growth in employment, growth in payroll, growth in average wage, and survival) – after controlling for business characteristics and relevant state-level variables. We employ instrumental variable two-stage least squares estimation to address the endogeneity that permeates the question at hand. We find that young businesses (both large and small) that offer health insurance grow at not significantly different rates as those that do not, possibly due to selection effects. Older businesses offering health insurance – both small and large – seem to have higher employment and payroll growth. Survival is strongly and positively correlated with HIO for older establishments at both large and small firms. However, these results should be interpreted with extreme caution due the concerns we raise about the available testing methodology for our context.

Estimating premium sensitivity for children's public health insurance coverage: selection but no death spiral.

To estimate the effect of premium increases on the probability that near-poor and moderate-income children disenroll from public coverage. Enrollment, eligibility, and claims data for Georgia's PeachCare for Kids(™) (CHIP) program for multiple years. We exploited policy-induced variation in premiums generated by cross-sectional differences and changes over time in enrollee age, family size, and income to estimate the duration of enrollment as a function of the effective (per child) premium. We classify children as being of low, medium, or high illness severity. A dollar increase in the per-child premium is associated with a slight increase in a typical child's monthly probability of exiting coverage from 7.70 to 7.83 percent. Children with low illness severity have a significantly higher monthly baseline probability of exiting than children with medium or high illness severity, but the enrollment response to premium increases is similar across all three groups. Success in achieving coverage gains through public programs is tempered by persistent problems in maintaining enrollment, which is modestly affected by premium increases. Retention is subject to adverse selection problems, but premium increases do not appear to significantly magnify the selection problem in this case.

The effects of exporting on wages: An evaluation using the 1999 Brazilian exchange rate devaluation

The impact of international trade on wages has received substantial attention in recent decades; but only recently the specific effects of exporting on wage inequality have been investigated in detail. This paper employs the unexpected 1999 Brazilian exchange rate devaluation to identify the effects of exporting on Brazilian manufacturing firm-level wages using employer–employee linked data. We find that this export shock increased the average wage gap between the high and low productivity firms. Most of this wage increase took the form of a larger wage premium, but increased sorting of workers also played a significant role. Further scrutiny at the occupation–firm level indicates that the wage increases of managerial white-collar occupations came solely from wage premium variations. Skilled blue-collar workers also exhibited wage gains, but these gains came in equal shares from increased wage premium and worker sorting; the remaining occupational categories saw no wage increase.

Short Sales and Fundamental Value: Explaining the REIT Premium to NAV

This study explores the role of short sale constraints in explaining the variation in premiums to Net Asset Value (NAV) in REIT pricing. We use proprietary information on short sales between June 2006 and September 2008 to examine how short sales and short sale constraints affect the variation in monthly REIT NAV premiums using panel vector autoregression models. We find that variation in short sale activity across individual REITs can account for at least one‐third of the variation in NAV premiums. Short sale constraints tend to be binding when there is strong demand and limited supply of shares to short. Excess demand leads to overvaluation and the correction of the overvaluation explains the under‐performance of premium REITs.

A Joint Analysis of the Effect of Business and Consumer Confidence on Stock Market Risk Premiums

This study is to assess the dynamics effects of business confidence and consumer confidence on stock market risk premiums and to determine the relative importance of business confidence and consumer confidence in forecasting the variability of stock market risk premiums though a variance decomposition. The results show that the response of stock market risk premiums becomes positive immediately following the shocks to business confidence and consumer confidence. Based on the variance decomposition analysis, the variability of stock market risk premiums is 95% due to its own shock and the rest is due to the shocks to business confidence (1%) and consumer confidence (4%) for the 3-month horizon. For the 6-month horizon, the variability of stock market risk premiums is 93% due to its own shock, 2% due to business confidence shock and 5% due to consumer confidence shock. The forecast error of stock market risk premiums is 90% due to its own shock and the rest is due to the shocks to business confidence (4%) and consumer confidence (6%) for the 12-month horizon. The results from the OLS time-series regression show that business confidence and consumer confidence jointly explain around 7.42% of the variation of stock market risk premiums.

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