Social Insurance: Connecting Theory to Data

Chetty, Raj; Finkelstein, Amy

doi:10.1016/b978-0-444-53759-1.00003-0

Cited by 85 publications

(24 citation statements)

References 194 publications

(121 reference statements)

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“…We follow Chetty and Finkelstein () in defining adverse (advantageous) selection. Take two contracts, denoted H and L where H is more generous (say, features lower co‐payments) than L .…”

Section: Advantageous Selectionmentioning

confidence: 99%

“… Note that this is an adaptation of Chetty and Finkelstein's () definition to our context. Chetty and Finkelstein () assume SC is satisfied and hence they define the key feature of adverse selection as ‘individuals who have the highest willingness to pay for insurance are those who, on average, have the highest expected costs’. And the other way around for advantageous selection.…”

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confidence: 99%

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Health Insurance without Single Crossing: Why Healthy People have High Coverage

Boone

Schottmüller

2015

The Economic Journal

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Standard insurance models predict that people with high risks have high insurance coverage. It is empirically documented that people with high income have lower health risks and are better insured. We show that income differences between risk types lead to a violation of single crossing in an insurance model where people choose treatment intensity. We analyse different market structures and show the following: if insurers have market power, the violation of single crossing caused by income differences and endogenous treatment choice can explain the empirically observed outcome. Our results do not rely on differences in risk aversion between types.A well-documented problem in health insurance markets with voluntary insurance like the US is that people either have no insurance at all or are under-insured. 1 Standard insurance models -inspired by the seminal work of Rothschild and Stiglitz (1976; RS) and Stiglitz (1977) -predict that healthy people have less than perfect insurance or-in the extreme-no insurance at all. However, both popular accounts like Cohn (2007) and academic work like Schoen et al. (2008) show that people with low health status are over-represented in the group of uninsured and under-insured. 2 We develop a model to explain why sick people end up with too little (from a social point of view) or no insurance. We do this by adding two well-documented empirical observations to the RS model:(i) richer people tend to be healthier; and (ii) health is a normal good.Technically speaking, introducing the latter two effects can lead to a violation of single crossing in the model.There is another indication that the standard RS framework with single crossing does not capture reality in the health insurance sector well. The empirical literature that is based on RS does not unambiguously show that asymmetric information plays a role in health insurance markets. One would expect that people have private information about their health risks -think for example of preconditions, medical history of parents and other family members or lifestyle. However, some papers, like for We thank the editor (Martin W Cripps) and two anonymous referees of this JOURNAL for their suggestions. Comments by Cedric Argenton, Eric van Damme, Humberto Moreira, Florian Sch€ utt and seminar participants at Tilburg University are much appreciated. Financial support from the Dutch National Science Foundation (VICI 453.07.003) is gratefully acknowledged.1 In empirical studies, under-insurance is defined using indicators of financial risk. To illustrate, one definition of under-insurance used by Schoen et al. (2008) is 'out-of-pocket medical expenses for care amounted to 10% of income or more'. In our theoretical model, under-insurance refers to less than socially optimal/efficient insurance. 2 In the words of Schoen et al. (2008, p. 303): 'underinsurance rates were higher among adults with health problems than among healthier adults'.[ 1 ]

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“…We follow Chetty and Finkelstein () in defining adverse (advantageous) selection. Take two contracts, denoted H and L where H is more generous (say, features lower co‐payments) than L .…”

Section: Advantageous Selectionmentioning

confidence: 99%

mentioning

confidence: 99%

Health Insurance without Single Crossing: Why Healthy People have High Coverage

Boone

Schottmüller

2015

The Economic Journal

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“…See also Einav, Finkelstein, and Levin (), Einav and Finkelstein (), and Chetty and Finkelstein () for related discussions of the demand and cost analysis of selection markets.…”

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confidence: 99%

“…This contrasts with a view that was shared by many in the literature. For example, Chetty and Finkelstein () stated that “… if preferences are sufficiently important determinants of demand for insurance and sufficiently negatively correlated with risk type, the market can exhibit what has come to be called advantageous selection.” See, however, CJSS ().…”

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confidence: 99%

Multidimensional private information, market structure, and insurance markets

Fang

2018

The RAND J of Economics

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We investigate whether selection based on multidimensional private information in risks and risk preferences can, under different market structures, result in a negative correlation between insurance coverage and ex post realization of risk. We show that, under perfect competition, selection based on multidimensional private information does not result in the negative correlation property, unless there is a sufficiently high loading factor. However, it is possible to generate the negative correlation property under monopoly when risk and risk preference types are sufficiently negative dependent. We also clarify the connections between important concepts such as adverse/advantageous selection and positive/negative correlation property.

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“…Chetty and Finkelstein () show that the fraction of GDP devoted to various public insurance programs tends to increase sharply with GDP per capita.…”

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confidence: 99%

Insurance by Government or Against Government? Overview of Public Risk Management Policies

Libich

Macháček

2016

Journal of Economic Surveys

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In what contexts is it desirable that the government, rather than the private sector, takes on the role of an insurer and helps people reduce risks? Our discussion implies that while in a number of areas individuals benefit from well‐designed insurance provided by their government, ill‐designed public policies (for example existing pay‐as‐you‐go pension systems) force individuals to insure against their government. It is further discussed how governments could improve their risk managing role in many areas by using income contingent loans, provided the country has high‐quality institutions and governance. Such loans to artists, sportspeople, flood victims or collapsing financial institutions would replace the existing nonrepayable transfers, grants, subsidies and bailouts. Using a simple efficiency‐equity‐sustainability framework for comparing income contingent schemes with conventional public and private insurance policies, we document that this would enable governments to extend their insurance assistance to a greater number of people and institutions – in a way that is not only equitable but also efficient and fiscally sustainable.

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Social Insurance: Connecting Theory to Data

Cited by 85 publications

References 194 publications

Health Insurance without Single Crossing: Why Healthy People have High Coverage

Health Insurance without Single Crossing: Why Healthy People have High Coverage

Multidimensional private information, market structure, and insurance markets

Insurance by Government or Against Government? Overview of Public Risk Management Policies

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