Health insurance and retirement of married couples

Most health insurance in the USA is provided by employers until eligibility for public health insurance (Medicare) begins at age 65. Retiring before 65 exposes workers who lack retiree health insurance coverage to the risk of catastrophic medical expenditure. We solve and estimate a dynamic model of the employment behavior of older married couples that includes risky medical expenditure and health insurance. Parameter estimates imply that the risk‐reducing feature of health insurance can account for about half of the observed association between retiree health insurance and employment for married men, but can account for only one tenth of the much larger observed association for married women. Policy simulations imply very small effects on employment of changing the age of eligibility for Medicare from 65 to 67. Copyright © 2006 John Wiley & Sons, Ltd.     

Crowding Out Informal Care? Evidence from a Field Experiment in Germany*

This article evaluates the effects of a consumer‐directed home care programme (Personal Budgets) compared with the standard home care programmes of the German long‐term care insurance (LTCI). The evaluation makes use of a random assignment into a treatment group receiving personal budgets and a control group receiving either in‐kind benefits (agency care) or cash payments. Compared with agency care, personal budgets extend the support by independent providers, but leave health outcomes unchanged. Compared with cash payments, personal budgets tend to improve health outcomes, but double LTCI spending due to a strong crowding out of informal care by formal care.     

Learning and the value of information: Evidence from health plan report cards

This paper develops a framework to analyze the value of information in the context of health plan choice. We use a Bayesian learning model to estimate the impact and value of information using data from a large employer, which started distributing health plan ratings to its employees in 1997. We estimate the parameters of the model with simulated maximum likelihood, and use the estimates to quantify the value of the report card information. We model both continuous specifications with Gaussian priors and signals, and discrete specifications with Beta priors and Binomial signals. We find that the release of information had a statistically significant effect on health plan choices. Consumers were willing to pay about $330 per year per below expected performance rating avoided, and the average value of the report card per employee was about $20 per year. We find large variation in valuations across different performance domains, but no significant evidence of heterogeneity based on observable employee characteristics or unobservable dimensions.     

The work disincentive effects of the disability insurance program in the 1990s

In this paper we evaluate the work disincentive effects of the disability insurance (DI) program during the 1990s using comparison group and regression-discontinuity methods. The latter approach exploits a particular feature of the DI eligibility determination process to estimate the program's impact on labor supply for an important subset of DI applicants. Using merged survey-administrative data, we find that during the 1990s the labor force participation rate of DI beneficiaries would have been at most 20 percentage points higher had none received benefits. In addition, we find even smaller labor supply responses for the subset of ‘marginal’ applicants whose disability determination is based on vocational factors.     

Health insurance reform: The impact of a Medicare buy-in

The steady-state general equilibrium and welfare consequences of a Medicare buy-in program, optional for those aged 55–64, is evaluated in a calibrated life-cycle economy with incomplete markets. Incomplete markets and adverse selection create a potential welfare improving role for health insurance reform. We find that adverse selection eliminates any market for a Medicare buy-in if it is offered as an unsubsidized option to individual private health insurance. The subsidy needed to bring the number of uninsured to less than 5 percent of the target population could be financed by an increase in the labor income tax rate of just 0.03–0.18 percent depending on how the program is implemented.     

Estimation of Engel Curves from Survey Data with Zero Expenditures*

The objective of this article is to propose a Bayesian method for estimating a system of Engel functions using survey data that include zero expenditures. We deal explicitly with the problem of zero expenditures in the model and estimate a system of Engel functions that satisfy the adding‐up condition. Furthermore, using Markov chain Monte Carlo method, we estimate unobservable parameters, including consumption of commodities, total consumption and equivalence scale, and use their posterior distributions to calculate inequality measures and total consumption elasticities.     

Market insurance and endogenous saving with multiple loss states

The standard one-period model for insurance demand does not consider the interaction between the present and the future. Reflecting this observation, we analyze intertemporal insurance demand and saving in a two-period model with multiple loss states. When an individual has no access to a capital market, we first find that an actuarially fair premium does not guarantee full insurance in general, unlike in the standard approach. Income stream and discount factors are also important in determining insurance demand. Second, insurance is neither an inferior good nor a Giffen good. Third, an increase in concavity of the utility function does not always lead to an increase in insurance demand. The current income level and changes in downside risk aversion affect insurance demand. When the individual has access to a capital market, we further have the following observations. Fourth, an actuarially fair premium leads to full insurance. Fifth, insurance is an inferior good and can be a Giffen good under decreasing absolute risk aversion (DARA). An increase in the interest rate leads to a lower insurance demand and a higher saving when the relative risk aversion is less than unity. Lastly, an increase in concavity of the utility function leads to an increase in insurance demand and a decrease in saving. In conjunction, our findings point to the fact that the standard results are not obtainable if insurance demand is considered in isolation from the capital market.     

Why are the unemployed in worse health? The causal effect of unemployment on health

We analyse the effect of unemployment on health using information from the German Socio-Economic Panel of the years 1991-2008. To establish a causal effect we rely on fixed-effects methods and plant closures as exogenous entries into unemployment. Although unemployment is negatively correlated with health, we do not find a negative effect of unemployment due to plant closure on health across several health measures (health satisfaction, mental health, and hospital visits). For this subgroup of the unemployed, unemployment does not seem to be harmful and selection effects of ill individuals into unemployment are likely to contribute to the observed overall correlation between poor health and unemployment.     

Labor Regulations and European Venture Capital

European nations substitute between employment protection regulations and labor market expenditures (e.g., unemployment insurance benefits) for providing worker insurance. Employment regulations more directly tax firms making frequent labor adjustments than other labor market insurance mechanisms. Venture capital (VC) investors are especially sensitive to these labor adjustment costs. Nations favoring labor market expenditures as the mechanism for providing worker insurance developed stronger VC markets over 1990–2008, especially in high‐volatility sectors. In this context, policy mechanisms are more important than the overall level of worker insurance.     

Habits,Complementarities and Heterogeneity in Alcohol and Tobacco Demand: A Multivariate Dynamic Model*

In this paper we test the existence of forward‐looking behaviour in a multivariate model for alcohol and tobacco consumption. The theoretical framework, based on a dynamic adjustment cost model with forward‐looking behaviour, is enhanced to include the intertemporal interactions between the two goods. The analysis of the within‐period preferences completes the intertemporal model, allowing to evaluate the static substitutability/complementarity relationships. The empirical strategy consists in a two‐step estimation procedure. In a first stage, we obtain the parameters of the demand system, while in a second stage Euler equations are estimated. Results, based on a cohort data set constructed from a series of cross‐sections of the Italian Household Budget Survey, reveal a significant complementarity relationship between alcohol and tobacco. Estimation of the Euler equations does not lead to rejection of the hypothesis of intertemporal dependence, providing evidence for a forward‐looking behaviour in alcohol and tobacco consumption. Moreover, we find significant intertemporal interactions that support the adjustment cost setting in a multivariate model with rational expectations.     

Estimation of collective household models with Engel curves

The structural consumer demand methods used to estimate the parameters of collective household models are typically either very restrictive and easy to implement or very general and difficult to estimate. In this paper, we provide a middle ground. We adapt the very general framework of [Browning, M., Chiappori, P.A., Lewbel, A., 2004. Estimating Consumption Economies of Scale, Adult Equivalence Scales, and Household Bargaining Power, Boston College Working Papers in Economics 588] by adding a simple restriction that recasts the empirical model from a highly nonlinear demand system with price variation to a slightly nonlinear Engel curve system. Our restriction has an interpretation in terms of the behaviour of household scale economies and is testable. Our method identifies the levels of (not just changes in) household resource shares, and a variant of equivalence scales called indifference scales. We apply our methodology to Canadian expenditure data.     

Market power among physicians in the U.S., 1983–1991

The growth of health care costs and expenditures recently led to suggestions for innovations that would affect demand for health care. However, supply side issues were largely ignored in the debate despite the fact that the American Medical Association has controlled entry since it was granted that power by legislators early in this century. We consider the supply side of the market for physicians' services over 1983–1991. Our estimated index of market power indicates nontrivial power among physicians. This suggests that conventional policy tools could reduce costs in this market. This, in turn, could effectively lower insurance premiums.     

An alternative approach to estimating demand: Neural network regression with conditional volatility for high frequency air passenger arrivals

In this paper we provide an alternative approach to analyze the demand for international tourism in the Balearic Islands, Spain, by using a neural network model that incorporates time-varying conditional volatility. We consider daily air passenger arrivals to Palma de Mallorca, Ibiza and Mahon, which are located in the islands of Mallorca, Ibiza and Menorca, respectively, as a proxy for international tourism demand for the Balearic Islands. Spain is a world leader in terms of total international tourist arrivals and receipts, and Mallorca is one of the most popular destinations in Spain. For tourism management and marketing, it is essential to forecast high frequency international tourist demand accurately. As it is important to provide sensible international tourism demand forecast intervals, it is also necessary to model their variances accurately. Moreover, time-varying variances provide useful information regarding the risks associated with variations in international tourist arrivals.     

The utilization of diagnostic tests among the elderly: Evidence from Malaysia

Diagnostic test plays a major role in reducing the prevalence of non-communicable diseases (NCDs). The present study examines the relationships between the utilization of diagnostic tests and socioeconomic, insurance, lifestyle, and health factors among the elderly in Malaysia. Analyses based on the National Health and Morbidity Survey 2011 (NHMS 2011) suggest that high income and having private insurance are associated with a higher likelihood of utilizing diagnostic tests. However, low education levels, being employed and smoking are associated with a lower propensity to utilize. These results provide public health administrators with useful information on policy development. In particular, the proposed policies include providing the poor with nominal price of basic diagnostic tests, introducing various health education programmes to the public, creating health awareness campaigns to encourage elders who do not own private insurance to utilize diagnostic tests, as well as making basic diagnostic tests compulsory for all elders owning government insurance.     

The role of asset testing in public health insurance reform

Starting slowly with the 1996 Welfare Reform Act and culminating in the 2010 Affordable Care Act, means-tested public health insurance eligibility expanded to include adults in low-income families regardless of their asset holdings. This paper quantifies the effects of these eligibility expansions within the context of the 2010 Affordable Care Act. I construct a dynamic stochastic general equilibrium model with indivisible labor supply expanded to include an endogenous household choice of health insurance coverage and calibrate it to U.S. data. I establish that changes in the distribution of labor and welfare associated with removal of asset testing are driven by exit of high productivity and high wealth households from the labor market. I then expand my analysis to the 2010 Affordable Care Act to demonstrate that removal of asset testing is critical to the obtained results even when combined with other provisions of the Act. Finally, I find that a simple asset test for eligibility of health insurance transfers undoes the distortion to the household labor supply decision among high productivity types. These results are robust to the introduction of employer premium contributions, an independent health insurance market, and idiosyncratic shocks to eligibility for employment-based health insurance.     

Is insurance normal or inferior? -A regret theoretical approach-

This study considers how changes in wealth affect insurance demand when individuals suffer disutility from regret. Anticipated regret stems from a comparison between the ex-post maximum and actual wealth. We consider a situation wherein individuals maximize their expected utility incorporating anticipated regret. The wealth effect on insurance demand can be classified into the risk and the regret effects. These effects are determined by the properties of the utility function and the regret function. We show that insurance can be normal when individuals place weight on anticipated regret, even though the utility function exhibit decreasing absolute risk aversion. This result indicates that regret theory is a possible explanation to the wealth effect puzzle, in which insurance is normal from empirical observation, but it should be inferior by theoretical prediction under expected utility theory.     

Fiscal cost of demographic transition in Japan

This paper quantifies the fiscal cost of demographic transition that Japan is projected to experience over the next several decades, in a life-cycle model with endogenous saving, consumption, and labor supply in both intensive and extensive margins. Retirement waves of baby-boom generations, combined with a rise in longevity and low fertility rates, raise the old-age dependency ratio to 85% by 2050, the highest among major developed countries, and generate a significant budget imbalance, as the government faces rising costs of public pension and health and long-term care insurance. Preserving the current level of the transfers will require a major increase in taxation. Using consumption taxes to balance the government budget, the tax rate reaches the maximal value of 48% in late 2070s. A pension reform to reduce benefits by 20% results in a peak tax rate of 37%, which can be reduced further to 28% if the retirement age is also gradually raised by 5 years.     

Consumption and labor supply

We present a new econometric model of aggregate demand and labor supply for the United States. We also analyze the allocation full wealth among time periods for households distinguished by a variety of demographic characteristics. The model is estimated using micro-level data from the Consumer Expenditure Surveys supplemented with price information obtained from the Consumer Price Index. An important feature of our approach is that aggregate demands and labor supply can be represented in closed form while accounting for the substantial heterogeneity in behavior that is found in household-level data. As a result, we are able to explain the patterns of aggregate demand and labor supply in the data despite using a parametrically parsimonious specification.     

Testing and imposing Slutsky symmetry in nonparametric demand systems

Maximization of utility implies that consumer demand systems have a Slutsky matrix which is everywhere symmetric. However, previous non- and semi-parametric approaches to the estimation of consumer demand systems do not give estimators that are restricted to satisfy this condition, nor do they offer powerful tests of this restriction. We use nonparametric modeling to test and impose Slutsky symmetry in a system of expenditure share equations over prices and expenditure. In this context, Slutsky symmetry is a set of nonlinear cross-equation restrictions on levels and derivatives of consumer demand equations. The key insight is that due to the differing convergence rates of levels and derivatives and due to the fact that the symmetry restrictions are linear in derivatives, both the test and the symmetry restricted estimator behave asymptotically as if these restrictions were (locally) linear. We establish large and finite sample properties of our methods, and show that our test has advantages over the only other comparable test. All methods we propose are implemented with Canadian micro-data. We find that our nonparametric analysis yields statistically significantly and qualitatively different results from traditional parametric estimators and tests.