What states are doing to control health insurance costs

Like other employers, state governments are struggling with continued health care cost increases. A 50-state survey reveals that these large public employers are actively attempting to control the cost of their plans while ensuring quality and a commitment to their employees' overall good health.     

Deposit insurance and the stock market: evidence from Denmark

Previous studies of the relationship between deposit insurance and bank market values have usually been limited to consideration of minor changes in bank regulations, but the 1987 initiation of deposit insurance in Denmark permits examination of a potentially major policy shift. It is found that the market values of large Danish banks exhibited a modest positive reaction to the announcement of insurance, but that small risky banks responded negatively. These results partially contrast with those previously found for the USA, an outcome that seems likely to reflect the interaction of deposit insurance with the particular characteristics of the pre-existing Danish regulatory system.     

Impact of interest rates on the life insurance market development: Cross-country evidence

Studies have found that interest rates create incentives for insurance firms to focus on financial markets through investments. Using a cross-country context, we conjecture that interest rates affect the life insurance market’s development. Using an initial sample comprising the time series of interest rates and insurance markets’ measures from 34 countries across 1998–2017, we found that the density and penetration of the life insurance market is low in countries with high interest rates. Using another sample of 6,451 observations from insurance firms operating in the same 34 countries, we verified that the financial and operational incomes are equally significant in predicting the net income for life insurance companies that operate in countries with high interest rates. Our study contributes to observations that the lack of governmental control over public expenses impacts interest rates and, thereby, the opportunities for insurers.     

Asymmetric information in health insurance: evidence from the National Medical Expenditure Survey.

Adverse selection is perceived to be a major source of market failure in insurance markets. There is little empirical evidence on the extent of the problem. We estimate a structural model of health insurance and health care choices using data on single individuals from the NMES. A robust prediction of adverse-selection models is that riskier types buy more coverage and, on average, end up using more care. We test for unobservables linking health insurance status and health care consumption. We find no evidence of informational asymmetries.     

Contracting with limited commitment: evidence from employment-based health insurance contracts

Impediments to worker mobility serve to mitigate the attrition of healthy individuals from employer-sponsored insurance pools, thereby creating a de facto commitment mechanism that allows for more complete insurance of health risks than would be possible in the absence of such frictions. Using data on health insurance contracts obtained from the 1987 National Medical Expenditure Survey, we find that the quantity of insurance provided is positively related to the degree of worker commitment. These results illustrate the importance of commitment in the design of long-term contracts, and provide an additional rationale for the bundling of health insurance with employment.     

Innovation, public choice and public control in the market for health insurance.

Innovation, public choice and public control in the market for health insurance/benefits in the United States are largely dependent upon the ability of the various stakeholders to successfully argue their positions with legislators, regulators, providers, purchasers and third party beneficiaries. Given the public/private nature of health benefits, these relationships are examined in a Stigler/Posner/Peltzman public choice framework. Conflicts among various stakeholders and their ability to influence innovation in the market for health benefits are discussed.     

Switching costs and adverse selection in the market for credit cards: New evidence

To explain persistence of credit card interest rates at relatively high levels, Calem and Mester (AER, 1995) argued that informational barriers create switching costs for high-balance customers. As evidence, using data from the 1989 Survey of Consumer Finances, they showed that these households were more likely to be rejected when applying for new credit. In this paper, we revisit the question using the 1998 and 2001 SCF. Further, we use new information on card interest rates to test for pricing effects consistent with information-based switching costs. We find that informational barriers to competition persist, although their role may have declined.     

Pricing mortgage insurance contracts under housing price cycles with jump risk: evidence from the U.K. housing market

Previous studies have investigated the determinants of housing price cycles in the housing market; however, we observed the phenomenon of housing price jumps in the 2007 subprime crisis. This paper presents a discussion on the housing price cycle and abnormal price jumps to describe the behavior of housing prices in the United Kingdom. The empirical results show that the impact factors of housing cycles are market risk and the switching factor. Furthermore, the impact factors of jump risks include the bursting of the housing bubble and financial crises. Therefore, in this paper, we employ the Markov switching model with jump risks to value the MI contracts and analyze the influences of housing price cycles, jump risks, risks of market interest rate, and the prepayment risks on MI premiums. The results of sensitivity analysis show that more volatile housing price index returns, as well as longer periods of higher volatility in housing prices, raise MI premiums. Moreover, the MI premium is positively related to the absolute value of the average jump amplitude and the shock frequency of abnormal events. There is the tradeoff between the market interest rate and the prepayment risk. The influences of market interest rate are different on MI premium with/without prepayment risks.     

The peer effect in adverse selection: Evidence from the micro health insurance market in Pakistan

The peer effect may amplify adverse selection in social networks, hampering the sustainable operation of microinsurance. This paper uses data from a micro health insurance program in Pakistan to test for the peer effect in renewal decisions and the role it plays in amplifying adverse selection within social networks. The paper finds evidence supporting that insurance renewal decisions are similar among peers in the same network, and the peer effect is stronger among households of the same risk type than households of different risk types, indicating that the heterogeneous peer effect acts as an amplifier for adverse selection. The paper provides policy implications for effective ways to mitigate the peer effect and adverse selection, based on the results of heterogeneity analyses. The policy recommendation is to enforce a minimum group enrollment rate requirement of at least 60% for large groups to mitigate the peer effect.     

Global equity offerings and access to domestic loan market: U.S. evidence

This study examines whether and to what extend global equity offerings at the IPO stage may affect issuing firms' ability to borrow in the domestic debt market. Tracking bank loans taken by U.S. IPO firms in the domestic syndicated loan market, we observe that global equity offering firms experience more favorable loan price than that offered to their domestic counterparts. This finding holds for a set of robustness tests of endogeneity issues. We also find that, compared with their domestic counterparts, global equity offering firms are less likely to have financial distress, engage more in international diversification, and are more likely to wait a longer time to apply for syndicated loans.     

Stock market reactions to domestic sentiment: Panel CS-ARDL evidence

This study sets out to explore the effects of business and consumer sentiment on stock market performance, within the separate contexts of advanced and emerging markets. The empirical analysis is carried out using the cross-sectionally augmented autoregressive distributed lag (CS-ARDL) modeling approach, which considers time dynamics, cross-sectional heterogeneity, and cross-sectional dependence. The findings for developed markets suggest that business sentiment has positive leading effects on stock returns, across short- and long-term time horizons, while for emerging markets, the price impact of business sentiment turns out to be short-lived. On the other hand, consumer sentiment tends to affect positively both market types, albeit only in the short run. Furthermore, the influence of sentiment indicators seems to be stronger in emerging- than in developed-market countries. The results remain robust, even after controlling for a rich range of potential predictors of stock returns. Generally, such evidence highlights the relevance of psychological factors, such as business and consumer sentiment, in determining the future trajectory of asset prices.     

How companies tackle health care costs: Part III.

As corporations look for ways to cut the rising costs of health care, they direct most of their efforts at modifying the demand for services. Some have attempted to effect changes in the health care system as a whole, and a smaller number have instituted programs to attack the problem at its source by improving the health of their employees. This article explores and evaluates existing corporate health promotion activities and concludes that such programs should form the third part of a three-pronged attack on health care costs.     

How companies tackle health care costs: Part I.

From the experience of a cross-section of Fortune "500" companies and top nonindustrials, these authors develop a profile of the newer types of health plans and benefits designed to cut health care costs. After examining the various plans, their funding, and their results, however, the authors conclude that another form of health insurance, more like other kinds of insurance policies that cover only catastrophic events, is the most promising from all points of view. In a second article, Regina Herzlinger will examine corporate efforts to reshape the system of supplying health care.     

How companies tackle health care costs: Part II.

In this continuing examination of responses to the growing costs of health care, based on a survey of more than 200 large companies, the author discusses the results of employers' efforts to trim these expenses. Most companies have chosen to meet the cost-cutting challenge by changing demand--that is, by redesigning their health insurance policies--and by changing the suppliers of health care services. After a critical analysis of these mechanisms, the author concludes that most of these strategies do little more than shift the costs from one payer to the next. To affect the total cost of the system, she maintains the business sector must use its power to bring about changes in the reimbursement of providers and in the underlying structure of the health care system.     

Labor market reform and price stability: An application to the Euro Area

Central bankers frequently suggest that labor market reform may be beneficial for inflation management. This paper investigates this topic by simulating the effects of reductions in firing costs and unemployment benefits on inflation volatility in the Euro Area, using an estimated New Keynesian model with search and matching frictions. Qualitatively, changes in labor market policies alter the volatility of inflation in response to shocks, by affecting the volatility of the three components of real marginal costs (hiring costs, firing costs and wage costs). Quantitatively, we find, however, that neither policy is likely to have an important effect on inflation volatility, due to the small contribution of hiring and firing costs to inflation dynamics.     

Disclosure responses to mining accidents: South African evidence

Mining activities generate significant social concerns in terms of employee safety and stakeholder scrutiny has increased considerably in recent years. Social and environmental accounting research is largely dedicated to environmental issues and the study of other components of social accounting is limited. This study examines safety disclosures in the annual reports, sustainability reports, and reactive corporate press releases of South African mining organisations following two major mining accidents occurring at Harmony Gold and Gold Fields’ mines. Results show that organisations react to perceived legitimacy threats through increased safety disclosures. The entire mining industry evidences an increase in disclosure levels after the incidents, suggesting that organisations do respond to increased stakeholder scrutiny threatening their legitimacy. Furthermore, our results provide evidence of an association between safety disclosure levels and firm size, social performance, risk, and number of fatalities, while the media attention devoted to mining accidents appears to be unrelated to safety disclosure levels. It is possible that stakeholder pressure, which motivates corporate social disclosures according to legitimacy and stakeholder theories, consists of various factors, which combined form the motivation to report. Media attention, therefore, cannot be considered in isolation as a driver of disclosure. Rather, a combination of variables such as size, social responsibility performance, number of fatalities, risk, and media attention could serve as a proxy for social pressure.