This contribution aims to expand insurability using partial linear information (LPI) on probabilities of the type, $ {r}_{1}\ge {r}_{3} $ (with $ {r}_{1}+{r}_{2}+{r}_{3}+\dots {r}_{n} = {1} $). LPI ...theory permits to exploit such weak information for systematic decision-making provided the decision-maker is willing to apply the maxEmin criterion in a game against Nature. The maxEmin rule is a natural generalization of expected profit (probabilities are known) and the maximin rule (probabilities are unknown). LPI theory is used to find out whether a crypto assets portfolio offered to an insurance company is insurable. In an example, an unfavorable future development of losses causes maximum expected loss to exceed the present value of premiums, rendering the portfolio uninsurable according to maxEmin. However, this changes when LPI concerning this development is available, while the integration of uncertain returns from investing the extra premium fails to achieve insurability in this example. Evidently, LPI theory enables insurers to accept risks that otherwise are deemed uninsurable.
The 'red herring' hypothesis (RHH) claims that apart from income and medical technology, proximity to death rather than age constitutes the main determinant of healthcare expenditure (HCE). This ...paper seeks to underpin the RHH with some theory to derive new predictions also for a rationed setting, and to test them against published empirical evidence. One set comprising ten predictions uses women's longer life expectancy as an indicator of the difference in time to death in their favor. Out of 28 testing opportunities drawn from the published evidence, in the case of no rationing seven out of eleven result in full and two in partial confirmation; in the case of rationing, twelve out of 17 result in full and one in partial confirmation. The other set, containing 35 testing opportunities, concerns the age profile of HCE. In the case of no rationing, seven out of twelve result in full and four in partial confirmation; in the case of rationing, eleven out of 23 in full and nine in partial confirmation. There are but ten contradictions in total. Overall, the new tests of the RHH can be said to receive a good deal of empirical support, both from countries and settings with and without rationing.
The objective of this paper is to pursue an intuitive idea: for a consumer who represents an “unfavorable” health risk but an “excellent risk” as a driver, a multi-peril policy could be associated ...with a reduced selection effort on the part of the insurer. If this intuition should be confirmed, it will serve to address the decade-long concern with risk selection both in the economic literature and on the part of policy makers. As an illustrative example, a two-peril model is developed in which consumers deploy effort in search of a policy offering them maximum coverage at the current market price while insurers deploy effort designed to stave off unfavorable risks. Two types of Nash equilibria are compared: one in which the insurer is confronted with high-risk and low-risk types, and another one where both types are a “better risk” with regard to a second peril. The difference in the insurer’s selection effort directed at high-risk and low-risk types is indeed shown to be lower in the latter case, resulting in a mitigation of adverse selection.
For several years now, information technology (IT) has been hailed as an innovation that will revolutionize medicine and health care more generally. Yet adoption of new IT in the healthcare sector ...has been slow, possibly reflecting a lack of interest. In economic terms, the incentives of the major players in health care may work against new IT, which fosters process and organizational innovation much more than product innovation. While product innovation causes an increase in consumers’ willingness to pay and is therefore welcomed by those working in the healthcare sector, process innovation is resisted because it often means performing the same service but at a lower cost. This is also true of organizational innovation, which frequently entails vertical integration and hence a loss of autonomy (as evidenced by the difficulties of creating Managed Care Organizations). The objective of this paper therefore is to predict the circumstances in which (both current and potential) patients, physicians, hospitals, health insurers, and governments are likely to support innovation in health care through IT.
•This paper seeks to explain why the adoption of new IT in health care has been so sluggish.•It emphasizes the close relationship of IT to process and organizational innovation.•However, these two types are resisted by the major players in the healthcare sector.•Product innovation, which enhances patients’ willingness to pay, is welcomed by these players.•Three predictions regarding the incentives to adopt new IT are stated and tested.
Studies on the effect of ageing on health care expenditure (HCE) have revealed the importance of controlling for time-to-death (TTD). These studies, however, are subject to possible endogeneity if ...HCE influences the remaining life expectancy. This paper introduces a 10-year observation period on monthly HCE, socioeconomic characteristics and survivor status to first predict TTD and then use the predicted values as an instrument in the regression for HCE. While exogeneity of TTD has to be rejected, core results concerning the role of TTD rather than age as a determinant of HCE (the ‘red herring’ hypothesis) are confirmed.
This review argues that Edmund Phelps in fact undertook one journey, which led him to the theme of "flourishing," meaning that workers derive satisfaction from their job. He sees flourishing people ...rather than scientists and entrepreneurs as the ultimate source of innovation and hence economic growth, a topic that has occupied his mind from the beginning of his brilliant career. The book makes for fascinating reading-and in passing traces the new Macroeconomics pioneered by its author.
Long‐term care (LTC) is the largest insurable risk facing the elderly in most high‐income countries. Paradoxically, institutional responses to the need to insure ex ante (i.e. before the contingency ...occurs) the financial risks of needing LTC, either through social, private, or self insurance, exhibit limited development. In contrast, mechanisms to finance LTC ex post continue to develop, primarily those supported by the public sector (i.e. subsidies or tax deductions) and the family (i.e. intergenerational transfers). Both ex ante and ex post types of financing mechanisms are found to be subject to shortcomings which give rise to dilemmas for public policy. Governments confront these dilemmas in different ways, causing a great deal of heterogeneity in the financing and provision of LTC services across Europe.
LTC finance needs to be considered as part of an overall retirement strategy rather than as a simple extension of health insurance, even if one can separate the goals of consumption smoothing (i.e. retirement) from insurance (i.e. LTC).
A recent innovation is joint long-term care (LTC) insurance policies covering two related individuals. This contribution purports to find out whether they have the potential of mitigating relational ...moral hazard (RMH) effects. Intra-family moral hazard has been suspected of being responsible for the sluggish development of private LTC insurance. The parent, anticipating the informal care provided by a family member LTC, is tempted to buy less LTC coverage. The family member (or more generally, the partner of a senior person), knowing that the bequest is protected by LTC insurance, has less incentive to provide informal care. Since a joint LTC policy makes senior and partner decide simultaneously rather than sequentially, it may lead to a partial internalization of RMH effects by turning coverage purchased by the senior and informal care provided by the partner from strategic substitutes into strategic complements under certain conditions.
Background: With DRG payments, hospitals can game the system by 'upcoding' true patient's severity of illness. This paper takes into account that upcoding can be performed by the chief physician and ...hospital management, with the extent of the distortion depending on hospital's internal decision-making process. The internal decision making can be of the principal-agent type with the management as the principal and the chief physician as the agent, but the chief physicians may be able to engage in negotiations with management resulting in a bargaining solution. Results: In case of the principal-agent mechanism, the distortion due to upcoding is shown to accumulate, whereas in the bargaining case it is avoided at the level of the chief physician. Conclusion: In the presence of upcoding it may be appropriate for the sponsor to design a payment system that fosters bargaining to avoid additional distortions even if this requires extra funding.
This contribution has three objectives. First, it seeks to justify the use of the economic criterion, “Provision of health care in accordance with the preferences of current and potential patients” ...for guiding decisions concerning the adoption of costly innovation in health. Next, it proposes the measurement of these preferences in the guise of willingness to pay (WTP) values through Discrete Choice Experiments (DCEs). Third, it purports to examine two popular arguments against accepting lay persons´ preferences, viz. that they are unwilling or unable to express preferences with regard to health and health care, and that their preferences are unstable, depending on the current state of health. Both of these arguments are refuted by the findings of four DCEs designed to measure WTP for attributes of health insurance and of the treatment of diabetes, respectively Zweifel in J Regul Econ 29(3): 319–332, 2006; MacNeil Vrooman and Zweifel in Eur J Health Econ 12(1): 87–95, 2011; Sennhauser and Zweifel in: Jakovlijevic M (ed.), Health Economics and Policy Challenges in Global Emerging Markets. NOVA Publishers, Hauppauge NY, 2016.
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