Advanced Search
MyIDEAS: Login to save this paper or follow this series

Analyzing the effects of insuring health risks: On the trade-off between short run insurance benefits vs. long run incentive costs

Contents:

Author Info

  • Cole, Harold L.
  • Kim, Soojin
  • Krueger, Dirk

Abstract

This paper constructs a dynamic model of health insurance to evaluate the short- and long run effects of policies that prevent firms from conditioning wages on health conditions of their workers, and that prevent health insurance companies from charging individuals with adverse health conditions higher insurance premia. Our study is motivated by recent US legislation that has tightened regulations on wage discrimination against workers with poorer health status (Americans with Disability Act of 2009, ADA, and ADA Amendments Act of 2008, ADAAA) and that will prohibit health insurance companies from charging different premiums for workers of different health status starting in 2014 (Patient Protection and Affordable Care Act, PPACA). In the model, a trade-off arises between the static gains from better insurance against poor health induced by these policies and their adverse dynamic incentive effects on household efforts to lead a healthy life. Using household panel data from the PSID we estimate and calibrate the model and then use it to evaluate the static and dynamic consequences of no-wage discrimination and no-prior conditions laws for the evolution of the cross-sectional health and consumption distribution of a cohort of households, as well as ex-ante lifetime utility of a typical member of this cohort. In our quantitative analysis we find that although a combination of both policies is effective in providing full consumption insurance period by period, it is suboptimal to introduce both policies jointly since such policy innovation induces a more rapid deterioration of the cohort health distribution over time. This is due to the fact that combination of both laws severely undermines the incentives to lead healthier lives. The resulting negative effects on health outcomes in society more than offset the static gains from better consumption insurance so that expected discounted lifetime utility is lower under both policies, relative to only implementing wage nondiscrimination legislation. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/71147/1/732527465.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2012/18.

as in new window
Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:zbw:cfswop:201218

Contact details of provider:
Postal: House of Finance, Grüneburgplatz 1, HPF H5, D-60323 Frankfurt am Main
Phone: +49 (0)69 798-30050
Fax: +49 (0)69 798-30077
Email:
Web page: http://www.ifk-cfs.de/
More information through EDIRC

Related research

Keywords: Health; Insurance; Incentive;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Svetlana Pashchenko & Ponpoje Porapakkarm, 2012. "Online Appendix to "Quantitative Analysis of Health Insurance Reform: Separating Regulation from Redistribution"," Technical Appendices, Review of Economic Dynamics 11-70, Review of Economic Dynamics.
  2. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 80(2), pages 223-55, March-Apr.
  3. Julien Hugonnier & Florian Pelgrin & Pascal St-Amour, 2009. "Health and (other) Asset Holdings," Swiss Finance Institute Research Paper Series, Swiss Finance Institute 09-18, Swiss Finance Institute.
  4. Juergen Jung & Chung Tran, 2011. "Market Inefficiency, Insurance Mandate and Welfare: U.S. Health Care Reform 2010," Working Papers, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales 201102, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
  5. Motohiro Yogo, 2008. "Portfolio Choice in Retirement: Health Risk and the Demand for Annuities, Housing, and Risky Assets," 2008 Meeting Papers 63, Society for Economic Dynamics.
  6. Hui He & Hao Zhang & Tim Halliday, 2010. "Health Investment over the Life-Cycle," 2010 Meeting Papers, Society for Economic Dynamics 1179, Society for Economic Dynamics.
  7. Edwards, Ryan D, 2008. "Health Risk and Portfolio Choice," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 26, pages 472-485.
  8. Tobias Laun, 2012. "Optimal Social Insurance with Endogenous Health," 2012 Meeting Papers, Society for Economic Dynamics 438, Society for Economic Dynamics.
  9. Iourii Manovskii & Bjoern Bruegemann, 2010. "Fragility: A Quantitative Analysis of the US Health Insurance System," 2010 Meeting Papers, Society for Economic Dynamics 787, Society for Economic Dynamics.
  10. Gary D. Hansen & Minchung Hsu & Junsang Lee, 2012. "Health Insurance Reform: The Impact of a Medicare Buy-In," NBER Working Papers 18529, National Bureau of Economic Research, Inc.
  11. Brigitte C. Madrian, 1993. "Employment-Based Health Insurance and Job Mobility: Is There Evidence ofJob-Lock?," NBER Working Papers 4476, National Bureau of Economic Research, Inc.
  12. Jay Bhattacharya & M. Kate Bundorf & Noemi Pace & Neeraj Sood, 2011. "Does Health Insurance Make You Fat?," NBER Chapters, in: Economic Aspects of Obesity, pages 35-64 National Bureau of Economic Research, Inc.
  13. Gregory J. Colman & Dhaval M. Dave, 2013. "Physical Activity and Health," NBER Working Papers 18858, National Bureau of Economic Research, Inc.
  14. Thomas DeLeire, 2001. "Changes in Wage Discrimination against People with Disabilities: 1984-93," Journal of Human Resources, University of Wisconsin Press, vol. 36(1), pages 144-158.
  15. Eric French & John Bailey Jones, 2004. "On the distribution and dynamics of health care costs," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(6), pages 705-721.
  16. Daron Acemoglu & Joshua Angrist, 1998. "Consequences of Employment Protection? The Case of the Americans with Disabilities Act," NBER Working Papers 6670, National Bureau of Economic Research, Inc.
  17. Serdar Ozkan, 2011. "Income Differences and Health Care Expenditures over the Life Cycle," 2011 Meeting Papers 478, Society for Economic Dynamics.
  18. John Cawley, 2004. "The Impact of Obesity on Wages," Journal of Human Resources, University of Wisconsin Press, vol. 39(2).
  19. Amanda E. Kowalski, 2012. "Estimating the Tradeoff Between Risk Protection and Moral Hazard with a Nonlinear Budget Set Model of Health Insurance," NBER Working Papers 18108, National Bureau of Economic Research, Inc.
  20. Juergen Jung & Chung Tran, 2009. "Health Care Financing over the Life Cycle, Universal Medical Vouchers and Welfare," Discussion Papers, School of Economics, The University of New South Wales 2009-12, School of Economics, The University of New South Wales.
  21. Laurence Ales & Roozbeh Hosseini & Larry E. Jones, 2012. "Is There “Too Much” Inequality in Health Spending Across Income Groups?," NBER Working Papers 17937, National Bureau of Economic Research, Inc.
  22. Karsten Jeske & Sagiri Kitao, 2007. "U.S. tax policy and health insurance demand: can a regressive policy improve welfare?," Working Paper, Federal Reserve Bank of Atlanta 2007-13, Federal Reserve Bank of Atlanta.
  23. Pashchenko, Svetlana & Porapakkarm, Ponpoje, 2012. "Quantitative analysis of health insurance reform: separating regulation from redistribution," MPRA Paper 41193, University Library of Munich, Germany.
  24. Matthew S. Dey & Christopher J. Flinn, 2005. "An Equilibrium Model of Health Insurance Provision and Wage Determination," Econometrica, Econometric Society, Econometric Society, vol. 73(2), pages 571-627, 03.
  25. Ponpoje Porapakkarm & Svetlana Pashchenko, 2011. "Quantitative Analysis of Health Insurance Reform: Separating Community Rating from Income Redistribution," 2011 Meeting Papers 1254, Society for Economic Dynamics.
  26. Ehrlich, Isaac & Chuma, Hiroyuki, 1990. "A Model of the Demand for Longevity and the Value of Life Extension," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(4), pages 761-82, August.
  27. Tatyana Koreshkova & Karen Kopecky, 2012. "The Joint Impact of Social Security and Medicaid on Incentives and Welfare," 2012 Meeting Papers, Society for Economic Dynamics 967, Society for Economic Dynamics.
Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Analyzing the Effects of Insuring Health Risks: On the Trade-off between Short Run Insurance Benefits vs. Long Run Incentive Costs
    by Christian Zimmermann in NEP-DGE blog on 2012-12-13 00:06:37
  2. Are long-run incentive going to ruin healthcare reform in the US?
    by Economic Logician in Economic Logic on 2012-12-31 15:24:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Laurence Ales & Roozbeh Hosseini & Larry Jones, . "Is There ``Too Much'''' Inequality in Health Spending Across Income Groups?," GSIA Working Papers, Carnegie Mellon University, Tepper School of Business 2014-E18, Carnegie Mellon University, Tepper School of Business.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:cfswop:201218. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.