health insurance and the welfare of health care consumers abstract we show that given the close linkage between the health insurance and the health care industries as well as other special characteristics of conventional health insurance the introduction of conventional health insurance will reduce consumers welfare if the supply of health care is sufficiently price inelastic

submarkets and the evolution of market structure we construct a model of industry evolution in which the central force for change is the creation and destruction of submarkets firms expand when they are able to exploit new opportunities that arrive in the form of submarkets they contract and ultimately exit when the submarkets in which they operate are destroyed this simple framework can transparently explain a wide range of well known regularities about industry dynamics most notably the subtle relationships between size age growth and survival data on the laser industry where submarkets are prominent further illustrate the ability of the model to explain distinctive patterns in the evolution of industries and firms

comparing the welfare effects of public and private health care subsidies in the united kingdom we use a calibrated analytical model to compare the welfare costs gross of externalities of increasing subsidies for public and private health care in the uk the model incorporates wait costs for rationed public care burdens that subsidies impose on the tax system and distributional weights for different households welfare costs are significantly higher for expanding public health care over a range of parameter scenarios both policies reduce average wait times but for public health care this is offset by new waiting costs incurred on extra treatments and the burden on the tax system is much larger for expanding public health care

employee cost sharing and the welfare effects of flexible spending accounts flexible spending accounts fsas subsidize out of pocket health expenses not covered by employerprovided health insurance making health care cheaper ex post but also reducing the incentive to insure we use a cross section of firm level data to show that fsas are indeed associated with reduced insurance coverage and to evaluate the welfare consequences of this shift correcting for selection effects we find that fsas are associated with insurance contracts that have coinsurance rates about 7 percentage points higher relative to a sample average coinsurance rate of 17 meanwhile coinsurance rates net of the subsidy are approximately unchanged providing evidence that fsas are only welfare neutral if we ignore distributional considerations and the deadweight loss of the taxes necessary to finance the subsidy these results also suggest that fsas may explain a significant fraction of the shift in health care costs to employees that has occurred in recent years

the mispricing of u s treasury bonds a case study this article documents an apparent pricing anomaly involving 94 percent 30 year treasury bonds during the months of may and june 1986 during this period the price of the 94s rose sharply relative to the prices of other long term treasury bonds and created a potential arbitrage opportunity in addition owners of the 94 bonds were able to borrow at a zero interest rate bypledging their bonds detailed examination reveals that this relative pricing anomaly cannot be attributed to changes in the level or term structure of interest rates or to differences between the bonds with respect to liquidity taxation or duration

an analysis of the variation in billing charges of medical providers causes and implications the purpose of this paper is to review the billing methodology of physicians that participate in fee for service plans and using a data set of billing charges determine the significance of the variation in fees by providers of certain kind of procedures providers use cost plus pricing and take into account the medical aspects of the services and market forces using the current procedural terminologies cpt established by the american medical association the providers define the medical services by the six digit cpt code and bill accordingly the statistical evidence shows that there is some evidence that fees of providers who bill under the medicine codes tend to exhibit more variation in charges than other procedures

a theory of market pioneers dynamic capabilities and industry evolution we analyze a model of industry evolution where the number of active submarkets is endogenously determined by pioneering innovation from incumbents and entrants incumbent pioneers enjoy an advantage of additional pioneering innovation via a dynamic capability that takes the form of an improved technology for innovation in young submarkets entrants are motivated in part by a desire to acquire the dynamic capability we show that dynamic capabilities increase total innovation but whether the capability confers an advantage in terms of marginal or average cost is important in determining how the impact of dynamic capabilities is distributed across incumbent and entrant innovation rates we complement the existing literature that focuses on exogenous arrival of submarkets or the steady state of a model with constant submarkets by describing how competition free entry and the dynamic capability of incumbents drive the evolution of an industry the shift from immature to mature submarkets can lead to a shakeout in firm numbers and it eventually leads to a reduction in total dynamic capabilities in an industry this paper was accepted by bruno cassiman business strategy

ageing the great challenge to health care reform abstract this contribution is an attempt to analyze an issue that seems to be frequently skirted over when discussing reforms of today s health care systems practitioners of health insurance point out the fact that a major share of medical care services goes to the uppermost age brackets who are believed to be unresponsive to the financial incentives such as cost sharing and bonuses for no claims that are being considered as innovations in the financing of health care at the same time rapid growth in the numbers of the old and very old is predicted for virtually all oecd countries acting in combination these two factors appear to undercut the rationale of conventional cost containment strategies in health care a closer look at the matter even reveals that a major part of lifetime health resources are spent during the last few months of human life economists are therefore challenged to explain a puzzle why is it that such a great deal of resources is dedicated to investments that will in all likelihood be characterized by a very short payoff period in an attempt at answering this question the decision situations facing the dying patient and his family treating physicians and politicians acting as agents of the population at large will be examined in turn of course no easy way out can be expected to result from this exercise nevertheless economic analysis can be counted upon to provide at least cues concerning the incentives that have to be built into future insurance contracts physician payment schemes and modes of hospital finance for dealing with the challenge to the health care system posed by a rapidly ageing population

the role of income and health risk in the choice of health insurance evidence from australia abstract health insurance choice is investigated using individual data from australia where all people faced a common limited set of possible health insurance policies the data cover two separate regimes one in which insurance choice was for a more generous level of coverage and one in which the choice was a more dramatic one between insurance and no insurance coverage in determining health insurance choice the results indicate a major role for income a major role for premium notably in the first regime and a minor role for observed factors related to health risk aside from age and sex

firm size and the nature of innovation within industries the case of process and product r d the effect of firm size on the allocation of r d effort between process and product innovation is examined it is hypothesized that relative to product innovations process innovations are less saleable in disembodied form and spawn less growth this implies that the returns to process r d will depend more on the firm s output at the time it conducts its r d than the returns to product r d incorporating this distinction in a simple model the authors derive and test predictions about how the fraction of r d devoted to process innovation varies with firm size within industries

who receives medical care income implicit prices and the distribution of medical services among pregnant women in the united states the distribution of medical services among pregnant married women in the united states in 1980 is very unequal this distribution is examined to assess the predominant effect of tax transfer and insurance schemes on the implicit prices of medical services facing women differing by socioeconomic status healthiness and race estimates of the determinants of the probability of receiving four major prenatal medical services are obtained controlling both for socioeconomic status and for initial health status as inferred from estimates of health technology determining birthweight results reject the hypotheses that medical services are provided only on the basis of medical need or are allocated in a market in which the implicit price of care is invariant to husband s income the combined effect of taxes and transfers is found to reduce the implicit price paid for these four medical services by rich compared to poor married women in the united states and thus to encourage their use by higher income and education groups

hospital profits the effects of reimbursement policies this paper provides a theoretical and empirical analysis of the effect of cost based reimbursement cbr on hospital costs and charges it takes issue with previous analyses which have treated cbr as paying economic costs plus a mark up and have concluded that the mark up is too small to significantly distort hospital decision making the basic thesis here is that if reimbursement is based on costs accounting costs become a price to cost paying patients and will be optimized to maximize revenue a hospital serving both cost and charge paying private patients can set two price schedules accounting profits ratio of charges to costs are not a measure of economic profit but of relative prices to these two groups of patients in the absence of constraints from regulation or patient co payment the optimum level of accounting costs would be infinite in practice the medicare reimbursement formula links allowable costs to charges received from charge paying patients this formula creates incentives for the hospital to raise charges above the single price profit maximizing monopoly level this inflationary effect of the medicare formula does not presuppose that medicare pays less than full cost the empirical analysis of hospital laboratory costs and charges generally supports the predictions for other departments the conclusions are consistent but more tentative because of data limitations overall evidence suggests minimal cross subsidy between cost and charge paying patients comparisons of cost and charge levels in for profit voluntary non profit and government hospitals are presented but it is emphasized that inferences about relative efficiency and profitability cannot be drawn from accounting data given the incentives created by cbr

equilibrium in competitive insurance markets with ex ante adverse selection and ex post moral hazard abstract existence of pure strategy equilibria is studied in health insurance markets that exhibit both ex ante adverse selection of the rothschild stiglitz wilson type and ex post hidden information moral hazard it is found that ex post moral hazard has two offsetting effects on the existence of equilibrium and that in general it is difficult to say whether an equilibrium is more or less likely to exist numerical simulations and an analytical example confirm that moral hazard may increase the likelihood of equilibrium these results are interpreted as evidence that health maintenance organization hmo markets could be less likely to exhibit stable equilibria than are fee for service insurance markets

effects of the tax treatment of fringe benefits on labor market segmentation current federal tax law requires that all workers having the same experience with a firm must receive essentially the same package of fringe benefits in order for those benefits to qualify for preferential tax treatment the authors argue that this nondiscriminatory provision of fringe benefits promotes labor market segmentation by inducing workers to sort themselves across the economy according to their demand for fringe benefits several empirical tests using 1968 78 data confirm the existence of sorting and suggest that labor market segmentation increased over time as workers responded to changes in incomes and marginal tax rates

price elasticity and adverse selection in the demand for supplementary health insurance probit regression estimates show the effects of the price of insurance anticipated medical expenditures and other factors on reported decisions about purchasing hypothetically offered supplementary insurance policies the demand estimates can characterize how much supplemental insurance would be purchased under different tax policies affecting health insurance purchases although eliminating the current tax subsidy to insurance is shown to decrease demand the results indicate a substantial demand for supplementary insurance even in the absence of present tax incentives however our results on adverse selection raise concerns about the potential stability of supplemental insurance markets

the wealth effects of premium subsidies on moral hazard in insurance markets abstract insurance premium subsidies are present in many insurance markets the swiss government for example paid out chf 4 26 billion or 0 72 of the swiss gdp for health insurance premium subsidies in 2011 analyses of premium subsidies have often highlighted that the increased insurance demand due to premium subsidies increases the effects of moral hazard in the market other consequences of premium subsidies however have mostly been neglected by the literature we show in our theoretical model that the wealth effects of premium subsidies decrease the sensitivity of the insured towards the monetary consequences of losses this leads to less prevention efforts by the insured and thus increases moral hazard in the market the effect is preserved if the subsidy is financed through proportional taxation using two alternative models we show that providing state dependent subsidies can either increase or reverse this effect depending on which state subsidies are paid we argue that whether demand effects or wealth effects of premium subsidies will dominate the insured s behavior depends on the market structure

submarket dynamics and innovation the case of the us tire industry beginning in 1922 the rate of exit of us tire producers increased sharply and the industry began a severe and protracted shakeout just 5 years earlier the tire industry experienced a surge in entry that led to a rise of over 80 in the number of producers we propose an explanation for this episode based on the idea of industry submarkets which we incorporate in a model of shakeouts we test this theory and alternative explanations for the surge in entry and exit and the shakeout using a novel data set on patenting in tires and production in the early 1920s of the cord tire a key innovation we feature in our theory our analysis suggests that the development of a new submarket can open up opportunities for entry but also stimulate innovation and in the process reinforce the advantages of the leading incumbents accentuating the shakeout of producers copyright 2010 the author 2010 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

heterogeneous preferences and new innovation cycles in mature industries the amateur camera industry 1955 1974 this paper examines the amateur camera industry between 1955 and 1974 the case raises important issues for our understanding of the product lifecycle first an industry can experience more than one round of radical product and process innovation in its history second there is not a strict sequence of product innovation followed by process innovation third the existence of a dominant design depends on there being a relatively homogeneous set of consumers heterogeneous consumer preferences support different camera designs in two distinct market niches in the amateur camera industry fourth new rounds of entry and exit and new industry shake outs can occur with new innovative entrants displacing old firms fifth when the new firms are from developing countries a shift in global production occurs the success of new japanese entrants in this period lay in their being more successful innovators not in their exploiting wage cost advantages

firm survival and the evolution of oligopoly after their commercial introduction the number of producers of autos tires televisions and penicillin initially grew and then experienced a sharp decline or shakeout guided by an evolutionary model of entry and exit firm survival patterns in the four products are examined to determine whether there were common forces governing their distinctive evolution predictions concerning the effects of pre and post entry experience and the timing of entry on firm survival are tested the findings are used to reflect on why industries experience shakeouts and evolve to be oligopolies

health care expenditure and integration in the countries of the european union national health care differs between the member states of the european union in the quality and quantity demanded and supplied reflecting different economic structures and health care organization and delivery systems since health care expenditure depends primarily on the level of economic development and the structure of the population only convergence in economic performance and the standards of living can lead to convergence of health expenditure standards

on industry life cycles delay entry and shakeout in beer brewing abstract this paper proposes a new explanation for industry shakeout an event evident in the life cycle of many industries in which the number of firms drops significantly in a short interval of time based on an in depth analysis of the shakeout in the united states beer brewing industry between 1880 and 1890 we propose that industry shakeouts naturally follow periods of mass entry by firms similar patterns are evident in two other industries we briefly examine the us automobile and tire industries while entry rates fluctuate broadly in all these industries we find that the timing of exit for a given cohort of entrants is remarkably similar over time the exit hazard rate is peaked in the first two years of every cohort s life and drops dramatically to low and stable levels for subsequent ages in this sense mass exit follows mass entry and does not require a deep explanation it is the mass entry evident in the data for these industries that requires an explanation we propose a theoretical model of information accumulation to explain entry into an industry entrepreneurs are uncertain about the profitability of the industry and this uncertainty is resolved through sufficient accumulation of information regarding the fortunes of incumbent firms delay in entry occurs solely due to the fact that it takes time to accumulate sufficient information to support more entry the resulting entry pattern from simulations of the model looks much like that observed in the industries we study

the moderating role of submarket dynamics on the product customization firm survival relationship in this paper we examine how the provision of product customization services affects firm survival integrating literatures on industry evolution product related adapting services and entry deterrence we hypothesize that the relationship between product customization the costly modification of a product to cater to customer needs and firm survival differs across industries based on the extent of submarkets we argue that in industries that feature submarkets more prominently the positive association between product customization and firm survival is stronger for two conceptually distinct and empirically distinguishable mechanisms customizing firms enter new submarkets and also deter potential entry we conclude that offering product customization services has strategic benefits that sometimes outweigh the cost of coordinating with customers

worker sorting compensating differentials and health insurance evidence from displaced workers this article introduces an empirical strategy to the compensating differentials literature that i allows both individual observed and unobserved characteristics to be rewarded differently in firms based on health insurance provision and ii selection to jobs that provide benefits to operate on both sides of the labor market estimates of this model are used to directly test empirical assumptions that are made with popular econometric strategies in the health economics literature our estimates reject the assumptions underlying numerous cross sectional and longitudinal estimators we find that the provision of health insurance has influenced wage inequality finally our results suggest there have been substantial changes in how displaced workers sort to firms that offer health insurance benefits over the past two decades we discuss the implications of our findings for the compensating differentials literature

premium subsidies for health insurance excessive coverage vs adverse selection the tax subsidy for employment related health insurance can lead to excessive coverage and excessive spending on medical care yet the potential also exists for adverse selection to result in the opposite problem insufficient coverage and underconsumption of medical care this paper uses the model of rothschild and stiglitz r s to show that a simple linear premium subsidy can correct market failure due to adverse selection the optimal linear subsidy balances welfare losses from excessive coverage against welfare gains from reduced adverse selection indeed a capped premium subsidy may mitigate adverse selection without creating incentives for excessive coverage

medical care costs how much welfare loss hardly a week goes by without a front page newspaper article on rising health care costs and the uninsured in this article i focus mainly on costs arguing that the issue has been somewhat misconceived while the level of medical care spending in the u s is a cause for concern the welfare losses associated with rises in that level of spending may not be as large as the public rhetoric can make them seem in fact cost containment may not be as urgent as is widely supposed and some proposed cost containment policies may result in welfare losses for the insured and even increase the number of uninsured

preventive care underused even when free is there something else at work explaining the rationale of preventive care underuse is a difficult task considering its great benefits for health underuse is even more difficult to explain in countries like italy where preventive care can be obtained for free in this article we investigate the determinants of prevention underuse with an empirical model based on human capital theory which also includes three factors to which little attention has been paid so far role played by the general practitioner gp nonmonetary barriers to access and health beliefs we apply a recursive probit model explaining both recourse to prevention and to the gp which allows us to adequately measure the effect of the latter on the former and to quantitatively compare the determinants of curative and preventive care we find that the gp plays a minor role in prevention use but that nonmonetary barriers to access and health beliefs are strong determinants of preventive care demand finally we also find support for both grossman s capital depreciation the

tax policy toward health insurance and the demand for medical services abstract researchers have argued that the tax subsidy to employer provided health insurance has led to overinsurance excess demand for medical care and to rapid expenditure growth in the medical care sector this paper determines the quantitative significance of this linkage using existing estimates of the elasticities of demand for health insurance and medical services in a static microsimulation model we find that incorrect assumptions about the elasticities of demand and pattern of health insurance coverage led earlier researchers to overestimate the likely impact of the elimination of the tax expenditures for health insurance we estimate using mid range assumptions that complete elimination of the favorable tax treatment of employer contributions to health insurance would reduce the demand for employer sponsored health insurance by 16 27 percent and the overall demand for medical services by about 4 6 percent and not more than 10 percent

the uncertain foundations of the welfare state abstract the welfare state is often portrayed as provider of insurance against uncertainties in knight s 1921 sense of the term which would be refused or underinsured on private markets this image conflicts with the standard economic model of risk exchange founded on the subjective interpretation of probability which predicts that all individual uncertainties will be insured by private markets our aim in this paper is to explain why this prediction fails and building on contributions to decision theory that take seriously the idea of knightian uncertainty to show why social insurance may be justified

a theory of the welfare state the welfare state can be seen as an insurance device that makes lifetime careers safer increases risk taking and suffers from moral hazard effects adopting this view the paper studies the trade off between average income and inequality evaluating redistributive equilibria from an allocative point of view it studies the problem of optimal redistributive taxation with tax induced risk taking and shows that constant returns to risk taking are likely to imply a paradox where more redistribution results in more post tax inequality in general optimal taxation will either imply that the redistribution paradox is present or that the economy operates at a point of its efficiency frontier where more inequality implies a lower average income redistribution welfare state

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

voting on income tax exemptions most itemized tax exemptions lead to significant deductions for a minority of the population only this raises the question why the majority does not vote for the abolition of these tax privileges in exchange for lower tax rates in this paper we show that a reform proposal may be voted down even when the majority uses the exemption at stake below the average turning to an empirical application we simulate the voting outcome on the proposal to abolish the tax deductibility of commuting expenses in germany our model predicts that this proposal would be rejected even though a comfortable majority has below average deductions

the welfare effects of restricted hospital choice in the us medical care market summary managed care health insurers in the usa restrict their enrollees choice of hospitals to within specific networks this paper considers the implications of these restrictions a three step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer the results indicate that consumers place a positive and significant weight on their expected utility from the hospital network when choosing plans a welfare analysis assuming fixed prices implies that restricting consumers choice of hospitals leads to a loss to society of approximately 1 billion per year across the 43 us markets considered this figure may be outweighed by the price reductions generated by the restriction copyright 2006 john wiley sons ltd

adverse selection moral hazard and wealth effects in the medigap insurance market using data from a longitudinal study of the recently retired we attempt to separate the moral hazard effect of medicare supplementary medigap insurance on health care expenditures from the adverse selection effect of poor health on medigap coverage we find evidence of adverse selection but its magnitude is unlikely to create serious efficiency problems taking adverse selection into account reduces the estimate of the moral hazard effect in addition we find a strong positive wealth effect on the demand for supplementary insurance

the demand for preventive medical care the idea that people invest in health capital is an essential part of models of the demand for health but the investment motives behind health decision are often obscured by other factors this empirical paper investigates the demand for adult preventive medical care where the investment motives are relatively clear cut several important results demonstrate the usefulness of the approach first the analysis finds that annual use of two preventive services decreases with age although not the only plausible explanation the results are consistent with individuals shortens over the lifecycle second schooling is found to be an important determinant of demand with the more educated much more likely to use the services neither lifecycle nor schooling effects are consistently found in studies of the demand for culture care finally the empirical analysis also provides additional evidence on the responsiveness of the demand for preventive care to change in insurance coverage an important issue for heal

optimal non linear health insurance abstract most theoretical and empirical work on efficient health insurance has been based on models with linear insurance schedules a constant co insurance parameter in this paper dynamic optimization techniques are used to analyse the properties of optimal non linear insurance schedules in a model similar to one originally considered by spence and zeckhauser american economic review 1971 61 380 387 and reminiscent of those that have been used in the literature on optimal income taxation the results of a preliminary numerical example suggest that the welfare losses from the implicit subsidy to employer financed health insurance under us tax law may be a good deal smaller than previously estimated using linear models

economic efficiency and mixed public private insurance abstract in this paper we discuss the efficiency properties of insurance markets where supplementary private insurance is allowed to exist together with a compulsory government insurance plan our main conclusion which is contrary to both those of besley 1989 and selden 1993 is that in a simple model focusing on the moral hazard problem alone a mixed system will generally be strictly less efficient than a purely private competitive system we also show that selden s 1993 main proposition is valid only in very special circumstances which reduces the significance of his result on the welfare properties of systems of mixed government private insurance

public policy and health insurance choices of the elderly evidence from the medicare buy in program this study provides evidence on health insurance decisions of senior citizens nearly all senior citizens have health insurance coverage through medicare but poor seniors may also qualify for medicaid that fills many gaps in medicare coverage since 1987 the medicaid program has expanded eligibility using the sipp i find that medicaid eligibility increased from 8 7 in 1987 to 12 4 in 1995 for every 100 elderly who became eligible approximately 50 took up medicaid but more than 30 dropped private coverage resulting in crowd out of 60 crowd out came from individuals dropping privately purchased health insurance rather than dropping employer provided retiree health insurance the roles of asset tests health status and the panel structure of the sipp are also explored i find that a major strength of the sipp is in its point in time asset information for determining medicaid eligibility while the changing income and demographic information over the course of the 2 year panel adds little insight beyond cross sectional data 2000 elsevier science s a all rights reserved

the design of an optimal insurance policy almost every phase of economic behavior is affected by uncertainty the economic system has adapted to uncertainty by developing methods that facilitate the reallocation of risk among individuals and firms the most apparent and familiar form for shifting risks is the ordinary insurance policy previous insurance decision analyses can be divided into those in which the insurance policy was exogenously specified see john gould jan mossin and vernon smith and those in which it was not see karl borch 1960 and kenneth arrow 1971 1973 in this paper the pioneering work of borch and arrow the derivation of the optimal insurance contract form from the model is synthesized and extended

publicly provided disaster insurance for health and the control of moral hazard abstract this paper looks at the moral hazard due to health insurance offering a subsidy to the consumption of health care at the margin we show how the institution of publicly provided disaster insurance yields a welfare improvement this result is obtained since public insurance encourages insured individuals to reduce the amount of private insurance that they buy and hence diminishes the moral hazard problem

efficiency in employment based health insurance the potential for supra marginal cost pricing currently the majority if privately insured individuals in the u s are insured through their employers this has significant implications for competition and the ability qf a competitive insurance industry to assure marginal cost pricing the central barrier to competition arises when employers restrict their employees ability to select among insurance carriers several models 4 insurer proft maximization are explored which demonstrate that supra marginal cost pricing is likely to persist euen when the insurance market appears cornpetitiue

the demand for episodes of treatment in the health insurance experiment abstract this paper analyzes claims data from the rand health insurance experiment which were grouped into episodes of treatment the insurance plans in the experiment have coinsurance and a cap on out of pocket spending using new statistical techniques to adjust for the increased sickliness of those who exceed the cap the effects of coinsurance on cost per episode and number of episodes are estimated cost sharing reduced the number of episodes but had little effect on cost per episode people in the experiment responded myopically as their current insurance status changed through the year the price elasticity of spending was about 0 2 throughout the range of coinsurance studied when data permit it the study of episodes complements analyses of annual medical spending by revealing more about how decisions to spend are made within the year

labor market effects of employer provided health insurance i introduction increasing health insurance coverage is arguably an important policy goal the congressional budget office 2003 estimates that in 1998 20 30 million americans had no health insurance for the entire year approximately 40 million were uninsured at a specific point in time in the year and nearly 60 million were without coverage some time during the year most individuals who have health insurance in the united states obtain it through their employer in 1999 65 8 of nonelderly americans had employer provided insurance also called group insurance or employer sponsored insurance either through their own employer or through the employer of another household member see gruber 2001 employer provided insurance plans generally have lower premiums and offer more benefits than individual insurance plans health insurance providers can offer cheaper and better plans to company employees for at least two reasons first the average administrative cost of such plans is lower than individual plans second employment based plans are typically subject to less adverse selection than individual plans particularly so for large employers furthermore the tax subsidy afforded employment based health insurance renders the effective consumer price substantially lower than the cost see pauly 1986 and gruber 2001 together these various factors give a strong incentive for employers to offer and employees to accept coverage as part of their employment contract as employer provided insurance is by far the most prevalent form of coverage in the private sector policy makers look for further expansion of this base as a way to insure the uninsured while avoiding direct public financing as a way to increase employer based health insurance coverage some states either have or are considering government mandates that require employers to provide insurance to certain types of workers 1 the state of hawaii requires private sector employers to offer health insurance to all workers who work for more than 20 h a week and requires these workers to have insurance the state of california is currently considering a similar mandate there is a considerable interest from policy makers on the effects of such mandates on labor market outcomes in this study we report on an experiment that was designed to provide some insights about possible effects of alternative health insurance regulations on the competitive labor market with a particular focus on mandates since we only considered a competitive market setting with complete contracts and no wage rigidities our results may not be directly applicable to all labor market situations 2 however the study provides useful insights about the interaction of health insurance benefit provision wages and employment structure for labor markets where the competitive wage setting and the complete contracts assumptions are reasonable with these limitations in mind our results can be also generalized to other types of employer provided fringe benefits such as paid vacations or pension plans as any government intervention health insurance regulation may affect the labor market theory predicts that in perfectly competitive labor markets health insurance creates no distortionary effects on the labor market equilibrium as long as the coverage is not mandated and there are no wage rigidities 3 all workers who value insurance above its cost of provision are offered insurance and accept it the wages are adjusted downward see rosen 1986 and gruber 2000 summers 1989 used a simple supply and demand analysis to show that the effect of increases in premiums on equilibrium labor hours and wage depends both on the elasticity of labor demand and labor supply and on how fully workers value changes in the cost of health insurance if the demand or the supply of labor is completely inelastic or if workers fully value the insurance then an increase in the premium would result in an equal decrease shift in wages

time consistent health insurance currently available health insurance contracts often fail to insure long term illnesses sick people can suffer large increases in premiums or denial of coverage i describe insurance contracts that solve this problem their key feature is a severance payment a person who is diagnosed with a long term illness and whose premiums are increased receives a lump sum equal to the increased present value of premiums this lump sum allows him or her to pay the higher premiums required by any insurer people are not tied to a particular insurer or a group and the improvement is free insurance companies can operate at zero economic profits and consumers can pay exactly the same premium they do with standard contracts

the regional impact of health care expenditure the case of italy decentralization invests the subcentral authorities of a country with autonomy in political and economic power the exercise of which may widen interregional divergence and inequality this paper provides evidence demonstrating that in the case of italy the central government s policies for rationalization and containment of the growth of health care expenditure in combination with decentralization in the administration and provision of health care have resulted in interregional inequality aggravating the existing regional divergence

the making of an oligopoly firm survival and technological change in the evolution of the u s tire industry the number of producers in the u s tire industry grew for 25 years and then declined sharply and the industry evolved to be an oligopoly the role of technological change in shaping the industry s market structure is explored a model of industry evolution featuring technological change is used to derive predictions that are tested using a novel data set on firm entry exit size location distribution networks and technological choices prior to the shakeout of producers consistent with the model earlier entering and larger firms survived longer principally because of the influence of age and size on technological change

how elastic is the firm s demand for health insurance abstract we investigate the impact of tax subsidies on the firm s decision to offer insurance and on conditional firm spending on insurance we do so using the micro data underlying the employment cost index which has a major advantage for this exercise the matching of very high quality compensation data with information on a sample of workers in the firm we find that overall there is a moderately sized elasticity of insurance offering with respect to after tax prices 0 25 and a larger elasticity of insurance spending 0 7 we also find that the elasticities are driven primarily by small firms for whom the elasticity is larger and we find that there is significant value added to this employer based data replicating methods from standard micro data sources in our data lead to misleading estimates of these key parameters our simulation results suggest that major tax reform could lead to an enormous reduction in employer provided health insurance spending

income tax deductions for losses as insurance the federal income tax allows deductions for some categories of personal losses notably for casualty losses such as destruction of one s home or car and medical expenses above a threshold the latter even with lower marginal rates and further restrictions brought about by the 1986 tax reform involves more than a 3 billion annual revenue loss office of management and budget 1990 1 deductions like these act as partial insurance individuals receive a tax benefit equal to their marginal rate multiplied by the magnitude of their loss however this form of insurance is unnecessary when private insurance is available moreover as will be emphasized here these deductions have a perverse effect because they are allowed only for the uninsured portion of losses this induces individuals to be less protected against risk in the aggregate than if the implicit insurance provided by the tax system were unavailable if the tax rate is sufficiently high individuals would forgo insurance coverage altogether 2 it will be demonstrated that a tax system with no deductions for personal losses pareto dominates the current system these conclusions are demonstrated in section i using a simple model in which risk averse individuals may purchase actuarially fair insurance against loss and individual behavior does not affect the risk of loss no moral hazard section ii considers the applicability of the results when one allows for moral hazard administrative costs and other imperfections it also discusses the applicability of traditional notions of tax equity

stability in the federal employees health benefits program recently the federal employees health benefits program has been the subject of much discussion in washington as a result of the rather large premium increases in 1982 and 1983 the delayed open season of 1981 and the benefit reductions enrollees responded in may 1982 to the changes a record number switched plans it appears that enrollees were simply responding to the new premiums and benefits in this paper we describe the economic incentives faced by enrollees in the fehbp we find that due to the strong incentives for enrollees to leave certain high cost plans continued instability should be expected in fact the disparity between expected benefits and premium is so great for some plans e g the blue cross high option that their survival is questionable this lack of stability raises important questions about the viability of some pro competition proposals involving multiple insurer systems

technology growth and expenditure growth in health care in the united states health care technology has contributed to rising survival rates yet health care spending relative to gdp has also grown more rapidly than in any other country we develop a model of patient demand and supplier behavior to explain these parallel trends in technology growth and cost growth we show that health care productivity depends on the heterogeneity of treatment effects across patients the shape of the health production function and the cost structure of procedures such as mris with high fixed costs and low marginal costs the model implies a typology of medical technology productivity i highly cost effective home run innovations with little chance of overuse such as anti retroviral therapy for hiv ii treatments highly effective for some but not for all e g stents and iii gray area treatments with uncertain clinical value such as icu days among chronically ill patients not surprisingly countries adopting category i and effective category ii treatments gain the greatest health improvements while countries adopting ineffective category ii and category iii treatments experience the most rapid cost growth ultimately economic and political resistance in the u s to ever rising tax rates will slow cost growth with uncertain effects on technology growth

latent submarket dynamics and industry evolution lessons from the us laser industry in its first 35 years the us laser industry was characterized by steady growth in output and the number of producers whereas subsequently the number of producers steadily declined despite continued growth in the industry s output a model of industry evolution that features the creation destruction and fusing of independent submarkets is developed to explain these two eras data on all laser producers are used to test various implications of the model concerning entry exit and innovation the findings suggest that the emergence of an integrative submarket can fundamentally alter an industry s market structure and the character of innovation which is applied to explain historical developments in the evolution of various innovative industries

the effects of rate regulation on demand for supplemental health insurance many developed countries have a market for private health insurance that supplements publicly funded universal coverage government regulation of the supplemental market including the extent to which insurers are permitted to adjust premiums based on individual characteristics such as age sex and health status varies across countries oecd 2004 proponents of rate regulation argue that the resulting crosssubsidization from low to high risks is necessary to maintain the affordability of coverage for high risks economic theory however raises the concern that the inability to adjust premiums to reflect individual risk could create adverse selection by driving low risks from the market michael rothschild and joseph stiglitz 1976 little empirical evidence exists to determine the optimal role of rate regulation in private supplemental insurance markets existing studies of the consequences of rating restrictions focus on markets for primary health insurance and find that these laws have had surprisingly little effect on overall rates of coverage simon 2004 in this paper we study the effects of rate regulation in supplemental health insurance markets by examining the market for individually purchased coverage that supplements medicare among the elderly in the united states while the publicly financed medicare program provides nearly universal coverage of a standard set of benefits for those 65 and over beneficiaries are exposed to significant financial risk due to the cost sharing associated with covered services and a lack of coverage for some important services the vast majority of medicare beneficiaries obtain supplemental coverage through a complex system of publicly and privately funded sources state medicaid programs provide publicly financed supplemental coverage for low income and disabled beneficiaries and employers provide highly subsidized retiree supplemental health insurance for other beneficiaries but the remainder rely on highly regulated private insurance markets medicare s part c managed care plans are a voluntary private replacement for traditional medicare while medigap coverage is a private policy bought by about 30 percent of medicare beneficiaries that provides only supplemental benefits franklin j eppig and george s chulis 1997 our study examines the effects of regulations limiting the information on individual characteristics insurers can use in setting premiums for medigap coverage

a reexamination of the value of tax options this article reexamines the value of tax trading when the tax rate on long term realizations is less than that on short term realizations in particular the value of the option to realize long term capital gains and repurchase stock in order to increase one s tax basis and restart the option to realizefuture losses short term is examined empirically our estimate of the incremental value of restarting which is based on the results of simulations of several alternative tax trading policies over a large number of independent return sequences is generally much smaller than that reported by constantinides 1984 the incremental value of restarting is shown to depend critically on the particular pattern of realized returns and the assumed tax treatment of unrealized capital gains at the end of the simulation period the effects of stockprice volatility transaction costs portfolio offset rules and realization cutoff levels on the value of tax trading are also investigated

the income tax and nonwage compensation d ramatic changes in the division of labor compensation between wage and nonwage payments have occurred since world war ii voluntary employer contributions to private pension and welfare funds have risen from 1 2 of wage and salary compensation in 1947 to 8 3 in 1979 with half the increase taking place since 1969 see table 1 major changes in the composition of the fringe benefit package have also taken place during this period employer contributions to group health insurance plans have risen from 24 of total fringe benefits in 1947 to 40 o in 1979 if this growth continues group health insurance will replace pension and profit sharing plans as the largest fringe benefit expenditure by employers these trends in the compensation mix have long been noted by researchers and various factors have been offered as explanations including the favorable tax treatment of fringe benefits demographic changes such as increased life expectancy and unionization rice 1966 ture 1976 mabry 1973 freeman 1978 however most explanations have not been subjected to rigorous empirical testing and the few results that have been published are both questionable and dated for example rice 1966 estimated that changes in the tax rate structure had little influence on the relative increase in fringe benefits from world war ii to 1963 more recent studies schiller and weiss 1979 1980 have examined a specific fringe benefit the private pension plan for its impact on turnover and its role as an equalizing difference but these studies have not analyzed the determinants of the compensation mix this paper discusses the theoretical determinants of the division of labor compensation between fringe benefits and cash income and empirically estimates their importance it concentrates on the impact of taxation on the compensation mix for several reasons first the assumption that rising tax rates encourage individuals to substitute fringe benefits for cash income underlies estimates of the welfare cost of tax preferences browning 1979 second proposals to fully tax employee fringe benefits under a comprehensive9 income tax have surfaced in recent years nolan 1977 clotfelter 1979 finally current federal tax policy is calling for large tax rate reductions to increase supply incentives unlike the determinants of the compensation mix that change slowly over time such as life expectancy tax rate changes can occur rapidly through legislative action reducing tax rates might enlarge the tax base by increasing the fraction of labor income received as taxable cash wages and salaries section ii outlines the tax treatment of various forms of labor compensation and in section iii other factors thought to influence the choice between wage and nonwage compensation are discussed empirical analyses of the compensation mix are presented in section iv a brief summary and implications of the major findings for the future growth of fringe benefits follow in section v

tax policy and the demand for health insurance estimates of the price and income elasticities of demand for health insurance are derived from econometric estimates of the parameters of a discrete choice model of health insurance demand using data from a survey of plan choices among a sample of federal government employees the estimated income elasticity 0 01 is similar to most previous estimates the estimated price elasticity 0 16 is in absolute value much less than the earlier previous estimates and somewhat less than the more recent previous estimates possible causes of these differences in price elasticity estimates are discussed

designing optimal crop revenue insurance when the indemnity schedule is contingent on the farmer s price and individual yield an optimal crop revenue insurance contract depends only on the farmer s gross revenue however this design is not efficient if as is the case with available contracts the coverage function is based on imperfect estimators of individual yield and or price the producer s degree of prudence and the extent of basis risks have important influences on the optimal indemnity schedule in this broader context optimal protection is not provided by available u s crop insurance contracts and may include combinations of revenue insurance yield insurance futures and options contracts

public health insurance and medical treatment the equalizing impact of the medicaid expansions abstract we investigate the impact of expanding public health insurance on the medical treatment received by women at childbirth using vital statistics data on every birth in the us over the 1987 1992 period the effects of insurance status on treatment are identified using the tremendous variation in eligibility for public insurance coverage under the medicaid program over this period among low education mothers who were largely uninsured before being made eligible for medicaid eligibility for this program was associated with significant increases in the use of a variety of obstetric procedures among women with more education however there is a countervailing effect on procedure use most of these women had private insurance before becoming medicaid eligible and some may have been crowded out onto the public program moving from insurance which reimburses medical care more generously to insurance with much less generous reimbursement this movement was accompanied by reductions in procedure use thus on net the medicaid expansions had an equalizing effect increasing the treatment intensity of the previously uninsured while lowering it among the previously insured

health insurance the tradeoff between risk pooling and moral hazard choosing optimal health insurance coverage involves a trade off between the gain from risk reduction and the deadweight loss from moral hazard this paper examines this trade off empirically by estimating both the demand for health insurance and the demand for health services it relies on data from a randomized controlled trial of cost sharing s effects on the use of health services and on the health status for a general non elderly population

implications of incomplete performance for optimal insurance we investigate the demand for insurance when contracts are subject with positive probability to two distinct types of incomplete performance when partial performance means payment of some fraction of the indemnity under full performance the latter exhibits a disappearing deductible when partial performance is due to insufficient financial capacity optimal insurance contracts for any given level of financial capacity offer full marginal coverage above a deductible for either type of non performance the optimal deductible under full performance is positive when insurance is offered at an actuarially fair price

private insurance subsidies and public health care markets evidence from canada in this study i examine the effects of government subsidies to employer provided health insurance on the decision to purchase insurance and on utilization of publicly funded health services using unique variation in tax subsidies across canadian provinces as an instrument i estimate the effects of these subsidies on the demand for supplemental health insurance and their extended effects on the decision to use publicly funded health services my results show that government subsidies through tax exemptions have significant effects on the decision to purchase insurance furthermore additional insurance policies lead to moral hazard in the use of publicly funded health services jel classification h2 h4 11

the life cycle of a competitive industry firm numbers first rise then later fall as an industry evolves this nonmonotonicity is explained using a competitive model in which innovation opportunities fuel entry and relative failure to innovate prompts exit equilibrium time paths for price and quantity also share features of the data the model is estimated using data from the u s automobile tire industry a particularly dramatic example of the nonmonotonicity in firm numbers

income risk aversion and the demand for insurance the expected utility hypothesis predicts that when the price of insurance is actuarially fair to the consumer a risk averse consumer will choose to fully insure against a potential loss the only role that income can play in affecting the amount of insurance demanded at the actuarially fair price is to affect the size of the potential loss this result is independent of the consumer s degree of risk aversion or how it varies with income however at a price of insurance above or below the actuarially fair level the consumer s degree of risk aversion and its relation to the consumer s income level must be considered if we are to usefully describe consumer behavior mossin 10 showed for a consumer with declining absolute risk aversion and at a price of insurance above the actuarially fair level but below the price at which no insurance will be purchased the optimal amount of insurance demanded against a loss of a given size is inversely related to the consumer s income chesney and louberge 2 noted that mossin s result does not take into account the empirically plausible situation in which higher income consumers may have greater potential losses to insure against they present results concerning the relationship between risk aversion and the level and composition of income in terms of the proportion of income subject to loss and the maximum premium the consumer would be willing to pay for full insurance coverage since their results are in terms of the maximum willingness to pay for full insurance

arbitrage pricing transaction costs and taxation of capital gains abstract this paper examines one of the few cases of seemingly redundant securities sets of three government bonds with the same maturity date within the bounds on relative bond prices established by tax exempt investors in a market with proportional transaction costs the taxation of capital gains on the basis of realization has a significant impact on relative prices the empirical evidence supports the tax option effect discussed by constantinides and ingersoll but does not generally support the segmented tax clientele equilibrium discussed by schaefer

utilitarianism and horizontal equity the case for random taxation this paper establishes that far from being able to derive the principle of horizontal equity from utilitarianism the principle is actually in consistent with utilitarianism in a variety of circumstances we derive conditions under which a it is optimal to impose random tax schedules ex post randomization and b it is optimal to randomize the tax schedules imposed on a set of otherwise identical individuals ex ante randomization the implications for optimal tax theory are discussed more generally it is shown that there are a number of potentially important economic situations with which the principle of horizontal equity may be inconsistent not only with utilitarianism but even with pareto optimality this abstract was borrowed from another version of this item

alternative systems of health care provision health care timothy besley and miguel gouveia rising costs of health care provision throughout the world have provoked a vigorous debate about the design of health care systems and the role of government in health care in countries that have predominantly social provision there are moves towards privatization and direct attempts to regulate prices in more market oriented systems rising costs seem to be resulting in a greater uninsured problem and this too is provoking demands for reform technological change will put constant pressure on health care systems public or private generating serious social choice problems however this must be seen in the context of a traditional commitment to providing a non trivial minimum level of health care to all members of society we discuss evidence from oecd countries from 1960 to 1990 then focus on more recent changes the central problems of market oriented systems are cost containment and the fact that significant segments of the population go uninsured most oecd countries have therefore chosen solutions where health care financing is socialized we present a simple political economy model to describe the conditions under which this will arise the hallmark of public provision is relative uniformity in access to health care this creates incentives for individuals to opt out of the public sector and to supplement what they can obtain through the state in addition it creates a significant commitment to redistribution through public provision rising costs strain the generosity of taxpayers we expect to see increased reliance on market solutions and moves towards multi tiered health systems that differentiate health care provisions made for different groups in society

the economics of medicare equilibrium within the medical community this paper partially fills a theoretical void by developing an integrated model of the various branches of the medical community a consistent and general framework is adopted to analyze equilibrium within the market for medical services under a stylized form of socialized medicine without invoking demand shifting the optimization problem faced by each agent is specified and the equilibrium is defined the effect of various parameter changes on the market for medical services is analyzed the predictions are not contradicted by the stylized facts

substitution between wage and nonwage benefits you gotta be kidding ollie you re just robbing yourself schuylkill mutual offers a terrific deal on keogh and we could plug you in in fact we advise plugging you in on the corporate end so not a nickel comes out of your personal pocket it comes out of the corporate pocket and there s that much less for uncle to tax these poor saps carrying their own premiums with no company input are living in the dark ages there s nothing shady about rigging it this way we re just using the laws the government has put there they want people to take advantage it all works to up the gross national product you know what i mean by keogh don t you you re looking kind of blank john updike p 296