Commercial insurance companies' have the market incentives and the ability to take on a new role as controllers of rising health care costs. This Note will discuss the market for insurer-directed cost containment, the types of cost control alternatives that could be utilized and the legal restraints on insurer innovation. The analysis of the legal setting for insurer innovation in cost control ...

We analyze the impact of insurer competition on health care markets using a model of premium setting, hospital-insurer bargaining, household demand for insurance, and individual demand for hospitals. Increased insurer competition may lead to lower premiums; it may also increase health providers’ leverage to negotiate higher prices, thereby mitigating premium reductions. We use detailed Californ...

Past research studies have documented the failure of the Insurance Regulatory Information System (IRIS) to provide adequate warning of insurer financial distress or insolvency. As a result, scholars have examined alternative parametric and nonparametric models to predict insurer insolvency. This study uses a neural network, a non-parametric alternative to past techniques, and shows how this met...

This paper focuses on the optimal investment problem for an insurer and a reinsurer. The insurer’s and reinsurer’s surplus processes are both approximated by a Brownian motion with drift and the insurer can purchase proportional reinsurance from the reinsurer. In addition, both the insurer and the reinsurer are allowed to invest in a risk-free asset and a risky asset. We first study the optimiz...

This study identifies factors exogenous to individual insurers that are statistically related to the overall rate of life-health insurer insolvencies. This is a departure from the methodologies of prior studies, which have focused primarily on firm-specific characteristics in assessing insolvency risk. Empirical analysis is based on quarterly data from 1972 through 1994. Results indicate that l...

Reference pricing (RP) theories predict different outcomes when reference prices are fixed (exogenous) versus being a function of market prices (MPs) (endogenous). Exogenous RP results in MPs at both high-price and low-price firms converging towards the reference price from above and below, respectively. Endogenous RP results in MPs at both high-price and low-price firms decreasing, with low-pr...

Using prices of hospital admissions and visits to five types of physicians, we analyzed how provider and insurer market concentration-as measured by the Herfindahl-Hirschman Index (HHI)-interact and are correlated with prices. We found evidence that in the range of the Department of Justice's and Federal Trade Commission's definition of a moderately concentrated market (HHI of 1,500-2,500), ins...

The decision of a claimant to obtain legal counsel, the timing of this decision, and the impact on the settlement amount an insurer successfully can offer are the focus of this study. This paper draws on strategic models of litigation/settlement with endogenous settlement amounts in the law and economics literature, but differs by endogenizing the decision to hire an attorney and its timing. Th...

Guaranteed Annuity Options (GAOs) are options available to holders of certain pension policies. Under these contracts, policyholders contribute premiums into a fund managed by the insurer. At retirement, the policyholders buy life annuities at a guaranteed rate provided by the original insurer, or annuitize with another insurer. If the guaranteed annuity rates are better than the prevailing rat...