Contributions published at Applied Microeconomics (Peter Zweifel)

This paper sheds light on some unexpected consequences of health insurance regulation that may pose a big challenge to insurers’ risk management. Because mandated uniform contributions to health insurance trigger risk selection efforts risk adjustment (RA) schemes become necessary. A good deal of research into the optimal RA formula has been performed (Ellis and Van de Ven [2000]). A recent proposal has been to add ”Hospitalization exceeding three days during the previous year” as an indicator of high risk (Beck et al. [2006]). Applying the new formula to an individual Swiss health insurer, its payments into the RA scheme are postdicted to explode, reaching up to 13 percent of premium income. Its mistake had been to successfully implement Managed Care, resulting in low rates of hospitalization. The predicted risk management response is to extend hospital stays beyond three days, contrary to stated policy objectives also of the United States.

When premiums are community-rated, risk adjustment (RA) serves to mitigate competitive insurers’ incentive to select favorable risks. However, unless fully prospective, it also undermines their incentives for efficiency. By capping its volume, one may try to counteract this tendency, exposing insurers to some financial risk. This in term runs counter the quest to refine the RA formula, which would increase RA volume. Specifically, the adjuster, ”Hospitalization or living in a nursing home during the previous year” will be added in Switzerland starting 2012. This paper investigates how to minimize the opportunity cost of capping RA in terms of increased incentives for risk selection.

Die Gesundheitsausgaben steigen seit langem zügig, und alle Versuche der Politik, dies zu dämpfen, erscheinen mehr oder weniger erfolglos. Der Gesundheitsökonom Peter Zweifel legt dar, wie die grundlegenden Kräfte bei der Entwicklung des Gesundheitssektors wirken, welche Rolle Bundes- und Kantonspolitiker spielen können und wie sich die Konflikte zwischen Bürgern und Politikern in jüngerer Zeit verschärft haben.

Many politicians blame physician dispensing (PD) to increase health care expenditure and to undermine independence of drug prescription and income leading to a suboptimal medication. Therefore, PD is not allowed in most OECD countries. In Switzerland, PD is allowed in some regions depending on the density of pharmacies. This enables to investigate the difference in prescribing behavior between physician which gain income from prescribing a specific drug and their colleagues which prescribe the drug but do not sell it. Because the considered drugs are bioequivalent we focus on the economic consequence of PD. We analyze the prescribing behavior of Swiss physicians using cross-sectional data between 2005 and 2007 for three important agents. The results support our hypothesis that dispensing physicians have a higher probability of prescribing the drug with the (most likely) higher margin compared to non-dispensing physicians. Further, generic drugs are prescribed more often to patients with higher cost-sharing while patients' cost-sharing is less influential with PD. High-income patients face a much higher probability to receive the brand-name drug due to their lower marginal utility of income. Today's administered reimbursement prices for generics seem to be high enough to gain physicians for prescribing generics because of their high margins.

In mixed health care systems a crucial condition for the success of Managed Care (MC) plans is to win over a su±cient number of general practitioners (GPs) acting as gatekeepers. This contribution reports on GPs' willingness-to-accept (WTA) or compensation asked, respectively, for changing from conventional fee-for-service to MC practice. Some 175 Swiss GPs participated in discrete choice experiments which permit to put a money value on their status quo bias. Regardless of whether effects coding or dummy coding is used to measure status quo bias, Swiss GPs require at least 16 percent of their current average income to give up fee-for-service in favor of MC practice.

Health Economics presents a systematic treatment of the economics of health behavior and health care delivery. Appropriate both for advanced undergraduate and graduate students of economics, this text provides the background required to understand current research,presenting theoretical models as well as empirical evidence and summarizing key results. Without neglecting ethical concerns, modern microeconomic theory is applied to formulate theoretical implications and predictions. Issues discussed include the economic valuation of life and health, moral hazard in health care utilization, supplier-induced demand, the search for remuneration systems with favorable incentives, risk selection in health insurance markets, and technological change in medicine.

This article seeks to assess whether physician payment reforms in the United States and Switzerland were likely to attain their objectives. We first introduce basic contract theory, with the organizing principle being the degree of information asymmetry between the patient and the health care provider. Depending on the degree of information asymmetry, different forms of payment induce “appropriate” behavior. These theoretical results are then pitted against the RBRVS of the United States to find that a number of its aspects are not optimal. We then turn to Switzerland’s Tarmed and find that it fails to conform with the prescriptions of economic contract theory as well. The article closes with a review of possible reforms that could do away with uniform fee schedules to improve the performance of the health care system.

In this paper, we address the issue of spurious correlation in the production of health in a systematic way. Spurious correlation entails the risk of linking health status to medical (and nonmedical) inputs when no links exist. This note first presents the bounds testing procedure as a method to detect and avoid spurious correlation. It then applies it to a recent contribution by Lichtenberg (2004), which relates longevity in the United States to pharmaceutical innovation and public health care expenditure. The results of the bounds testing procedure show longevity to be linearly related to these two factors. Therefore, the estimates reported by Lichtenberg (2004) cannot be said to be result of spurious correlation, to the contrary, they very likely reflect an effective relationship, at least for the United States.

Health economists have studied the determinants of the expected value of health status as a function of medical and nonmedical inputs, often finding small marginal effects of the former. This paper argues that both types of input have an additional benefit, viz. a reduced variability of health status. Using OECD health data for 24 countries between 1960 and 2004, medical and nonmedical inputs are found to reduce the variability of life expectancy. While the evidence supports the "flat-of-the-curve medicine" hypothesis with respect to the expected value of life expectancy and its variability, healthcare expenditure is comparatively effective in reducing variability.

Die Schweizer Lebensversicherer sehen sich in der Folge der demografischen Entwicklung, des tiefen Zinsniveaus und der Liberalisierung der Versicherungsmärkte mit neuen Herausforderungen konfrontiert. Stark von dieser Entwicklung betroffen, ist das Rentengeschäft. Aufgrund der steigenden Lebenserwartung und der tiefen nominalen Zinssätze sind in den letzten Jahre die Umwandlungssätze für neue Renten laufend gesunken, und bei den laufenden Renten mussten die Lebensversicherer zu Lasten der aktiven Versicherten regelmässig Nachreservierungen vornehmen, um den erwarteten Verpflichtungen gerecht zu werden. Es stellt sich die Frage, ob dies auch künftig ohne weiteres möglich sein wird, denn die Gerechtigkeit der Lastenverteilung zwischen den Generationen wird damit zunehmend strapaziert. Erschwerend kommt hinzu, dass auf dem Lebensversicherungsmarkt in der Folge des gestiegenen Wettbewerbdrucks die Marktnachfrage vermehrt den Preis für die Risikoübernahme bestimmt. Damit verlieren die auf Sicherheit basierenden Prämienkalkulationsprinzipien zunehmend an Bedeutung, während die sinkenden Margen auf die Rentabilität dieses Geschäftes drücken. Im vorliegenden Dissertationsprojekt wird die Möglichkeit untersucht, wie durch einen Paradigmawechsel in Richtung Risiko-Intermediation das Langleberisikos einer Lebensversicherung mit Vorteil an den Kapitalmarkt zediert werden kann. Besprochen werden insbesondere die Erfassung, die Bewertung und die Verbriefung des Langlebe- und Zinsrisikos aus dem Rentengeschäft einer Lebensversicherung.

Since the fall of the Soviet Union it has been necessary for Russia to form a coalition with at least one of the transit countries Belarus and Ukraine in order to be able to ship gas to western Europe. This paper models the gas transit game using a cooperative module to determine the bargaining power of the three countries. The bargaining power is dependent on the coalition that is achieved. In the non-cooperative module, the three countries involved decide whether or not to cooperate, with Russia using side payments to induce cooperation. On the basis of published demand and cost estimates, the predicted Nash equilibrium is the cooperative one resulting in the grand coalition. Predicted gas quantities correspond quite closely to actual 2004 and forecast 2010 and 2030 figures. The completion of the North Transgas pipeline will benefit Russia, to the detriment of the others, particularly Ukraine.

This contribution shows that for certain classes of insurance risks, pricing can be based on expected values under a probability measure P* amounting to quasi risk-neutral pricing. This probability measure is unique and optimal in the sense of minimizing the relative entropy with respect to the actuarial probability measure P, which is a common approach in the case of incomplete markets. After expounding the key elements of this theory, an application to a set of industrial property risks is developed, assuming that the severity of losses can be modeled by 'Swiss Re Exposure Curves', as discussed by Bernegger (1997). These curves belong to a parametric family of distribution functions commonly used by pricing actuaries. The quasi risk-neutral pricing approach not only yields risk exposure specific premiums but also Risk Adjusted Capital (RAC) values on the very same level of granularity. By way of contrast, the conventional determination of RAC is typically considered on a portfolio level only.

The annual Ottobeuren Seminar on Economics brings together experts on a previously chosen subject. The special purpose of these seminars is to present new theoretical approaches as well as new empirical findings and to discuss the political-economic conclusions with them. This volume contains the papers and discussions of the 38th Ottobeuren Seminar on Economics dealing with the subject of experimental economics. It presents several experiments, some of whose results clearly contradict the predictions of traditional economics and thus provide important incentives for a reformulation of the theoretical approaches.

Bei der Finanzierung der Spitäler soll die Einführung von Fallpauschalen Anreize für möglichst effizientes Arbeiten setzen. Die Autoren des folgenden Beitrags legen dar, dass die in der Praxis im Kanton Zürich gewählten Ansätze nicht unbedingt die Effizienten belohnen, weil die Spezialisierung bzw. der «Produktemix» der Spitäler vernachlässigt wird.

This study applies financial portfolio theory to determine efficient electricity-generating technology portfolios for the United States and Switzerland, adopting an investor point of view. Expected returns are defined by the rate of decrease of power generation cost (with external costs included), their volatility, by its standard deviation. The 2003 portfolio contains Coal, Nuclear, Gas, Oil, and Wind in the case of the United States, and Nuclear, Storage hydro, Run of river, and Solar in the case of Switzerland, a country without domestic supplies of fossil fuels. Since shocks in generation costs are found to be correlated, Seemingly Unrelated Regression Estimation (SURE) is used to filter out the systematic component of the covariance matrix of the cost changes. Results suggest that as of 2003, the feasible maximum expected return (MER) electricity portfolio for the United States contains more Coal, Nuclear, and Wind than actual but markedly less Gas and Oil. By way of contrast, the minimum variance (MV) portfolio combines markedly more Oil, Coal, Nuclear, and Wind but almost no Gas. Therefore, regardless of the choice between MER and MV, U.S. utilities as investors are substantially inside the efficient frontier. This is even more true of their Swiss counterparts, likely due to continuing regulation of electricity markets.