Scott Harrington

• University of Pennsylvania

This article examines how the Affordable Care Act (ACA) would change financial resources for and transfers to the previously uninsured if they were to purchase coverage in the ACA insurance exchanges (marketplaces) in 2014. The results suggest that the law provides gains to some, relative to their spending in the pre‐ACA period, particularly those...

We provide estimates of changes in the annual expected price for insured medical care-defined as the sum of premiums and expected out-of-pocket payments-after the Affordable Care Act (ACA) among consumers who previously bought individual insurance. Using the best available data from the Current Population Survey (CPS) and the Medical Expenditure Pa...

Kenneth Arrow and Karl Borch published several important articles in the early 1960s that can be viewed as the beginning of modern economic analysis of insurance activity. This chapter reviews the main theoretical and empirical contributions in insurance economics since that time. The review begins with the role of utility, risk, and risk aversion...

This chapter considers the broader issues of whether insurance entities pose systemic risk and the challenges and potential adverse consequences of designating additional insurance entities for enhanced supervision by the Federal Reserve. It begins with an overview of research and analyses of whether insurance activities and entities pose systemic...

This chapter reviews the literature on underwriting cycles and volatility in property-casualty insurance prices and profits. It provides a conceptual framework for assessing unexplained and possibly cyclical variation. It summarizes time series evidence of whether underwriting results follow a second-order autoregressive process and illustrates the...

The minimum medical loss ratio (MLR) regulations in the Affordable Care Act guarantee that a specific percentage of health insurance premiums is spent on medical care and specified activities to improve health care quality. This paper analyzes the regulations' potential unintended consequences and incentive effects, including: higher medical costs...

The minimum medical loss ratio (MLR) regulations in the Affordable Care Act guarantee that a specific percentage of health insurance premiums is spent on medical care and specified activities to improve health care quality. This paper analyzes the regulations' potential unintended consequences and incentive effects, including: higher medical costs...

This report addresses a deceptively simple question: How can the productivity of American health care be substantially improved? Productivity, in lay terms, is the ratio of output to inputs. A more colloquial rendition of the question might be: how can we get a lot more bang for our health care buck?By design, we have brought together a varied asso...

Although Emergency Medical Services (EMS) is a crucial part of the health care system, there is relatively little research on the quality of those services. EMS agencies often measure their performance using criteria such as response time or total prehospital time. But larger scale studies that cross counties and providers are rare. This Issue Brie...

This Policy Brief provides an overview of the 2010 Affordable Care Act and perspective on some of its key provisions affecting health insurance. Following a synopsis of the main problems that confront U.S. health care and insurance, it considers the extent to which the Affordable Care Act (ACA) will affect those problems, including the ACA’s minimu...

This paper discusses a number of key issues regarding implementation by the Financial Stability Oversight Council (FSOC) and the Federal Insurance Office (FIO) of the Dodd-Frank Act’s provisions affecting insurance. The paper emphasizes the fundamental differences between insurance and banking, including much lower potential for systemic risk and s...

Comparative effective research (CER) compares alternative methods of preventing, diagnosing, treating, and otherwise managing medical conditions. The Patient Protection and Affordable Care Act authorized creation and funding of an independent agency, the Patient-Centered Outcomes Research Institute, to expand CER in the U.S. A key issue in the year...

This short article provides an overview of the Patient Protection and Affordable Care Act, which was approved by the U.S. Congress and signed by President Barack Obama in March 2010, with an emphasis on provisions related to the expansion of health insurance. It highlights key provisions concerning coverage expansion, insurance market reforms, and...

This paper analyzes the existence and scope of possible racial differences/disparities in the provision of emergency medical services (EMS) response capability (time from dispatch to arrival at the scene and level of training of the responding team) using data on approximately 120,000 cardiac incidents in the state of Mississippi during 1995-2004....

This study will employ stochastic frontier analysis (SFA) to estimate “best practice” frontiers for hospital risk-adjusted mortality and provide evidence of the extent to which variation in risk-adjusted mortality rates reflect “inefficiency” (deviation from best practice) versus random noise/omitted variables. Specifically, the study will provide...

In October 1999, amidst growing concerns regarding quality of care, California became the first state to pass legislation mandating minimum specific nurse-to-patient ratios for every unit in general acute care hospitals. Although the law increased nurse staffing levels in hospitals across the state, it also had significant unintended consequences,...

This article provides an overview of the U.S. health care reform debate and legislation, with a focus on health insurance. Following a synopsis of the main problems that confront U.S. health care and insurance, it outlines the health care reform bills in the U.S. House and Senate as of early December 2009, including the key provisions for expanding...

This article considers the role of American International Group (AIG) and the insurance sector in the 2007-2009 financial crisis and the implications for insurance regulation. Following an overview of the causes of the crisis, I explore the events and policies that contributed to federal government intervention to prevent bankruptcy of AIG and the...

This study provides new estimates of systematic risk and the cost of equity capital for the pharmaceutical, biotechnology, and medical device sectors using data for firms with publicly-traded stock on U.S. exchanges during 2001-2005 and 2006-2008. Two frameworks are employed for estimating firms’ risk and the cost of equity capital: (1) the capital...

Prior work suggests that heterogeneous information or weak incentives for solvency could have caused some general liability insurers to charge low ex ante prices during the early 1980s and mid-to-late 1990s, putting downward pressure on other firms’ prices and plausibly aggravating subsequent periods of rapid premium growth. We analyse whether the...

We demonstrate analytically that cross-sectional variation in the effects of events, i.e., in true abnormal returns, necessarily produces event-induced variance increases, biasing popular tests for mean abnormal returns in short-horizon event studies. We show that unexplained cross-sectional variation in true abnormal returns plausibly produces non...

We demonstrate analytically that cross-sectional variation in the effects of events, i.e., in true abnormal returns, necessarily produces event-induced variance increases, biasing popular tests for mean abnormal returns in short-horizon event studies. We show that unexplained cross-sectional variation in true abnormal returns plausibly produces non...

his chapter provides an overview of regulation of private health insurance in advanced market economies, particularly the United States. It considers the implications of such regulation for low-income countries that seek to expand the role of private health insurance in fi nancing medical care. Sugges- tions are offered for achieving an appropriate...

This paper analyzes the existence and scope of possible racial disparities in Emergency Medical Services using cardiac related incidence-level data for the state of Mississippi during 1995-2004. We use incidence-level EMS data through the Mississippi Emergency Medical Services Information System (MEMSIS) collected by the Mississippi Department of H...

Analysis of abnormal premium growth surrounding changes in financial strength ratings for a large panel of property/casualty insurers generally indicates significant premium declines in the year of and the year following rating downgrades. Consistent with greater risk sensitivity of demand, premium declines were concentrated among commercial insura...

This paper provides an overview of the rationale and options for federal intervention in insurance regulation. Despite a number of positive and incremental reforms throughout the past decade, several key aspects of state insurance regulation, including regulation of rates, rate classification, and policy forms, remain substantially dysfunctional in...

Brookings-Wharton Papers on Financial Services 2004 (2004) 97-138 Markets for many types of property and casualty insurance exhibit soft-market periods, where premium rates are stable or falling and coverage is readily available, and subsequent hard-market periods, where premium rates and insurers' reported profits significantly increase and less c...

A growing literature analyzes determinants of insurance prices using time series data on insurer underwriting margins. If the variables analyzed are stationary, conventional regression models may be appropriately used to test hypotheses. Based on pretests for a unit root, several studies have instead used co-integration analysis to analyze the long...

We provide estimates of the equity capital needed and the resulting tax costs incurred when supplying catastrophe insurance/reinsurance using a partial equilibrium model that incorporates a specific loss distribution for US catastrophe losses. After consideration of insurer investment in tax-exempt securities, tax loss carry-back/forward provisions...

In August of 1999, Mike McAndless, the risk manager of United Grain Growers (UGG), was preparing for a meeting with the firm's chief financial officer, Peter Cox. Mike and Peter had spent considerable time over the past three years with representatives of the Willis Group Ltd., a large international insurance broker, identifying and measuring UGG's...

This chapter considers capital adequacy and capital regulation of insurers and reinsurers. A basic theme is that capital standards should be less stringent for financial sectors characterized by greater market discipline and less systemic risk. Because market discipline is greater and systemic risk is lower for insurance than in banking, capital re...

A more dynamic individual insurance market could match benefits with individual preferences, provide more portable and permanent coverage, and stimulate consumer-focused service. Necessary reforms, such as tax parity and targeted assistance to high-risk pools, would enable individual coverage to expand efficiently. In contrast, requirements for gua...

Mutual insurers generally face higher costs of raising new capital than stock insurers. Other things being equal, the higher costs of raising capital should cause mutual insurers to have higher ex ante target capital to liability ratios than stock insurers. Mutual insurers' capital ratios also should be more sensitive to income than capital ratios...

Enterprise risk management (ERM) refers to the identification, quantification, and management of all of a company's risks within a unified framework. This approach is much more comprehensive than traditional risk management practice, where different types of risk are managed by different people using different tools. The authors evaluate the advant...

In the 1980s, regulation constrained workers' compensation insurance premiums in the face of rapid growth in loss costs. We develop and test the hypothesis that rate suppression exacerbates loss growth, leading to higher losses and premiums. The empirical analysis using rating class data for eight states for the period 1985 91 confirms that rate su...

Emphasizing general liability insurance, we describe basic relationships between legal liability law, liability insurance, and loss control, including the practical limitations of liability rules and insurance markets as mechanisms for promoting efficient deterrence and risk-spreading. After a brief introduction to the role of liability rules in pr...

This paper describes and illustrates the main ideas and findings of research on the volatility and cyclical behavior of insurance prices relative to those predicted by a perfectly competitive market in long-run equilibrium. After presenting evidence that insurance market prices indeed follow a second order autoregressive process, we examine several...

We analyze the relationship between insurance rate regulation, inflationary cost surges, and incentives for loss control using state-level data on workers' compensation insurance for 24 states during 1984-90. Regulators often responded to rapid loss growth during this period by denying rate increases or approving increases that were less than initi...

We provide estimates of the tax costs of equity financing and the resulting effects on the prices of catastrophe insurance/reinsurance arrangements using a partial equilibrium model of insurance pricing and capitalization that incorporates specific loss distributions for nationwide catastrophe losses. After consideration of insurer investment in ta...

We analyze premium growth surrounding ratings changes by the A.M. Best Company during 1992-1996 for a large panel of property-liability insurers. Consistent with substantial market discipline for rated insurers, univariate comparisons and fixed effects regressions generally provide evidence of significantly lower revenue growth for insurers that ex...

This study provides evidence of the potential hedging effectiveness of insurance derivatives based on regional estimates of catastrophe losses. We estimate the percentage of insurers' by line and state underwriting risk that could have been eliminated over the 1974 through 1994 period if they had hedged using state-specific catastrophe derivatives...

Following G. Becker's (1993) suggestion that tests for discrimination should attempt to infer whether profits differ for products sold to minorities and nonminorities, this article tests the hypothesis that racial discrimination affects market prices of auto insurance in Missouri. Compared with tests for discrimination in lending markets, the autho...

For a fixed probability of wrongly classifying a strong insurer as being weak (Type I error), this paper examines the classification power (the probability of correctly identifying a weak insurer as being weak) for two potential solvency detection methods. The first is to classify insurers using ratios based on risk-based capjtaL(RBC), standards an...

This paper is a substantially revised and extended version of a preliminary paper presented at the 1993 ARIA Meeting in San Francisco. This research was funded in part by the National Association of Insurance Commissioners. The conclusions expressed here are the authors' and do not necessarily reflect the opinion of the National Association of Insu...

This paper analyzes the accuracy of the risk-based capital formula for property-liability insurers that was adopted in 1993 by the National Association of Insurance Commissioners (NAIC). A logit analysis is conducted on a large sample of solvent and insolvent insurers spanning the period 1989–1993. Predictive accuracy is very low when the ratio of...

Negative shocks to industry capital and significant capital adjustment costs have been offered as an explanation of periodic "crises" in the property-liability insurance market. According to these capacity constraint models, in which post-shock production must meet a solvency constraint, increases in price can cause some or perhaps all of the costs...

Insurance futures contracts and options on these contracts developed by the Chicago Board of Trade provide a means for insurers and reinsurers to hedge underwriting losses due to industry-wide shocks, such as natural catastrophes. In order for insurance derivatives to be viable, they must lower insurers' costs compared to other methods that mitigat...

In December 1992, the National Association of Insurance Commissioners (NAIC) adopted a life-health insurer risk-based capital (RBC) formula and model law that became effective with the 1993 annual statement filed in March 1994. In principle, well-designed RBC requirements can help achieve an efficient reduction in the expected costs of insolvencie...

This article considers the decision by state legislatures to enact auto insurance no-fault laws during the 1970s. The possible influences of levels and growth rates in insurance costs and the effects of no-fault on low-income households, medical care providers, insurers, and attorneys are analyzed. A probit model of decisions to adopt no-fault auto...

This article analyzes alleged underpricing of general liability insurance prior to the mid-1980s liability insurance crisis. The theoretical analysis considers whether moral hazard and/or heterogeneous information for forecasting claim costs can cause some firms to price too low and depress other firms' prices. Cross-sectional analysis of insurer l...

Persons with low income and few assets to protect often will be unwilling to buy liability or health insurance.1 Bankruptcy laws limit claims against income and wealth; welfare programs and other types of “free” care provide implicit protection against loss. As a result, failure to buy certain types of insurance coverage can be quite rational. In t...

Sumario: Utility, risk and risk aversion -- Demand for insurance -- Insurance and resource allocation -- Moral hazard -- Adverse selection -- Market structure and organization form -- Insurance pricing -- Insurance regulation.

This article considers why insurance markets may be especially vulnerable to regulatory suppression of insurance prices in response to political pressure for lowering rates or limiting rate increases. The analysis focuses on why exit by insurers will likely be too slow to deter significant rate suppression. The first possibility considered is that...

The demand for and supply of liability insurance arise from the legal liability of individuals and corporations for injuries caused to third parties. Tort liability rules and liability insurance markets have attracted substantial attention in recent years. This paper introduces the literature on the demand for and supply of liability insurance. The...

Economic and financial research on insurance markets has undergone dramatic growth since its infancy in the early 1960s. Our main objective in compiling this volume was to achieve a wider dissemination of key papers in this literature. Their significance is highlighted in the introduction, which surveys major areas in insurance economics. While it...

A multiple regression model is estimated with cross-state data to provide evidence of the impact of voluntary market rate regulation and involuntary market "deficits" on the overall ratio of premiums to losses in the private passenger auto insurance market from 1979 through 1981. The results provide evidence that voluntary market rate regulation re...

This paper tests the relationship between property-liability insurer stock returns and systematic risk, unsystematic risk, and co-skewness during the period 1970-1983. The study is motivated by the use of the capital asset pricing model (CAPM) and other financial models in insurance rate regulation. Insurer stock return patterns are consistent with...

Commercial liability insurance premiums increased dramatically in 1985 and 1986. The growth for general liability insurance was especially pronounced: net premiums written increased from $6.5 billion in 1984 to $20 billion in 1986. During this time, limits of coverage were shrinking for many of those insured, and cancellations and denials of renewa...

The National Council on Compensation Insurance (NCCI) prospective experience rating plan is used in workers’ compensation pricing in a large majority of states. This plan commonly is applied to about 15 percent of employers, and approximately 90 percent of the labor force may be employed by these firms. The NCCI plan adjusts an individual employer’...

The impact of rate regulation on auto insurance loss ratios during 1976–81 is estimated using cross-state data to determine whether regulation significantly affected rates. The methodology allows for random variation in the impact of rate regulation and no-fault laws on loss ratios. The model controls for the influence of the average expected loss...

Property-liability insurance rates for most lines of business are regulated in about one-half of the states. In most cases, this me ans that rates must be filed with the state insurance commissioner and approved prior to use. The remainder of the states have various forms of competitive rating laws. These either require that rates be filed prior to...

Estimation of pure premiums for alternative rate classes using regression methods requires the choice of a functional form for the statistical model. Common choices include linear and log-linear models. This paper considers maximum likelihood estimation and testing for functional form using the power transformation sug- gested by Box and Cox. The l...

A new methodology for assessing property-liability insurer financial strength is suggested in this paper. The procedure involves using regression analysis to estimate the relationship between premium-to-surplus ratios and insurer characteristics including asset and product mix variables. Analysis of the regression residuals then can be used to iden...

Estimation of pure premiums for alternative rate classes using regression methods requires the choice of a functional form for the statistical model. Common choices include linear and log-linear models. This paper considers maximum likelihood estimation and testing for functional form using the power transformation suggested by Box and Cox. The lin...

The underwriting beta is an important parameter in the application of financial theory to property-liability insurance pricing and rate regulation. This paper presents the results of using quarterly profit data to estimate underwriting betas for 14 property-liability insurers. Sensitivity of the estimates to alternative model specifications, market...

Automobile insurance companies in the United States test the adequacy of their rates through an analysis of incurred loss ratios. The incurred loss component of the loss ratio usually is obtained from a recent one- or two-year experience period. Since revised rates based on the analysis will not go into effect immediately, it is customary to trend...

The literature on property-liability insurance prices and underwriting results under alternative types of rate regulation is surveyed in this paper. Theoretical foundations of this research are reviewed and empirical findings are summarized. Important methodological issues are discussed, and areas in which additional work is needed to evaluate alte...

This paper examines the relationship between realized mean returns and alternative measures of risk for samples of life insurance stocks during the 1961-76 period within the framework of the Capital Asset Pricing Model (CAPM). The results provide some evidence of a significant relationship between mean returns and systematic risk, but they also pro...

This paper analyzes New York Insurance Department Regulation 49, which governs the payment of expense allowances to general agents of New York licensed life insurers. The paper relies heavily on responses to a questionnaire sent to all New York licensed life insurers. The findings imply that negative aspects of the regulation may outweigh its poten...

This study attempts to extend the work of Pritchett and Brewster [27] by employing multiple regression analysis to compare A/S expense ratios for the agency and nonagency life insurers in their sample. Maximum likelihood (ML) estimation is used to estimate a model of A/S expense ratios that allows for the possibility that economies of scale may be...

A more dynamic individual insurance market could match benefits with indi- vidual preferences, provide more portable and permanent coverage, and stimulate consumer-focused service. Necessary reforms, such as tax parity and targeted assistance to high-risk pools, would enable individual coverage to expand efficiently. In contrast, re- quirements for...

This paper uses six waves of the Health and Retirement Study data to study interactions between elderly and near-elderly spouses in terms of preventive behaviors that might have future health consequences such as: physical activity, smoking behavior, normal weight maintenance, flu shot, cholesterol screening, prostate cancer screening, pap smear te...