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Simulating Health Expenditures Under Alternative Insurance Plans

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Author Info

  • Joan L. Buchanan

    (The RAND Corporation, 1700 Main Street, Santa Monica, California 90406)

  • Emmett B. Keeler

    (RAND Graduate School and The RAND Corporation, 1700 Main Street, Santa Monica, California 90406)

  • John E. Rolph

    (The RAND Corporation, 1700 Main Street, Santa Monica, California 90406)

  • Martin R. Holmer

    (Fannie Mae)

Registered author(s):

    Abstract

    A simulation model that estimates individual health care spending as a function of the structure of indemnity-type insurance plans is presented. The behavioral models that form the basis for this work were developed as part of RAND's Health Insurance Experiment, (HIE), a randomized clinical trial. The randomized design and statistical methods provided estimates of the effects of insurance on use, uncontaminated by sickness or selection effects. The demand for medical care was modelled using episodes of treatment. Within the simulation, episodes occur independently and randomly through time according to a Poisson process with rates depending on individual characteristics and insurance. Empirical results from the HIE indicate that insurance primarily affects individual decisions to seek treatment (episode frequency), but has only minimal effects on episode costs. The response to changes in price (insurance) is modelled as a Bernoulli censoring process on episode frequency. The model is used to address issues on the effective design of insurance plans.

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    File URL: http://dx.doi.org/10.1287/mnsc.37.9.1067
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 37 (1991)
    Issue (Month): 9 (September)
    Pages: 1067-1090

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    Handle: RePEc:inm:ormnsc:v:37:y:1991:i:9:p:1067-1090

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    Related research

    Keywords: simulation; health applications;

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    Cited by:
    1. van Kleef, R.C. & van de Ven, W.P.M.M. & van Vliet, R.C.J.A., 2009. "Shifted deductibles for high risks: More effective in reducing moral hazard than traditional deductibles," Journal of Health Economics, Elsevier, vol. 28(1), pages 198-209, January.
    2. Ellis, Randall P. & Manning, Willard G., 2007. "Optimal health insurance for prevention and treatment," Journal of Health Economics, Elsevier, vol. 26(6), pages 1128-1150, December.
    3. Bakker, Frank M. & van Vliet, Rene C. J. A. & van de Ven, Wynand P. M. M., 2000. "Deductibles in health insurance: can the actuarially fair premium reduction exceed the deductible?," Health Policy, Elsevier, vol. 53(2), pages 123-141, September.
    4. Manning, Willard G. & Marquis, M. Susan, 1996. "Health insurance: The tradeoff between risk pooling and moral hazard," Journal of Health Economics, Elsevier, vol. 15(5), pages 609-639, October.

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