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Agent-based Investigation of Price Inflation In Health Insurance

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Author Info
Carl A. Johnston () (Interdisciplinary Center for Economic Sc George Mason University)
Interdisciplinary Center for Economic Science
Abstract

Frech-Ginsburg showed that medical insurance reimbursement systems with certain price-control characteristics cause chronic price inflation. We construct a three-party market in which Experts, Non-Experts and Insurers negotiate with each other for services, insurance coverage and cash in such a way that we can observe prices over successive rounds of negotiations and observe whether or not they show inflationary tendencies. We use agent-based software to simulate the agents. We find that three-party transactions between Insurer-Expert-Non-Expert show inflationary tendencies, but two-party transactions between Experts and Non-Experts do not. The findings suggest that institutional sources of price inflation can exist based on the order of negotiations when there is an intermediary between consumer and supplier. Inflation rates appear sensitive to the number of negotiations in each round

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2006 with number 155.

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Date of creation: 04 Jul 2006
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Handle: RePEc:sce:scecfa:155

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  1. David M. Cutler & Mark McClellan & Joseph P. Newhouse & Dahlia Remler, 1999. "Pricing Heart Attack Treatments," NBER Working Papers 7089, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • David M. Cutler & Mark B. McClellan & Joseph P. Newhouse & Dahlia K. Remler, 2001. "Pricing Heart Attack Treatments," NBER Chapters, in: Medical Care Output and Productivity, pages 305-362 National Bureau of Economic Research, Inc. [Downloadable!]
  2. Frech, H E, III & Ginsburg, Paul B, 1975. "Imposed Health Insurance in Monopolistic Markets: A Theoretical Analysis," Economic Inquiry, Oxford University Press, vol. 13(1), pages 55-70, March.
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