IDEAS home Printed from https://ideas.repec.org/a/eee/insuma/v62y2015icp173-183.html
   My bibliography  Save this article

Phase-type aging modeling for health dependent costs

Author

Listed:
  • Govorun, Maria
  • Latouche, Guy
  • Loisel, Stéphane

Abstract

In the present paper we develop recursive algorithms to evaluate the distribution of the net present value (abbreviated as “NPV”) of a health care contract. The duration of the program is a random variable representing the lifetime of an individual. We suggest a discrete time phase-type approach to model individual health care costs. In this approach, annual health care costs depend naturally on the health state of the individual. We also derive the distribution of the NPV assuming that annual health care costs are iid random variables. We demonstrate analytically that, under special parametrization, the model with iid costs gives a similar expectation of the NPV to the one of the model with health dependent costs. We propose techniques to evaluate the impact of health related events and demonstrate it on numerical examples. Based on Canadian government data on health expenditures, we study the impact on the NPV of the health cost structure by age.

Suggested Citation

  • Govorun, Maria & Latouche, Guy & Loisel, Stéphane, 2015. "Phase-type aging modeling for health dependent costs," Insurance: Mathematics and Economics, Elsevier, vol. 62(C), pages 173-183.
  • Handle: RePEc:eee:insuma:v:62:y:2015:i:c:p:173-183
    DOI: 10.1016/j.insmatheco.2015.03.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S016766871500027X
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Drummond, Michael F. & Sculpher, Mark J. & Torrance, George W. & O'Brien, Bernie J. & Stoddart, Greg L., 2005. "Methods for the Economic Evaluation of Health Care Programmes," OUP Catalogue, Oxford University Press, edition 3, number 9780198529453.
    2. Su, Shu & Sherris, Michael, 2012. "Heterogeneity of Australian population mortality and implications for a viable life annuity market," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 322-332.
    3. Zhao, Xiaobing & Zhou, Xian, 2012. "Estimation of medical costs by copula models with dynamic change of health status," Insurance: Mathematics and Economics, Elsevier, vol. 51(2), pages 480-491.
    4. Eisele, Karl-Theodor, 2006. "Recursions for compound phase distributions," Insurance: Mathematics and Economics, Elsevier, vol. 38(1), pages 149-156, February.
    5. Panjer, Harry H., 1981. "Recursive Evaluation of a Family of Compound Distributions," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 12(01), pages 22-26, June.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:insuma:v:62:y:2015:i:c:p:173-183. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/inca/505554 .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.