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Simulating Health Expenditures Under Alternative Insurance Plans

Author

Listed:
  • 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)

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.

Suggested Citation

  • Joan L. Buchanan & Emmett B. Keeler & John E. Rolph & Martin R. Holmer, 1991. "Simulating Health Expenditures Under Alternative Insurance Plans," Management Science, INFORMS, vol. 37(9), pages 1067-1090, September.
    • Handle: RePEc:inm:ormnsc:v:37:y:1991:i:9:p:1067-1090
    DOI: 10.1287/mnsc.37.9.1067
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    Citations

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    Cited by:

    1. K. P. M. van Winssen & R. C. van Kleef & W. P. M. M. van de Ven, 2016. "The demand for health insurance and behavioural economics," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(6), pages 653-657, July.
    2. H. E. Frech & Peter Zweifel, 2017. "Market Socialism and Community Rating in Health Insurance," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 59(3), pages 405-427, September.
    3. Zhou, Cuihua & Lan, Yanfei & Li, Weifeng & Zhao, Ruiqing, 2022. "Medicare policies in a two-Tier healthcare system with overtreatment," Omega, Elsevier, vol. 109(C).
    4. 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.
    5. 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.
    6. Svetlana Pashchenko & Ponpoje Porapakkarm, 2019. "Reducing Medical Spending of the Publicly Insured: The Case for a Cash-out Option," American Economic Journal: Economic Policy, American Economic Association, vol. 11(3), pages 390-426, August.
    7. Ellis, Randall P. & Jiang, Shenyi & Manning, Willard G., 2015. "Optimal health insurance for multiple goods and time periods," Journal of Health Economics, Elsevier, vol. 41(C), pages 89-106.
    8. Usha Reichert & Richard Cebula, 1999. "A note on health care inflation," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 23(3), pages 193-198, September.
    9. 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.
    10. Cutler, David M. & Zeckhauser, Richard J., 2000. "The anatomy of health insurance," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 11, pages 563-643, Elsevier.
    11. 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.
    12. Richard Cebula, 1998. "Determinants of the inflation rate of the health care CPI in the US," Applied Economics Letters, Taylor & Francis Journals, vol. 5(1), pages 47-49.
    13. Zulkefli, Zurina & jones, Glenn, 2012. "Moral Hazard and the Impact of Private Health Insurance on the Utilisation of Health Care in Malaysia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 46(2), pages 159-175.
    14. Pascale Breuil-Genier, 1998. "Les enseignements théoriques et pratiques des microsimulations en économie de la santé," Économie et Statistique, Programme National Persée, vol. 315(1), pages 73-94.

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    Keywords

    simulation; health applications;

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