Phase-type aging modeling for health dependent costs

Maria Govorun, Guy Latouche and Stéphane Loisel
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Maria Govorun: UWO - University of Western Ontario
Guy Latouche: ULB - Université libre de Bruxelles

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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 parametrisation, 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.

Keywords: net present value; Health dependent costs; phase-type aging process; Markov reward model; cost-effectiveness of a new treat-ment; cost of bad health (search for similar items in EconPapers)
Date: 2015
Note: View the original document on HAL open archive server: https://hal.science/hal-01084274v1
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Citations: View citations in EconPapers (1)

Published in Insurance: Mathematics and Economics, 2015, 62 (May 2015), pp.173-183

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Journal Article: Phase-type aging modeling for health dependent costs (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01084274

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