NDLI: A Dynamic Model of Health Plan Choice from a Real Options Perspective

Content Provider	Springer Nature Link
Author	Sengupta, Bhaswati Kreier, Rachel E.
Copyright Year	2011
Abstract	This paper develops a dynamic framework for analyzing an individual’s choice between a Preferred Provider Organization (PPO) and a Health Maintenance Organization (HMO) under uncertainty regarding future health. We explicitly model health as a stochastic process whose fluctuations arise from three sources, one deterministic and two stochastic. Health evolves over time with a downward drift over the lifespan. In addition, health is subject to small, mean zero random fluctuations. Finally, there exists a small possibility every period of a serious illness resulting in a large, discrete fall in health. Under this characterization of health uncertainty, we develop a Real Options model valuing flexibility in health plan choice which takes into account the embedded flexibility to receive coverage for out-of-network care if the PPO health plan is chosen. Our model suggests that greater health problems increase the value of the option to go out of network for the PPO enrollee.
Starting Page	401
Ending Page	419
Page Count	19
File Format	PDF
ISSN	01974254
Journal	Atlantic Economic Journal
Volume Number	39
Issue Number	4
e-ISSN	15739678
Language	English
Publisher	Springer US
Publisher Date	2011-09-28
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Analysis of Health Care Markets Real options Health plan choice Preferred provider organization Provider quality Managed competition Economics general International Economics Public Finance & Economics Macroeconomics/Monetary Economics Microeconomics
Content Type	Text
Resource Type	Article
Subject	Economics, Econometrics and Finance

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