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HMO selection and Medicare costs: Bayesian MCMC estimation of a robust panel data tobit model with survival

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  • Barton H. Hamilton

Abstract

The fraction of US Medicare recipients enrolled in health maintenance organizations (HMOs) has increased substantially over the past 10 years. However, the impact of HMOs on health care costs is still hotly debated. In particular, it is argued that HMOs achieve cost reduction through ‘cream‐skimming’ and enrolling relatively healthy patients. This paper develops a Bayesian panel data tobit model of HMO selection and Medicare expenditures for recent US retirees that accounts for mortality over the course of the panel. The model is estimated using Markov Chain Monte Carlo (MCMC) simulation methods, and is novel in that a multivariate t‐link is used in place of normality to allow for the heavy‐tailed distributions often found in health care expenditure data. The findings indicate that HMOs select individuals who are less likely to have positive health care expenditures prior to enrolment. However, there is no evidence that HMOs disenrol high cost patients. The results also indicate the importance of accounting for survival over the panel, since high mortality probabilities are associated with higher health care expenditures in the last year of life. Copyright © 1999 John Wiley & Sons, Ltd.

Suggested Citation

  • Barton H. Hamilton, 1999. "HMO selection and Medicare costs: Bayesian MCMC estimation of a robust panel data tobit model with survival," Health Economics, John Wiley & Sons, Ltd., vol. 8(5), pages 403-414, August.
  • Handle: RePEc:wly:hlthec:v:8:y:1999:i:5:p:403-414
    DOI: 10.1002/(SICI)1099-1050(199908)8:5<403::AID-HEC455>3.0.CO;2-D
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    1. Heckman, J.J. & Hotz, V.J., 1988. "Choosing Among Alternative Nonexperimental Methods For Estimating The Impact Of Social Programs: The Case Of Manpower Training," University of Chicago - Economics Research Center 88-12, Chicago - Economics Research Center.
    2. Baker, Laurence C., 1997. "The effect of HMOs on fee-for-service health care expenditures: Evidence from Medicare," Journal of Health Economics, Elsevier, vol. 16(4), pages 453-481, August.
    3. Chib, Siddhartha, 1992. "Bayes inference in the Tobit censored regression model," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 79-99.
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    Cited by:

    1. R. Amy Puenpatom & Robert Rosenman, 2006. "Efficiency of Thai provincial public hospitals after the introduction of National Health Insurance Program," Working Papers 2006-2, School of Economic Sciences, Washington State University.
    2. Nadarajah Saralees, 2007. "A Truncated Bivariate t Distribution," Stochastics and Quality Control, De Gruyter, vol. 22(2), pages 303-313, January.
    3. Peter C. Austin, 2002. "Bayesian Extensions of the Tobit Model for Analyzing Measures of Health Status," Medical Decision Making, , vol. 22(2), pages 152-162, April.

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