Getting the right tail right : modeling tails of health expenditure distributions

Author / Creator

Karlsson, Martin

Available as

Online

Summary

Health expenditure data almost always include extreme values. Such heavy tails can be a threat to the commonly adopted least squares methods. To accommodate extreme values, we propose the use of an...

Health expenditure data almost always include extreme values. Such heavy tails can be a threat to the commonly adopted least squares methods. To accommodate extreme values, we propose the use of an estimation method that recovers the often ignored right tail of health expenditure distributions. We apply the proposed method to a claims dataset from one of the biggest German private health insurers and find that the age gradient in health care spending differs substantially from the standard least squares method. Finally, we extend the popular two-part model and develop a novel three-part model.

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