The Impact of the Inpatient Prospective Payment System and Diagnosis-Related Groups

Abstract

The outpatient prospective payment system for the Medicare program became effective Aug. 1, 2000, as mandated by the Balanced Budget Act of 1997. This outpatient program complements Medicare’s inpatient prospective payment system, which was introduced in 1983. A survey of the literature over the past 20 years is undertaken to review the effects of the inpatient prospective payment system and diagnosis-related groups (DRGs) on inpatient hospital utilization, expenditures, and outcomes. The level of the DRG payment has been questioned, as well as the process of adjusting the payment levels from one year to the next. In addition, past research has speculated that the DRG classification may not be sensitive to severity and is subject to coding ambiguities. These conclusions can be used as input to future research on the new outpatient program, as well as updating research on the inpatient program.     

Implementation of Four Models for Outstanding Liabilities in Winbugs: A Discussion of a Paper by Ntzoufras and Dellaportas

Abstract

Ntzoufras and Dellaportas (2002) described four models for outstanding claim amounts of the “reported but not settled” variety. Two of the models incorporated claim-counts data in addition to the claim amounts themselves in order to add a hierarchical stage in the usual log-normal and state-space models. The purpose of this discussion is to describe how the models presented in Ntzoufras and Dellaportas may be implemented using WinBUGS. The use of WinBUGS to implement the Bayesian analysis of a number of other actuarial models was considered by Scollnik (2001).     

A Regime-Switching Model of Long-Term Stock Returns

Abstract

In this paper I first define the regime-switching lognormal model. Monthly data from the Standard and Poor’s 500 and the Toronto Stock Exchange 300 indices are used to fit the model parameters, using maximum likelihood estimation. The fit of the regime-switching model to the data is compared with other common econometric models, including the generalized autoregressive conditionally heteroskedastic model. The distribution function of the regime-switching model is derived. Prices of European options using the regime-switching model are derived and implied volatilities explored. Finally, an example of the application of the model to maturity guarantees under equity-linked insurance is presented. Equations for quantile and conditional tail expectation (Tail-VaR) risk measures are derived, and a numerical example compares the regime-switching lognormal model results with those using the more traditional lognormal stock return model.     

Equity-Indexed Life Insurance: Pricing and Reserving Using the Principle of Equivalent Utility

Abstract

The author applies the principle of equivalent utility to price and reserve equity-indexed life insurance. Young and Zariphopoulou (2002a, b) extended this principle to price insurance products in a dynamic framework. However, in those papers, the insurance risks were independent of the risky asset in the financial market. By contrast, the death benefit for equity-indexed life insurance is a function of a risky asset; therefore, this paper further extends the principle of equivalent utility. In a second extension, the author applies the principle of equivalent utility to calculate reserves, as introduced by Gerber (1976). In a related paper, Moore and Young (2002) price equity-indexed pure endowments, the building blocks of equity-indexed life annuities.     

Issues for Implementing Phased Retirement in Defined Benefit Plans

Abstract

U.S. society is aging. The nature of work has changed from work that requires physical strength to work based on knowledge. As a result, workers are beginning to phase into retirement rather than going directly from full-time work to full retirement. From a retirement income perspective, many final-average-pay defined benefit plans have features that make phased retirement difficult at best and detrimental at worst. U.S. pension law and regulations present barriers to phased retirement if the phased retiree wants to receive a portion of available pension benefits during phased retirement.

This paper examines private sector options to encourage phased retirement and to eliminate the disincentives that currently affect defined benefit plans. It offers alternative calculations of final average pay that do not penalize the part-time worker. It also demonstrates that the plan’s early retirement reduction and late retirement increase can be set to maintain actuarial equity throughout phased retirement. The paper presents benefit calculations with equal actuarial values for various payout patterns.

The paper discusses the coordination between phased retirement and subsidized early retirement. Finally, the paper notes some of the changes in ERISA that will be needed to facilitate phased retirement in defined benefit plans, especially for participants who want to receive pension distributions while working part time.