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almostcutmyhair
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Joined: April 18th, 2009, 8:22 pm

health care derivatives ?!

January 22nd, 2010, 9:28 pm

do you think it is really possible ?Medical Technology & Spending: The Next Market Bubble?What is the insurance exchange?Health insurance derivatives: the newest application of modern financial risk management
 
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Hansi
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Joined: January 25th, 2010, 11:47 am

health care derivatives ?!

January 25th, 2010, 12:50 pm

Yes I can see excess mortality as a possible asset class that may well see bubble effects. I mean sure there are a heap of companies that claim they can accurately model excess mortality on other personal health care insurance but without their modelling being transparent how can we in any way say that their assumptions are wrong or not. It will throw us back into the whole MBS modelling argument.
 
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Traden4Alpha
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Joined: September 20th, 2002, 8:30 pm

health care derivatives ?!

January 25th, 2010, 2:20 pm

Possible. Healthcare is a weird space because the people that get the most direct benefit from an incremental amount of care aren't the same as the people that pay for the incremental cost. Thus, patients, doctors, hospital, pharma companies, and medical device companies are all strongly "for" more healthcare. Only the cold-hearted bean-counter payors (insurance companies and government) are against it. Add an aging population, and consumption of care both per individual and in total will only increase. Are there any countries where healthcare is steadily declining in costs?I don't know about a health insurance bubble because the industry seems to be pay-as-you-go rather than saving premiums in long-term instruments. It's not like P&C insurance in which most years have low payouts and some years have massive payouts.The one health-related insurance industry that could have bubble derivatives is viaticals (cashout payments on life insurance). These have a cashflow pattern for the investors that is not unlike mortgages (except the monthly cashflow is negative). These could be easily aggregated and tranched. Moreover, the incentives on those handling viaticals aren't unlike those of mortgage brokers -- there's significant incentives to approve inappropriate applicants. In fact, it's worse than in the case of mortgages, because the "bad" risks are the applicants with the longest lifespans. Rather than seeing an immediate pattern of defaults that alerts people to fraudulent underwriting, with viaticals, it might take years to spot fraud.
Last edited by Traden4Alpha on January 24th, 2010, 11:00 pm, edited 1 time in total.