Dynamic incentive remuneration design for functional recovery care

Abstract

This paper considers the dynamic incentive remuneration design for functional recovery care by applying dynamic principal-agent model, where the long-term care provider is formulated as the agent and the long-term care insurer as the principal. The insurer designs a dynamic incentive remuneration strategy to encourage the provider to provide functional recovery care. In particular, the insurer pays the remuneration to the provider based on the health improvement of the insured person at the end of a contract period. In addition, since it is possible that the cost incurred by the provider is not recoverable if less or excessive functional recovery care effort is made, an optimal functional recovery care effort level will be recommended to the provider.