Too Much Ado About Two-Part Models and Transformation?

Many methods for modeling skewed health care cost and use data have been suggested in the literature. This paper compares the performance of eight alternative estimators, including OLS and GLM estimators and one- and two-part models, in predicting Medicare costs. It finds that four of the alternatives produce very similar results in practice. It then suggests an efficient method for researchers to use when selecting estimators of health care costs.