Premium Development Case

New England health Maintenance Organization (HMO) is a regional not for profit managed do comp either that has its headquarters in Boston, MA, with over 500,000 enrollees within 25 disparate plans including Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. A consortium of employers has shown interest in bidding on a managed c are contract to be offered to the consortiums 75,000 employees whom are locate in and around Nashua, New Hampshire. The consortium of employers accommodates companies such as IBM, Ford, and Prudential Insurance.The approach that New England has to the premium development is that the premiums received from the employers moldiness cover the woo of the providing required healthcare go, also known as medical exam embodys, and the woos of administering the plan and of establishing arrests, also known as new(prenominal) costs. Reserves are necessary to ensure that funds are addressable to pay providers when medical costs exceed t he amount collected in premium payments (3901-3-13 Health Insurance Reserves, 2010). Due to New England HMO being a not for profit corporation, at that place is not explicitly include any type of profit element within the premium.A requirement to the reserve is set sufficiently high in sound out to ensure there are enough investments available to fund product growth and expansion. Therefore, pop of the reserve requirements does constitute a profit. (Premium Development Case Study, 2007) A primary per member per month (PMPM) is utilize in setting premiums by estimating the PMPM for each aspect of the plans coverage benefits. Setting the premiums also utilizes historical custom as well as cost data. The co-payments are used a source of revenue to decrease medical cost and diminish the premiums.New England HMO adds fifteen percentage to the issue forth medical PMPM to cover any administrative costs that may incur and an additional five percent added for the reserve. The Ind ividual Rate figure is set at 1. 216 and the Family Rate Factor is set at 3. 356. The application of the given discipline allows the calculations to develop found on the levels of three co-payments, low, moderate, and high. The historical usance and historical data for knack service is the same, regardless of the level of patients level of co-payment.The average out fees are as follows Inpatient Acute bid Services mediocre daily free-for-service charge$1,200. 00 Surgical Procedures per case$1,300. 00 Skilled Nursing$430. 00 moral sell Average Daily Cost $540. 00 catch Room Care per visit$190. 00 The following services were measured by dividing the cases, days, and/or the visits per socio-economic class by 1,000. ServiceCalculationResult Inpatient Acute Care400/1,0000. 4 Skilled Nursing easiness Care25. 2/1,0000. 0252 Inpatient Mental Care64. 4/1,0000. 0644 Hospital Based-Surgery41. 7/1,0000. 0417 Emergency Room Care132/1,0000. 132Next, in order to attempt to find the base PMPM cost, the utilization data is multiplied historical cost. at one time this is completed, the product is then separate by twelve. For instance, the con acute care cost is calculation by multiplying $1,200. 00 by 0. 4, then dividing by twelve. The cost would oppose $40. This process impart be used to calculate the remaining inpatient services. Using the information provided by the consortium, substance misdirect as a base PMPM cost of $0. 41, while the base PMPM for outpatient services is $3. 43. The facility services total cost is $54. 25.Upon calculating the base PMPM costs, the patient co-payment adjustment factors must be determined. The high patient co-payment for acute services in Table 2 shows that the co-pay cost adjustment factor is 0. 9642 and 0. 9200 for the co-pay utilization adjustment factor (additional inpatient services information is located within the Premium Development Case Study). Once all factors have been defined, the change PMPM cost can be r eason by multiplying the cost by the historical data and the historical utilization by utilization, then multiplying the two products and dividing by twelve.For example, for Inpatient Acute Care adjusted PMPM calculation is as follows (1,200*1) * (0. 4*1)/12, which 40. The remaining inpatient services are calculated in the same manner, however the substance abuse adjusted PMPM cost and outpatient procedures adjusted PMPM cost is its base PMPM cost. In the end, erst all adjusted PMPM costs have been calculated, the total is represent to $44. 74. very much of the information for the doctor services is provided within the case study. In order to calculated the adjusted PMPM cost, the calculation is as follows (3,400*utilization) * (175,000*cost)/1,000)/12For example, (3,400*1. 8900/4000) * (175,000*1. 6834)/1,000)/12 = 39. 44. The adjusted PMPM for physician services equals to $27. 24. The fanfare rate is five percent this plays a world-shaking role within the analysis as like an y early(a) business, costs rise over time. In order to calculate the inflation adjusted PMPM cost for inpatient services, the adjusted PMPM cost is multiplied by the kernel of 1 and the inflation rate of five percent, or 0. 05. this equal to $50. 79. The same calculations are done in order to solve the adjusted PMPM costs for the physician services. The total of this is $114. 9. The total medical PMPM amount is the sum of the physician services inflation adjusted PMPM cost ($114. 39) and then inpatient services adjusted PMPM costs ($50. 79), which equals to $165. 18. All other expenses are calculated by multiplying the total medical PMPM amount by the administrative expense percent. Therefore, $165. 18 * 0. 15 equals $24. 78. In order to calculate the reserve, the total medical PMPM amount is then multiplied by the reserve percentage. Therefore, $165. 18 * 0. 05 equals $8. 26. These amounts have will equal the total other expenses, which calculated to equal ($8. 6 + $24. 78) $33 . 04. The inflation adjusted PMPM is calculated in the same manner as other services. This amount will equal $34. 69. The total PMPM amount is equal to $199. 86. In order to calculate the final figure, the periodical premium rates, the total PMPM amount is multiplied by the premium factor rate, which is 1. 216 for bingle and 3. 356 for family. The single monthly premium rates will equal $199. 86 * 1. 216, which equals $243. 03. The family monthly premium rates will equal $199. 86 * 3. 356, which equals $670. 73.