What is the premium for the low-cost plan?

Assignment Requirements
6. What is the premium for the low-cost plan?(Note: This plan will have the highest copays and lowest service thresholds.)7. Which plan should the managed care company offer to the buyer consortium?1. Historical data indicate that the covered population uses 500 inpatient days of acute careservices per 1000 members. Furthermore the consortiums current average daily payment forinpatient services is $1400. However the managed care companys data indicate thatutilization management could reduce utilization into the 400-450 day range and that hospitalswithin the state currently have managed care plan contracts with per diem rates of $1000 to$1200. With this information in hand calculate the appropriate base PMPM for inpatientservices.When developing premiums the base PMPMs must reflect the best expectations of the plan asopposed to blindly accepting historical data. Of course such expectations are based on historicalutilization and cost data but if actions taken by the plan such as tightened utilizationmanagement or more aggressive provider contracting mean that the historical data are invalidthen these changes must be incorporated into the rate setting process.Here we assume that the HMO has a good chance of attaining the utilization andcontract rates that it has experienced so the base inpatient acute care PMPM is based oninpatient utilization of 425 days per 1000 members and a $1100 per diem rate. Thus the annualutilization per member is 425 / 1000 = 0.425 days per year producing an annual cost permember of 0.425 x$1100 = $467.50. Thus the monthly PMPM is $467.50 / 12 = $38.96. Notethat the model automatically calculates this amount when the $1100 per diem rate and 0.425days per member annual utilization are entered into the appropriate cells.2. What are the appropriate base PMPM costs for the remaining facilities services includingskilled nursing home mental health surgical and emergency room utilization?The fee-for-service approach that was used in Question 1 is also applied here.For skilled nursing care utilization is 0.0252 days per member per year and the currentaverage daily cost is $650 for an annual per member rate of 0.0252 x$650 = $16.38. Thus themonthly PMPM is $16.38 / 12 = $1.37. Note that the model automatically calculates this amount when the $650 daily cost and 0.0252 days per member annual utilization are entered into theappropriate cells.For inpatient mental health care utilization is 0.0644 days per member per year and the current average daily cost is $740 for a PMPM of (0.0644 x$740) / 12 = $3.97. Note that themodel automatically calculates this amount.For hospital-based surgery utilization is 0.0417 surgeries per member per year and thecurrent average cost is $1800 per case for a PMPM of (0.0417 x$1800) / 12 = $6.26. Note thatthe model automatically calculates this amount.For emergency room care utilization is 0.132 visits per member per year and the currentaverage cost is $250 per visit for a PMPM of (0.132 x$250) / 12 = $2.75. Note that the modelautomatically calculates this amount.Facilities services not listed in the preceding paragraphs were calculated in a similarmanner. (See the model for details.)3. Now focus your attention on physician services. What are the base PMPM costs for physicianservices including primary care services and specialist office visits?The budgetary approach is used for primary care physicians. Because each primary care physicianis assumed to handle 4000 patient visits and utilization is expected to be 3.4 visits per membereach physician can be assigned 4000 / 3.4 = 1176.47 members. Assuming annual reimbursementof $200000 the PMPM cost is $200000 / 1176.47 / 12 = $14.17.Specialists office visit costs are estimated using the fee-for-service approach. Here eachmember has 1.5 visits per year at a cost of $92.65 per visit for a PMPM of (1.5 x$92.65) / 12 =$11.58. Both these amounts are calculated in the model.4. Use the data developed in Questions 1 through 3 along with other required inputs to completethe Exhibit 5.1 Premium Development Worksheet assuming that a moderate approach is takenregarding the delivery of health services. Consider this premium to be the base case.The base (moderate cost) case solution is presented on the next page. In general moderate (midrange)limitations are place on mental health care services and moderate copays are assessed.The final result is a PMPM of $129.48 which further breaks down into a monthly premium of$157.45 for single subscribers and a family premium of $434.54.Note that the solution shown here assumes a 5 percent inflation rate in both medical andother costs associated with the contract. This allows for cost increases that are expected to occurbetween the data collection used to develop the bid and the actual implementation of the contract.Also note that the amount that needs to be collected (based on 75000 total members) is75000 x$129.48 = $9711000. Furthermore the premiums collected are expected to be (12000 x$157.45) + (18000 x$434.54) = $1889400 + $7821720 = $9711120 so the premium amountsgenerate the requisite revenues (with a small rounding difference).Finally note that students will have different solutions depending on how they define themoderate scenario. However most students will develop a PMPM within a few dollars of the onepresented here. Here are the limitations and copays used in the base case solution:Mental health coverage is limited to 60 days.Copays are as follows:Acute inpatient care $150 per admissionMental health inpatient care $150 per admissionInpatient surgical services $100 per procedureEmergency care $ 25 per visitPrimary physician care $ 15 per visitSpecialist physician care $ 10 per visit plus $10 PCP copay**See attached Excel file with the model completed for this base case.**5. Now complete the worksheet for the high-cost plan. (Note: This plan will have the lowestcopays and highest service thresholds.)Here are the limitations and copays use is this solution:Mental health coverage is limited to 90 days.There are no copays with this plan.6. What is the premium for the low-cost plan? (Note: This plan will have the highest copays andlowest service thresholds.)Again there is some room for differences among analyses.7. Which plan should the managed care company offer to the buyer consortium?Here is a review of the results:PMPM Single Premium Family PremiumLow-cost plan $118.32 $143.88 $397.08Moderate-cost plan $129.48 $157.45 $434.54High-cost plan $142.49 $173.27 $478.19Although these differences may or may not appear substantial to you dont forget that these aremonthly premiums based on 75000 employees (covered lives). Here are the total annualpremiums:Total Annual PremiumLow-cost plan $106488000Moderate-cost plan $116532000High-cost plan $128241000Here we see that the plans differ in total premiums by over $10 million dollars between the leastcostly to the most costly. 6. What is the premium for the low-cost plan?(Note: This plan will have the highest copays and lowest service thresholds.)7. Which plan should the managed care company offer to the buyer consortium?THESE ARE THE QUESTIONS TO BE ANSWERED THE 2 TWO BELOW #6 AND 76. What is the premium for the low-cost plan?(Note: This plan will have the highest copay and lowest service thresholds.)7. Which plan should the managed care company offer to the buyer consortium?