Provident Healthcare, Case Study Example

Provident Healthcare is a nonprofit organization providing insurance to customers. The organization currently is housed in Boston with plans in various surrounding states. Determining the premiums for clients takes a methodical approach with a variety of factors involved. The company has been approached to provide a bid on a consortium of businesses.

Provident Healthcare does not include certain services including routine vision and dental care, durable medical equipment and pharmacy benefits. These are optional under a special category of riders. Calculating premiums is difficult and various factors have to be taken into consideration. Provident Healthcare will provide the consortium with three choices to involve low, moderate and high costs.

Developing appropriate premium amounts include encompassing the medical costs and administrative costs. Although Provident Healthcare is nonprofit, any profits will offset the costs of operations, expansion and growth. “The rapid rise in health premiums has severely strained U.S. families and employers in recent years” (Scloen, Nicholson, Rustgi, 2009). Careful calculation of premium development is important to the organization and the public. Provident Healthcare follows a formula for calculating the premiums with the use of a base per member per month (PMPM).  This is adjusted to a dollar amount and summed to provide the total medical PMPM.

To calculate nonmedical services the PMPM is adjusted to add 15 percent for administrative costs and five percent for reserves. This is then converted to the premium costs. Family and individual rates are typically calculated to provide options for the employees. Population of 75,000 is estimated by the consortium with 12,000 individual members and 18,000 families. The premium calculating formula is 75,000 x total PMPM = (12,000 x single premium) + (18,000 x family premium). Based on the Provident Healthcare spreadsheet, copay cost adjustment factor, copay utilization adjustment factor and data given by the consortium the follow premium schedule is suggested:

Based on $100 Copay

Based on $250 Copay

Mark Stanton (2002) advises “examining strategies intended to affect costs and investigating whether or not they save money” (para 4). With current dissatisfaction with the cost of heath care by the public warrants the need for insurance companies to use specific calculating methods to determine premiums. Medicare plays a role in health care cost fee structure and prevailing wages. As reimbursement fees are set up the Medicare guidelines should be considered.

The plan options for the three premium calculations will be based on varying coverage. The number of employees enrolling will depend on what is offered. Employees who have other options will weigh the most cost effective for their situation. Kaiser Family Foundation (2007) determined that the highest enrollees is directly related to the smaller copays and how much of the share the employee is required to pay with the employer (para. 10). The rise in health care insurance premiums have risen over the years and caused individuals to consider options rather than taking what their employer offers.

Also consideration should be given to coverage for employees who terminate employment. These individuals are covered under the Consolidated Omnibus Budget Reconciliation Act (COBRA). This law gives employees the right to continue their health care insurance should they leave the company by taking over any premiums not paid by the employer (United States Department of Labor, para 1). Individuals hired to only work on a limited basis will look at these figures before entering employment.

Provident Healthcare currently uses a model premium development worksheet appropriate for calculating new bidding opportunities. The consortium currently negotiating with Provident Healthcare will have options available for their employees. Further research into any riders the association may need can easily be determined by following the current procedures Provident Healthcare has in place.

References

Kaiser Family Foundation. (2007). Insurance premium cost-sharing and coverage take-up.  Health Care Costs. Retrieved from http://www.kff.org/insurance/snapshot/chcm020707oth.cfm.

Schoen, C., Nicholson, J.L., Rustgi, S.D. (2009). Paying the price: How health insurance premiums are eating up middle-class incomes – state health insurance premium trends and the potential of national reform. The Commonwealth Fund, vol. 17, Aug. 20, 2009. Retrieved from http://www.commonwealthfund.org/Content/Publications/Data-Briefs/2009/Aug/Paying-the-Price-How-Health-Insurance-Premiums-Are-Eating-Up-Middle-Class-Incomes.aspx.

Staton, M.W. (2002). Reducing costs in the health care system: Learning from what has been done. Research in Action, issue 9, September, 2002. Retrieved from http://www.ahrq.gov/research/costsria/.

United States Department of Labor. (2009). COBRA Continuation Coverage Assistance Under ARRA. Retrieved from http://www.dol.gov/ebsa/cobra.html.