Premium Development Case
New England Health Maintenance Organization (HMO) is a regional not for profit managed care company that has its headquarters in Boston, MA, with over 500,000 enrollees within 25 different plans including Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. A consortium of employers has shown interest in bidding on a managed care contract to be offered to the consortium’s 75,000 employees whom are locate in and around Nashua, New Hampshire. The consortium of employers includes 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 must cover the cost of the providing required healthcare services, also
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Once all factors have been defined, the adjusted PMPM cost can be calculated 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, once all adjusted PMPM costs have been calculated, the total is equal to $44.74. Much of the information for the physician 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)/12
For 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 inflation rate is five percent; this plays a significant role within the analysis as like any other 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 sum of 1 and the inflation rate of five percent, or 0.05.; this equal to $50.79.