Case #1 - NEW ENGLAND HEALTHCARE

Premium Development

1.Historical data indicate that the covered population uses 500 inpatient days of acute care services per 1,000 members. Furthermore, the consortium's current average daily payment for inpatient services is $2,800. However, the managed care company's data indicate that utilization management could reduce utilization into the 400-450/day range and that hospitals within the state currently have managed care plan contracts with per diem rates of $2,000 to $2,400. With this information in hand, calculate the appropriate base PMPM for inpatient services.

2.What are the appropriate base PMPM costs for the remaining facilities services, including skilled nursing home, mental health, surgical, and emergency department utilization?

3.What are the base PMPM costs for physician services, including primary care services and specialist office visits?

4.Use the data developed in Questions 1 through 3, along with other required inputs, to complete the exhibit 1.1 Premium Development Worksheet, assuming that a moderate approach is taken regarding the delivery of health services. Consider this premium to be the base case.

5.What is the premium for the high-cost plan? (This plan will have the lowest copays and highest service thresholds.)

6.What is the premium for the low-cost plan? (This plan will have the highest copays and lowest service thresholds.)

7.Which plan should the managed care company offer to the buyer consortium?

8.Assume that the consortium wants employees to pay half of the final premium. Furthermore, assume that the consortium accepts your base case (moderate) bid. Finally, the consortium wants to limit the family coverage premium to twice that of the individual coverage premium. What are the resulting premium costs to employees under single and family coverage? Explain why the premium costs to employees calculated for this question are not the same as the premium costs calculated in the model.

9.In your opinion, what are three key learning points from this case?