hi dear,

Your first impression was that this task should be a \"piece of cake,\" as you had performed a similar analysis for a hospital during your internship. However, as you began the task, it became apparent that the ratios used and their intelpretations differ across industries; that is, the ratios that are critical to identifying the financial condition of a hospital are not necessarily the same ratios that are critical to a managed care plan. In addition, many of the ratios that are relevant to both hospitals and managed care plans have values that differ substantially. Consider the medical loss ratio (defined as medical expenses divided by premium revenue), which measures the proportion of premium revenue that is spent on providing member healthcare services. Clearly, this ratio is not applicable to providers such as hospitals. Many policymakers propose that large group insurance plans should spend at least 85 percent of premiums on medical services. If they fail to do so, then insurers should pay a rebate to customers. (Does Commonwealth meet this requirement? Also, what do you think of the choice of terminology for the medical loss ratio?) To help the executive committee interpret your presentation, you plan to point out key differences between your analysis for a health plan and analysis for a hospital as they emerge. In addition, you know that identifying key areas of concem and recommending courses of action is more important than merely going over the numbers. 11