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Business Proposal Economic Analysis Essay Sample

Business Proposal Economic Analysis Pages
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The United States health care system relies heavily on private health insurance, which is the main source of coverage for most Americans. According to the Center of Disease Control, approximately 58% of Americans have private health insurance. The primary public programs are Medicare, a federal social insurance program for seniors and certain disabled individuals and Medicaid, also referred to as Medical. These two are funded jointly by the federal government and states but managed at the state level, which covers certain very low income children and their families. Health advocacy companies initiated to become visible to assist patients muddle through the complexities of the healthcare system (Wikipedia, 2014). In 2010 President Obama signed into law the Patient Protection and Affordable Care Act. This Act includes individual mandate that every American must have medical insurance or pay a fine at tax time (Obama Care Facts, 2014).

Before the enhancement of medical expense insurance, patients were presumed to pay health care costs out of their own pockets, which is known as the fee-for-service professional standard. Hospital and medical expense policies were introduced during the first half of the 20th century. During the 1920s, individual hospitals began offering services to individuals on a pre-paid base, eventually leading to the development of Blue Cross organizations. The predecessors of today’s Health Maintenance Organizations (HMOs) originated beginning in 1929, through the 1930s and on during World War II and beyond (Thinking Healthy History, 2014).

Market Structure

An oligopoly is a market structure in which a few firms overshadow. When a market is communally jointed between a few firms, it is said to be highly competitive. Although only a few firms dominate, it is possible that many small firms may also exist in the market. For example, major health care insurances like Etna and Blue Cross operate their plans with only a few close competitors, but there are also many small independent plans for single people or the disabled offering specialty services (Economics Online, 2010 – 2014). Kaiser Permanente is an insurance plan that dominated the market. It evolved from an industrial health care program for construction, shipyard, and steel mill workers for the Kaiser industrial companies during the late 1930s and 1940s. It was opened to public enrollment in October 1945 (Thinking Healthy History, 2014).

Economic Analysis

This business proposal will primarily focus on the demand of the market and the importance of health insurance coverage to consumers and how coverage and premiums change with the competitive environment. The majority of consumers do not have a predisposition for coverage. However, the less healthy individuals would benefit from the greater coverage. In society today there is a necessity to examine the outcomes of certain quality measures on demand on the health insurance market, particularly characteristics of conditions that are modified in the reaction to the changes in the competitive health insurance entity (Dunn, 2010).

Hypothetical Data

The model includes a number of additional variables as controls. The value of the plan increases with the number of increased enrollees. The positive effect of the plan enrollment demand suggests that the patient’s plan offer significantly greater value. The plan type variables such as PPO or HMO capture average demand for these different types of plans. The PPO and HMO plans typically offer broader and less restrictive networks, but they are also relatively not communicated amongst consumers, so potential enrollees may be less familiar with these types of plans. The deductible and out of pocket expense limits changes and affect the timing of the beneficiary out of pocket payments, which may have a different influence on demand than copays and coinsurance. The deductible must be paid before the plan provides coverage, so higher deductibles are undesirable. It seems patients would prefer plans with lower deductibles and plans that have some type of cost limit. Estimates show that plans with a greater number of plan offerings are valued more (Dunn, 2010).

Elasticity of Kaiser Heath Insurance

There are several approaches to estimating the elasticity of insurance offered by employment companies. The first is to apply distinctions in the premiums expressed by them to identify their price consideration. Another approach is to use the distinctions in tax ratios over cities or sates to recognize the price elasticity of recommended insurance. Insurance plans often contain hundreds of plan features that affect out of pocket pay to consumers and may be changed as easily as the premium on the plan. These out of pocket pay benefits may be particular important in the market where a minor of beneficiaries are enrolled in zero premium plans and a large portion of beneficiaries income is spent on out of pocket pay. The demand reveals that out of pocket pay have a significant weight on surplus. There is a wide difference in the amount paid to different plans across the country, with HMO plans being paid more than traditional Medicare and PPO plans being paid even more (Dunn, 2010). The demand for health insurance may be elastic if an increase in price would lead to more than a decrease in subscribers. The HMO would lose profits by raising price. Elastic demand is necessary for there to be a motivation to reduce price (Enthoven, 1993).

Marginal Cost & Marginal Revenue

Marginal revenue is calculated by dividing the difference in total revenue by the change in output quantity. Even though marginal revenue can remain steady over a certain level of output, it follows the law of decreasing returns and will at some point have a delay. As the output level increases the demand for health insurance companies requiring an increase physicians will rise. Perfectly competitive companies continue producing output until marginal revenue equals marginal cost (Investopedia, 2014). If marginal revenue exceeds marginal cost, the HMO can increase profits by cutting price and attracting more members (Enthoven, 1993).

Non Pricing Strategies

Oligopolies and monopolies frequently maintain their level of dominance in a market because it is very costly for prospective rivals to gain access into the market. These obstacles are called barriers to entry and the incumbent can erect them deliberately, or they can exploit natural barriers that exist (Economics Online, 2010 – 2014). Non-price competition is the chosen strategy for oligopolists because price competition can indicate destructive price wars. Examples of non price competition is trying to improve quality and after marketing or spending money on advertising. These are very important to many oligopolists. Health insurance companies has long been sponsored by firms in oligopolies, including Kaiser, Etna and Blue Cross. Sales promotion, such as low premiums or pre existing medical conditions are some of tools to gain an increase in consumer interest. Loyalty schemes are another example of non pricing strategies which are common in the insurance industry sector. Kaiser Permanente offers a health benefit by covering all employee’s and family members health insurance with no deductibles (Economics Online, 2010 – 2014).

Mixed and Variable Cost

Mixed costs are the costs connected with the product that needs to be paid irrespective of the amount sold. No matter how much one sell or don’t sell, one will have to pay for fixed costs. So if a large amount of consumers do not purchase health insurance plans, the physicians on staff will still have to be paid their salaries. Variable costs are directly related to sales. In fact, vary able costs change with sales. As sales go up, so do variable costs. Therefore the more consumers purchasing plans the more the plan premiums will rise. When sales decrease, variable costs de crease. Variable costs are costs of labor or materials that fluctuates with sales. A way for a busi ness to save money is to decrease their variable costs. Conclusion A good arrangement of policy and law changing has the attention on increasing reimbursement rates to address concerns about a rising physician shortage.

The impact of eligibility expand sions are unrelated from the effects of a payment increase. Oligopolies may implement a highly competitive approach, in which case they can create similar advantages to more competitive market structures, such as lower prices. Even though there are insufficient companies making the market uncompetitive, they’re marketing techniques are highly competitive. Oligopolists are dominant in terms of innovation, new product and process development. The super-normal profits they gen erate may be used to revolutionize in which the consumer can secure solidity. Price stability may bring advantages to consumers and the economy because it assists the consumers to plan ahead and improve their expenses, which may benefit the health insurance industry (Economics Online, 2010 – 2014).

References

Dunn, Abe (2010). The Value of Coverage in the Medicare Advantage Insurance Market. Retrieved from https://www.bea.gov/papers/pdf/medicarepaperWorkingPaper9_2_10.pdf

Economics Online. (2010 – 2014). Oligopoly, Defining and measuring oligopoly. Retrieved from http://www.economicsonline.co.uk/Business_economics/Oligopoly.html

Enthoven, A.C. (1993). Why Managed Care Has Failed To Contain Health Costs. Health Affairs, 12, no.3 (1993):27-43 doi: 10.1377/hlthaff.12.3.27. Retrieved from http://content.healthaffairs.org/content/12/3/27.full.pdf

Investopedia (2014). Marginal Revenue. Retrieved from http://www.investopedia.com/terms/m/marginal-revenue-mr.asp

Obama Care Facts. (2014). Dispelling the myths. Retrieved from http://obamacarefacts.com/obamacare-facts.php

Thinking Healthy History. (2014). Our History. Retrieved from http://share.kaiserpermanente.org/article/history-of-kaiser-permanente/#sthash.GFGsSwtk.dpuf

Wikopedia (2014). Health Insurance. Retrieved from http://en.wikipedia.org/wiki/Health_insurance

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