Question

Question #1: All Care Health Maintenance Organization is seeking a managed care contract with Sure Teeth, a locally owned dental supply company. All Care estimates that the cost of providing preventive and curative care for the 500 employees and their families will be $120,000 per month. The Sure Teeth has offered All Care a premium bid of $250 per employee per month. If All Care accepts this bid and contracts with Sure Teeth, will All Care earn a profit or loss for the year? How much? What premium per employee per month does All Care need to break even? If All Care wants to earn $120,000 in profit for the year, what is the required premium per employee per month? What concerns might exist for All Care that is not captured in this analysis?

Answer 1

Calculation of Profit/ Losse

​​​​​​Revenue for 500 emplot=125000

(500×250)

Total Cost =120000

Profit =5000

Calculation of premium per employee per month at Break even

Given fixed cost is 120000

No.Of employees is 500

Premium price at break even is 120000/500=240

Premiume price to earn profit of 120000 per employeeper month

Given cost 120000

Required profit 120000

Total is 240000

Premium is 240000/500=480

Note:- All above calculation are done with an assumption that given 120000 is a fixed cost and there is no viarable cost