3. A large national managed care organization

(MCO) recently entered a major Southwestern metropolitan market. The managed care plan anticipated that it would have 75,000 subscribers after two years of an intensive advertising campaign and sales effort. It planned on charging a premium of $1,800 per subscriber. Marketing and personnel costs directly related to this effort were anticipated to be $250 per subscriber. Before the MCO’s entry into the market, two of the large tertiary facilities in the region began to offer their own managed care plans in a physician–hospital organization (PHO) arrangement with their medical staffs. The result was aggressive discounting of the managed care premiums.

The national MCO chain dropped its premium to $1,400 per subscriber. Direct costs remained the same, yet because of the competition the national MCO was only able to enroll 45,000 subscribers.

a. What was the variance from the failure to get the gross marketing contribution?

b. What was the variance from the lack of enrollment success?