General Details:

John Lucas, who works in Membership Marketing, reported that he recently conducted a survey of cost control mechanisms used by other health plans. His analysis revealed that BFI's competitors are increasing their use of these mechanisms, which include copayments, waiting periods, pre-authorization requirements, and exclusions on certain health care services.

"One of the problems, in my opinion, is that the 101App employees have nearly full coverage for all their health care services," remarked Lucas. "The 101App employees should pay some part of their health care services out-of-pocket, so that they share an incentive to stay healthy. BFI only charges a $15 copayment, but many other health insurance plans require that enrollees pay $20 - 25 for each physician office visit. A higher copayment will help us reduce the use of physician services." He showed them the results from a national study that showed a significant relationship between the amount of a copayment and the number of visits to a physician (See Exhibit 3) and recommended that Mr. Fleming consider implementing a larger copayment for each physician visit when the contract with 101App is renegotiated.

Exhibit 3 Sample Means for Annual Use of Health Care Services Level Per Ca - ita _a_ Source: \"Demand for Health Care Services at Different Copayment Levels: Results Based on a National Study of Health Insurance Enrollees" Existing Assumption #1 Assumption #2 $15 $20 $25 Total Costs of Physician Visits (obtained from prior step) Total Number of Visits (obtained from descriptive stat step) Average Cost per Visit (obtained from descriptive stat step) Total Costs Reduction in Physician Costs (dollars) Reduction in Physician Costs (percentage) Existing Assumption #1 Assumption #2 Copayment level $15 $20 $25 Avg. # of Visits per Employee (existing) Estimated Annual Visits per Employee Average Number of Employees New Avg. # of Visits per Employee Total Number of Visits per Week Average Cost per Visit Diff. in New Copayment per Employee New Average Cost per Visit New Total Physician Costs per Week Number of Weeks in Period 25 25 Total Costs of Physician Visits\fTotal Costs of Number of Number of . . . , , , Visit/Emp Cost/Visit Week PhVSICIanVISIts VISIts Employees 1 $77,322 401 4,065 2 $79,177 423 4,065 3 $74,333 404 4,062 4 $73,423 407 4,063 5 $74,535 404 4,069 6 $75,437 432 4,070 7 $74,222 430 4,076 3 $75,499 452 4,076 9 $76,300 457 4,033 10 $76,033 459 4,031 11 $73,332 446 4,033 12 $79,755 431 4,037 13 $30,243 434 4,095 14 $73,993 434 4,101 15 $31,227 491 4,099 16 $34,219 496 4,103 17 $32,177 500 4,112 13 $82,456 450 4,115 19 $31,100 469 4,126 20 $34,211 493 4,130 21 $90,133 495 4,129 22 $95,120 500 4,129 23 $99,865 520 4,129 24 $97,752 505 4,136 25 $93,713 517 4,137 Sum $2,051,68 11605 102426 2.3314177 Mean 32067.43 4097.04 STD 3026.91431 37.7591043 25.9719079 0.0036035 10.499323 3% COD 9.78 8.13 0.63% 7.60 5.94%