Monte Carlo simulation

BellyFull is a large and growing chain of restaurants that specialises in traditional Caribbean foods. The restaurant has its main office in Bronx NY. The company has become large enough that it no longer buys insurance from private insurance company. BellyFull has grown to be self-insured, paying health insurance claims with its own money. Some of the administrative details are outsourced, so that it can focus on the core strategic and operational issues of the company. The money the company uses to pay claims comes from two sources: (1) employees' contributions - premiums deducted from em ployees' monthly salary and (2) company funds - the company's contribution. The company's contribution is equal to the amount not covered by the employees' contributions. Each employee covered by the health plan contributes $120 per month. However, the number of employees covered by the plan changes from month to month as employees are hired and fired, quit, or simply add or drop health insurance coverage. A total of 14,500 employees were covered by the plan last month. The company records show that the average monthly health claim per covered employee last month was $240. Company's record also shows that [i] the number of months that shows an increase of 1%, 2% or 3% increase in that number of employees (monthly) (see Table 1); (ii) the average monthly claim per employee increased by 1% and (iii) monthly contribution per employee was held constant Table 1 -Months of 56 Increase of Employees 96 Increase of Employees {I} Number of Months .5 Leann has been hired as an analyst in the corporate planning department of Belly-Full Restaurant. Her rst assignment is to determine how much money the company needs to accrue in the coming year to pay for its employees' health insurance claims. Scenarios Leann is considering the following scenarios in determining BellyFull's yearly and average monthly contribution to the health coverage of its employees: A. Develop a basic model that covers the information given B. Not convinced that the basic model is realistic, develop a model with the following assumptions {i} number of covered employees can decrease by a maximum of 2% and increase by a maximum of 4%; (ii) in addition to the 5230 average claim and the 1% average monthly increase in claim per employee, the monthly claim can be approximated by a normal distribution, with a standard deviation of $3. QUESTION B EMPLOYEE NUMBER =14,500 EMPLOYEE DECREASE = 2% MIN EMPLOYEE INCREASE = 4% MAX NORMAL DISTRIBUTION = 240 INCREASE BY 1% STANDARD DEVIATION = $3