Economic Issues Simulation Paper
HCS/440
University of Phoenix

Individuals are encouraged to get insured, which serves as their proactive assurance of the possible risks that they may face in the future. By getting insurance, the person is able to minimize these risks. For instance, one may opt to buy insurance in order to have a fall back in case of a large loss or casualty, thus they can still be secure of a regular premium. Quite ironically, insurance has been one of the profit avenues of some companies. Profit can be gained in the insurance business because gaining the premium from the probability of a certain loss will still have a higher possibility of the same event to reoccur.
Castor Collins Health Plans
The main idea of insurance is letting the consumers or buyers give up a part of their money on a regular basis as their way of preparing for probable risks or losses. The clients of Castor Collins can choose between two plans of the company. The Standard plan will not cover the previous conditions, while the Castor Enhanced Plans can be used to cover up for the prior conditions of the client. Recently though, with the new Chief Financial Officer of the company, Helen Feuerman, the insurance company has come up with a better strategy that can provide them with greater profits. This is called the Castor Enhanced Minor. This new program basically eliminated all the company services that have a high level of utilization from their clients. With this, it is exciting to find out how exactly Castor Collins will have the new policies of the company contribute to their improved profit gain and cost reduction.
The main measurement of the impact of their policies is the premiums and benefits. Thus, it is important to know how the company will measure these factors objectively. First, the changes in the premium will directly affect the number of customers of the company. Higher premiums would mean lesser customers; especially those who still cannot see the importance of expensive health plans. Consequently, improving the benefit system will also greatly reduce the profit margin of the company. The profit policy of Castor Collins now is the equivalence to the total premiums deducted with the probability of getting sick (of the clients) multiplied by frequency that the insurance holders get sick. The new plan implemented by Feuerman aims to reduce the illness probability of their clients by eliminating the high cost health insurance. Every business will naturally have its excess cost in order to smoothly run a business. These costs are referred to as loading costs. In an insurance business, this cost will depend greatly on the number of customers and the kind of insurance claims. Being in a perfect competition market structure, the Castor Collins will naturally need pass on the costs to the customers, or else it would be tough for them to grow and compete. The technique would be to avoid covering costs for those events that are known to occur more frequently. It is crucial for Castor Collins to carefully analyze their customers, in order to come up with the most appropriate policy that is geared towards covering the loading cost from the mere rate they give to customers.
Constructit
There are around 1000 individuals working for Constructit, which are paying $4000 for their annual premium. Almost 32% of the Constructit company employees showed stable physical health based on their employee profile. The rest of the 43% are more at risk since they are mainly dealing with sedentary activities (University of Phoenix, 2010). The general risks among the employees of the company are injuries and obesity.
E-Editors
Almost all the 1,600 employees of E-Editors are willing to pay at most $4500 as a contribution for their annual premium. The people in this company have less physically strenuous activities. They just sit in front of the computer almost the entire day, and are hugely dealing with sedentary jobs. Apparently, there is a very low risk for acquiring injuries, but the main concern would be the stress-related illnesses or stress-related injuries (SRI). Specifically, these employees are also most likely to acquire eye problems, which have actually been detected in almost 95 percent of the employees (University of Phoenix, 2010). Aside from the ones mentioned above, the employees of E-editors are also at risk of obesity, uncontrolled cholesterol level, and other health issues associated with the lack of physical activity.
Castor Collins Decision
The sort of profiles presented above is the kind of considerations that Castor Collins need to have. As a matter of fact, it can extend to analyzing the individual needs of the potential clients. Comparing the workforce profile of the two companies, it can be seen that employees from Constructit Company have fewer health risks, compared to those from E-editors. There is an almost 50 percent difference between the frequency and number of employees being sick between E-editors and Constructit. Most of the E-editor employees basically avail of the hospital services more often. In this case the Constructit is more beneficial since their premium contribution is lower, which means lesser health services for them. Aside from this, there is also lesser number of smokers in Constructit, only 10% of their employees, compared to E-editors that have 26 percent. It has also been found out that a certain percentage of the employees have arthritis, probably because of the highly sedentary nature of their job. Finally, the age bracket of the two companies varies greatly, as well. E-editors have older members, which means greater need for health insurance. Overall, Constructit is truly the most beneficial client. Insurance companies know very well that older people would require higher range of health care services, and might even be admitted to the hospitals more often than expected. There will be series of outpatient days, several prescriptions, among others. If this continues, the marginal benefit and the marginal cost would just be equal, which means zero profit for the company. Castor Collins aims to gain profit by making sure that the cost for the series of health services must be offset by mitigated risks of getting sick. With this, offering the new Castor Enhanced Minor to Constructit will benefit the company more than offering it to E-editors.
Choosing the Correct Plan for Constructit One of the ways to evaluate the insurance plan is through cost-benefit analysis (CBA). This method is best implemented with the Cost-effectiveness analysis (CEA) because these two methods incorporate the goals of the company when it comes to finding solutions to different problems. It is also crucial to meet the goals of the clients. For instance, the goal of Constructit is to have a health insurance for their employees that will not exceed the cost of $4000 every year.
Castor Standard Plan In order to meet the goals of their target client, Castor Collins offered two plans. The standard plan costs only $3,428 every year, which is still under the budget of Constructit. However, as mentioned earlier this plan will not cover pre-existing conditions of the client. These conditions are technically defined as the previous medical problems of the person that has been diagnosed or treated from six months to three years. Given this feature, the standard plan would not be best for the employees of Constructit because 39 percent of the employees are obese, 19.60 percent have high cholesterol, 19.3 percent have hypertension, 17 percent have allergies, and others have their own preexisting conditions, as well.
Castor Enhanced Plan Castor Enhanced Plan is actually beneficial enough, given the conditions of the Constructit employees. The only problem is that it is beyond the annual budget of the company. This plan will cost $4,428 on a yearly basis, and the company can only afford $4000.
Castor Enhance Minor Plan In the perspective of the company, offering the Enhanced Minor Plan is something that can save them from further risk because it is attractive enough to be sold to the clients since it covers the preexisting conditions. However, it will actually incur fewer services to the clients, which means lesser loss. The actual cost of the premium is $3,943, and thus the company can save almost $3.94 million only from clients of Constructit (University of Phoenix, 2010). Moreover, this revised plan already emphasized that there will be no obesity treatment included because of the long series of treatments needed for such condition. The important thing is the preexisting conditions are generally still covered.
Conclusion
The concept behind health insurances is having a disciplined reduction in the money of the people to be invested on insurance premiums, in order to reduce the losses at times when physical illness happens. Hospitalization can cost a lot and thus proper preparation will help lessen the burden. Insurance companies need to conduct a thorough analysis to continuously increase their profits. For instance, Castor Collins has come up with their Castor Enhance Minor Plan, which they offered to the employees of Constructit Company.

References
Getzen, T. E., & Allen, B. H. (2007). Health care economics. Hoboken, NJ: John Wiley & Sons.
University of Phoenix. (2010). Understanding economics for HMOs [Computer Software]. Retrieved from University of Phoenix, Simulation, HCS440 website.