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Business Finance EBK HEALTHCARE FINANCE: AN INTRODUCTION

a) To describe: Primary characteristics of managed care plans. Introduction: Managed health care plans refer to those insurance plans which provide health insurance to individuals within a group, having a common sponsor, such as an employer. These plans have been designed to reduce insurance costs and streamline the process of receiving health care services. Managed health care plans present following primary characteristics: Plan sponsor: Since managed health care plans are group-based plans instead of individual insurance contracts, the administration for the beneficiaries is handled by the plan sponsor who can be the group representative or in case of a company, its management. Health insurance network: Managed health care plans have a network of medical service providers and those who are insured under the plan can avail plan benefits only from the services of providers who are within the network. Group negotiation: Since the insurance is purchased for all the beneficiaries of the group together, the terms and conditions and subjects covered are considered cumulatively. Cheaper rates: Presence of larger number of members covered by the plan, the group is in a position to negotiate cheaper rate compared to an individual policy, similarly, service providers agree to lower rates as they can have access to larger number of patients. b) To describe: Different types of managed care plan. Introduction: Managed health care plans may be classified based on the flexibility of insurance network provided by the plan. Different types of managed health care plans are as follow: Health maintenance organization (HMO): Under the HMO plan, the beneficiary or the employee is provided with the least amount of flexibility in the selection of health care service provider. The beneficiary has to select the health care professional or clinic only out of those which are within the insurance network, in case the beneficiary visits a non-member service provider, those costs shall not be covered. Preferred provider organization (PPO): Under the PPO plan, the beneficiary or the employee can visit even those service providers who are currently not in the insurance network. Although the maximum benefit is given only in case of member service providers, still, a lot of the costs associated with out-of-network providers are also covered by the plan, giving the beneficiary maximum flexibility. Exclusive provider network (EPO): Under the EPO plan, the beneficiary or the employee can choose to avail the services of any provider within the network, without having to go through the primary care physician as under the HMO plan. Point of service (POS): Under the POS plan, the beneficiary or the employee can choose their own physician who has agreed to provide services at discounted rate. This offers the employee with option to select any desired physician who agrees to the plan, however, a specialist can only be contacted after contacting the initial physician.

a) To describe: Primary characteristics of managed care plans. Introduction: Managed health care plans refer to those insurance plans which provide health insurance to individuals within a group, having a common sponsor, such as an employer. These plans have been designed to reduce insurance costs and streamline the process of receiving health care services. Managed health care plans present following primary characteristics: Plan sponsor: Since managed health care plans are group-based plans instead of individual insurance contracts, the administration for the beneficiaries is handled by the plan sponsor who can be the group representative or in case of a company, its management. Health insurance network: Managed health care plans have a network of medical service providers and those who are insured under the plan can avail plan benefits only from the services of providers who are within the network. Group negotiation: Since the insurance is purchased for all the beneficiaries of the group together, the terms and conditions and subjects covered are considered cumulatively. Cheaper rates: Presence of larger number of members covered by the plan, the group is in a position to negotiate cheaper rate compared to an individual policy, similarly, service providers agree to lower rates as they can have access to larger number of patients. b) To describe: Different types of managed care plan. Introduction: Managed health care plans may be classified based on the flexibility of insurance network provided by the plan. Different types of managed health care plans are as follow: Health maintenance organization (HMO): Under the HMO plan, the beneficiary or the employee is provided with the least amount of flexibility in the selection of health care service provider. The beneficiary has to select the health care professional or clinic only out of those which are within the insurance network, in case the beneficiary visits a non-member service provider, those costs shall not be covered. Preferred provider organization (PPO): Under the PPO plan, the beneficiary or the employee can visit even those service providers who are currently not in the insurance network. Although the maximum benefit is given only in case of member service providers, still, a lot of the costs associated with out-of-network providers are also covered by the plan, giving the beneficiary maximum flexibility. Exclusive provider network (EPO): Under the EPO plan, the beneficiary or the employee can choose to avail the services of any provider within the network, without having to go through the primary care physician as under the HMO plan. Point of service (POS): Under the POS plan, the beneficiary or the employee can choose their own physician who has agreed to provide services at discounted rate. This offers the employee with option to select any desired physician who agrees to the plan, however, a specialist can only be contacted after contacting the initial physician.

EBK HEALTHCARE FINANCE: AN INTRODUCTION

EBK HEALTHCARE FINANCE: AN INTRODUCTION

6th Edition

ISBN: 9781567937428

Author: Gapenski

Publisher: YUZU

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Moose Enterprises finds it is necessary to determine its marginal cost of capital. Moose’s current capital structure calls for 50 percent debt, 30 percent preferred stock, and 20 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 9.6 percent; preferred stock, 9 percent; retained earnings, 10 percent; and new common stock, 11.2 percent. a. What is the initial weighted average cost of capital? (Include debt, preferred stock, and common equity in the form of retained earnings, Ke.) b. If the firm has $18 million in retained earnings, at what size capital structure will the firm run out of retained earnings? c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 20 percent of the capital structure, but will all be in the form of new common stock, Kn.) d. The 9.6 percent cost of debt referred to earlier…

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