Problem:
Prydain Pharmaceuticals is reviewing it employee health-care program. Currently, the company pays a fixed fee of $300 per month for each employee, regardless of the number or dollar amount of medical claims filed. Another health-care provider, ABC Health, has offered to charge the company $100 per month per employee and $30 per claim filed. If your calculations result in non-integer (non whole numbers) results, please leave them that way and do not round the results to integer values.
1) Based on this information, over what range of claims filed per month per employee should Pyrdain stay with its current program and for what range should it select ABC Health's offer?
2) Suppose that the average number of claims filed per month per employee is currently five (5). ABC Health has indicated that the $30 per claim filed is negotiable. With everything else being the same, what is the maximum Prydain would be willing to pay to be indifferent between the two plans?
3) Suppose a third insurer, MedCare, charges $200 per month per employee and $10 per claim filed. Over what range of claims filed per month would Pyrdain prefer each of the two alternatives? For this analysis, do not consider the current plan (fixed fee of $300 per month per employee).