Fred's Fasteners is a manufacturing company that has decided they are large enough to choose to be self-insuring for employee health insurance. The Chief Financial Officer has asked for some projections on the costs to the company for the next fiscal (also a calendar) year. Analysts studying records for prior periods have decided on the following assumptions.
January employment level will be 9,250, and is expected to increase in subsequent months by a percentage randomly chosen from a uniform distribution, minimum of -2%, maximum of 4%
Each emplyee will contribute $325 per month. This is fixed for the year.
Payable health care benefits (costs) for the program will be about $625 for January but will rise by a randomly determined percentage that is normally distributed with a mean value of 0.4% and standard deviation of 0.15% each month from the prior month.
There is also a processing cost of $75 per month per employee paid to Blue Cross who will be handling the claims processing.
1. What is the Expected cost to the company for next year?
2. The CFO wants to set a budget amount that we have a confidence level of 85% that we won't go over budget. What figure should be used?
3. What is the highest company cost found in the simulations?