Question

In: Economics

QUESTION 20 Suppose that managed care costs $3,000 per enrollee and FFS costs $4;000 per enrollee...

QUESTION 20 Suppose that managed care costs $3,000 per enrollee and FFS costs $4;000 per enrollee and each enrolls one-half of the population. Suppose each sees their costs increase by 5 percent over the course of a year. At the end of the year, average patient costs across both groups will have:

A) increased from $3,500 to

B) increased from $4,000 to$4,200

C) stayed constant

Expert Solution

Managed care cost per enrollee = $3,000

FFS cost per enrollee = $4,000

Both programs enroll one-half of the population.

Calculate the average patient cost across both groups -

Average patient cost = [$3,000 + $4,000]/2 = $7,000/2 = $3,500

The average patient cost across both groups is $3,500.

Now, both costs increases by 5%.

Managed cost per enrollee after increase = Initial managed care cost per enrollee + Increase = $3,000 + [$3,000 * 0.05] = $3,000 + $150 = $3,150

FFS cost per enrollee after increase = Initial FFS cost per enrollee + Increase = $4,000 + [$4,000 * 0.05] = $4,000 + $200 = $4,200

Calculate the average patient cost across both groups after increase -

Average patient cost across both groups after increase = [Managed cost per enrollee after increase + FFS cost per enrollee after increase]/2 = [$3,150 + $4,200]/2 = $3,675

The average patient cost across both groups after increase is $3,675.

Thus,

The correct answer is the option (A) [Increased from $3,500 to $3,675].

Rahul Sunny answered 2 years ago

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