(This case study can be used for quantitative reasoning ability for healthcare managers. It is based on price decision of a health insurance product.)
Background situation
‘Health4all’ a health insurance
company, discovered a town in sub-urban area with a population of 1 lac people. They found that no health
insurance company has so far tapped this area and a significant number of
people are desirous of buying a health insurance product. Buoyed by the
business opportunity, the CEO asked the operations head to start working on selling
your insurance plan here, with a clear stated objective of maximizing profit.
As an operations head you made
all arrangement to launch your flagship health insurance policy in the town,
which gives the customer a cover of 1 lac rupees for a premium of Rs. 1000/-. Customer have to undergo a
health check-up (paid by the company) to determine any pre-existing diseases.
Company doesn’t pay for the treatment of pre-existing diseases found in health
check-up.
Based on the past data you have
some good prediction of saleability of the plan,
1. At
Rs. 1000/- as a cost to buyer, 20% of the population will buy the plan
2. Change
in cost to buyer is inversely proportional to the change in number of buyers
Before launching you thought of
collecting some epidemiological data and found that a significant number of
people in this town suffers from 3 distinct type of diseases, which are not
prevalent in other places. The usual health check-up under the policy, doesn’t
include test of these 3 diseases. This may affect your profitability as you
will not be able to exclude those who have any of these 3 disease as pre-existing.
Additional data
So, you started gathering
information on prevalence of these diseases and costs involved in test and
treatment of these diseases, which is given below
Disease
|
Prevalence
|
Test cost
|
TT cost
|
A
|
0.5%
|
200
|
75000
|
B
|
1%
|
100
|
20000
|
C
|
2%
|
200
|
5000
|
If you include any of these tests
in your plan, you will have to ask the customer to pay the test cost separately
to the lab. This means that cost to buyer will increase, leading to
proportionate decrease in number of buyers.
If you do not include these tests,
number of people equivalent to prevalence will take treatment of the disease
and will claim for the treatment amount, during policy period. This will reduce
your profitability.
Questions to be solved
- If you do not take any new information in consideration and just go by your past data, how many people will buy your plan? What will be the total amount you collect from premium?
- Continuing with answer of the above question, how many people will claim for treatment of pre-existing disease A, B and C? What will be the total amount you have to pay to settle for these claims? What profit remains.
- If you include tests for all 3 diseases, how much cost will increase for buyer? how many people will now buy your plan at this cost?
- Continuing with answer of question 3, how much amount you have to pay to settle the claims arising out of treatment of pre-existing diseases A, B and C?
- List out all possible options that you have with regards to inclusion or exclusion of the given diseases’ tests in health check-up.
- Which option should you go ahead with?
