health insurance claims
A large manufacturing company self-insures its employee
health insurance claims. That is, it collects a fixed amount each month from
every employee for healthcare costs, and then it pays the entire claim amount
using its own funds to make up the difference. It would like to estimate its
total healthcare payments for the coming year.
The total number of employees at the start of the year is
11,124. The firm expects the number of employees to change each month over the
coming year by a percentage that is uniformly distributed between -2 and 5
percent. Employees contribute $125 each per month toward their healthcare
costs, while the average claim is $250 per month. The average claim itself is
expected to grow by an amount given by a normal distribution with a mean of 1
percent and a standard deviation of 2 percent.
a. What is the expected cost to the company of covering
employee healthcare costs in the coming year?
b. What is the maximum cost to the company of covering
employee healthcare costs in the coming year?
c. What is the probability that costs will not exceed $20
million?
***In addition to answering the question, attach an Excel
file of the model with screen shot(s) of the resulting Total Cost forecast
window that provides the answers.
