Health Insurance Costs

Paper Summary:

The paper utilizes the example of a car dealership in order to analyze how rising health insurance costs can influence managerial decisions. The paper shows how cutting costs in a high-turnover, sales-dependent business could undermine productivity and harm the firm's bottom line. The paper reveals that the end result could be lost sales, enhanced training costs, and under-utilized overhead that collectively present a price tag exponentially higher than what is saved on health insurance.

Outline:
A Look at the Health Insurance Problem
The Revenue Cost of Unfilled Positions
Maximizing Overhead
Conclusion

From the Paper:

"Rising health insurance costs are creating significant hardship for many American businesses, and present unique challenges from the perspective of managerial economics. When making business decisions and planning budgets, managers must remain mindful of the fact that health insurance costs are escalating and are predicted to keep rising. These costs can provide a direct hit on a firm's overall profitability, and, unlike other expenses experienced by a firm, they are a straight money-out proposition. Health insurance costs are not like a capital investment, such as a piece of equipment, where the money a firm spends will be returned several times over as the equipment is utilized in business operations. When a company experiences a stiff hike in its insurance rates from one year to the next -- simply to maintain the current level of coverage offered to employees -- it is a pure impediment to profitability that can not be turned around to produce revenue."

Sample of Sources Used:

• BlueCross BlueShield of Minnesota (2008). "The story behind rising prescription drug costs." BlueCross BlueShield of Minnesota Web site. Retrieved April 28, 2008 from http://www.bluecrossmn.com/bc/wcs/groups/bcbsmn/@mbc_bluecrossmn/documents/public/mbc1_hl_drugs_story.hcsp.
• Emerson. J. (2000). "Car dealerships." Direct, May 31. Retrieved April 29, 2008 from http://directmag.com/mag/marketing_car_dealerships/.
• Morton, F.S.; Zettelmeyer, F.; and Silva-Risso, J. (2007). "What matters in a price negotiation: Evidence from the US auto retailing industry." University of California at Berkeley Web site. Retrieved April 29, 2008 from http://flomac.haas.berkeley.edu/~florian/Papers/carsurvey.PDF.
• National Coalition on Health Care (2008). "Health insurance cost." National Coalition on Health Care Web site. Retrieved April 28, 2008 from http://www.nchc.org/facts/cost.shtml.
• Tasci, H. (2007). "Managerial economics & business strategy." University of North Carolina at Chapel Hill Web site. Retrieved April 28, 2008 from http://www.unc.edu/~hakan/elon/lec01.pdf.

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