What was the variance because of the failure

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Reference no: EM13210873

A large national MCO recently entered a major southwestern metropolitan market. The managed care plan anticipated that, with an intensive advertising cam­paign and sales effort, it would have 75,000 subscribers after two years. They planned on charging a premium of $1,800 per subscriber. Marketing and personnel costs directly related to this effort were anticipated to be $250 per subscriber.

Prior to the MCO's entry into the market, two of the large tertiary facilities in the region began to offer their own managed care plans in a physician-hospital organization arrangement with their medical staffs. The result was aggressive discounting of the managed care premiums. The na­tional MCO chain dropped its premium to $1,400 per subscriber. Direct costs remained the same, yet because of the competition, the national MCO was only able to enroll 45,000 subscribers.

For this HMO the situation was:


Planned

Actual

Number of subscribers



Premium per subscriber



Direct costs



Subscriber gross marketing



contribution



Sales



Direct costs



Gross margin contribution



(1) What was the variance because of the failure to get the gross marketing contribution?

(2) What was the variance due to the lack of enroll­ment success?

Reference no: EM13210873

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