Reference no: EM132878692

You are a new manager of a medium-size firm which currently offers health insurance to its workers (it is part of the benefits package so there is no opting-in or out). Under the current package, the firm pays 50% of all healthcare expenses. Last year, the firm paid out $450,000 in reimbursements and the workers (collectively) paid out $450,000 (for a total bill of $900,000).

Problem a. What do you anticipate would happen if you were to decrease the generosity of the health insurance plan to cover 40% (instead of 50%) with your workers paying 60%? More specifically, what would you expect to happen to: (i) your total costs, (ii) the total costs borne by workers, and (iii) total healthcare expenses. Be as specific as possible and make sure to spell out your assumptions.