Reference no: EM132146445

Assignment - Healthcare Decision

Frank is retiring after 38 years working for a large company. He is 60 years old, too young to get Medicare and will need health insurance until he can (at age 65). Fortunately, he has a number of good options available to him. But which is the best?

The objective is to get good healthcare at a reasonable cost. The key characteristics of the plans available are listed in the table below. The percentages given are percentages paid by the insured. The remainder of the costs for the services are covered by the insurance company (after deductible limits are met). The detailed services covered by each plan are the same, only the costs and amounts covered by insurance vary.

Additional points to consider:

• Frank is retired and every penny counts. Cost should consider all expenses Frank incurs including cost of insurance, cost of deductibles and out of pocket expenses.
• Deductible costs are payed up front. Deductibles apply to all services except Prescription Drugs and are payed for each service until the deductible limit is reached.
• The Out-of-Pocket Maximum does not include the deductible and only applies to medical expenses not paid by insurance (i.e., uncovered Imaging, Hospitals and Other (not Office Visits and Drugs)) after the deductible.
• Deductible and Out-of-Pocket expenses apply on a yearly basis and do not roll over.
• Medicare provides primary coverage for individuals starting at 65. As Frank is only 60, he only has to find healthcare coverage for the next 5 years.
• Preventative services are covered by all plans 100% (including Frank's current plan). This includes routine exams, immunizations, routine cancer screenings and other services that protect good health and identify potential problems early. These are not counted in deductibles.
• COBRA (Consolidated Omnibus Budget Reconciliation Act) provides employees the right to choose to continue their group health plan for a limited period of time at the full cost of the plan. In Frank's case, this is 18 months and the full cost of the plan is represented in the table above. After that timeframe, Frank must choose another health plan. Assume that the best choices available are the Healthworks or Advantage plans.
• Frank is in good health and rarely exceeds the $1,000 deductible of his current plan.
• Frank occasionally requires an office visit for minor issues (flu, infections, aches and pains, etc.). Assume an expected average of one office visit per year at a cost of $200 (subject to deductible limits and before payments from the insurance company). If necessary, assume a worst case of one office visit per month at that cost but this is unlikely.
• Frank occasionally requires drugs for various reasons. Assume an expected average of once per year at a cost total cost of $50 (subject to deductible limits and before payments from the insurance company). If necessary, assume a worst case of $1000 per month for drug costs but this is unlikely.
• Frank has not been in the hospital since he had his tonsils out when he was 5 and he is healthy. But there is always a possibility of getting in a major car accident, having a heart attack, getting cancer or other activity that would require a significant hospital and medical expense. Assume a probability of a major medical expense based on the following:

• The NTSB suggests the probability of getting in a serious automobile accident in your lifetime is 30%.
• The Mayo Clinic suggests the probability of Frank having a heart attack in the next 10 years is about 15%.
• The American Cancer Society estimates that the probability of males getting some form of cancer between the ages of 60 and 69 (10 years) is 15%.
• Assume these are independent events contributing to significant medical expenses.
• Assume a major accident or medical event will require hospitalization and treatment costing $60,000 per year on average (based on CDC data). If necessary, assume a worst case hospitalization or treatment cost of $120,000 per year.

Notes:

1. Office Visits, Drugs and Imaging/Hospital expenses are independent situations that sum to a cost. They could be represented as a combination of events but this would be more complex and unnecessary. A better approach may be to introduce calculation nodes into the decision process to sum the independent expected values.

2. Deductibles and Out-of-Pocket Maximums can apply across multiple event categories and instances. To avoid adding unnecessary complexity to the solution, it may be simpler to apply these at the end (e.g., to the largest expected value for the branch).

Questions:

1. What are the major steps of the Decision Analysis Process we use in this class and what key elements are identified/produced in each step?

2. What are the Objectives, Planning Horizon, Values, Decisions, Uncertain Events, and Consequences for this problem?

3. Draw the Influence Diagram for this problem along with the Consequence Matrix for the problem (including the decisions, events and consequence).

4. Draw the Decision Tree for this problem. Include the probabilities for uncertain events. You may assume reasonable probabilities for uncertain events based on the problem statement above.

5. Perform a Variable and Probability Range Sensitivity Analysis on the problem.

a. Construct a Variable Range Table for each variable.

b. Construct a Tornado Diagram including all the variables

c. Which variable has the most impact on the outcome?

d. Construct a range table for a Probability Range Sensitivity Analysis for each critical variable using the simplified approach. Do so by adjusting the probability for the expected value of the variable to be 20% (i.e., it is likely to occur once in 5 years).

e. Which probability range has the most impact on the outcome?

6. What is the best healthcare decision for Frank based on your analysis? What will it cost Frank each year? What are the risks with this decision, if any?

7. How can Bayes rule be applied to this problem? What variables could it be applied to? What information would be needed to apply it?

Attachment:- Assignemnt Files.rar