Amortization of prior service cost listed under pension expense is an example of a fixed cost. Fixed costs remain unchanged due to changes in operations and this cost remains unchanged at $ 15 million in both 2012 and 2013 financial years. Amortization involves the paying off of a debt through a fixed schedule in regular installments. Interest costs are another example of fixed costs. This is because financing costs are fixed based on the rate agreed for repayment of debt. Any changes in the operations of an organization will not affect the amount of repayment costs paid out to both short term and long term creditors. Interest expense changed from $135 million in 2012 to $153 million in 2013. This may have been due to increase in borrowing but not because of changes in operations. Since fixed costs do are not affected by volume changes in business, they cannot be used as indicators on whether a business increased its operations or not (KPMG, 4).
Variable costs
Variable costs change in proportion to the services provided by an organization. In the case of Kaiser Medical health plan, examples of variable costs are medical expenses costs, hospital services costs and outpatient pharmacy and optical costs. These costs are depended on the volume of operations of the company, and change accordingly. Medical services costs increased from $24341 million in 2012 to $25685 million in 2013. Similar changes were recorded in hospital services costs that changed from $ 13738 million to $14798 million and outpatient pharmacy and optical services that changed from $ 5137 million to $5288 million over the same time period. Variable costs, as indicated by these three examples increased between 2012 and 2013 and this in indicative of increased business volumes for the business.
Pricing Models
Kaiser Foundation Health Plan Inc. and Kaiser Foundation Hospitals are run as not for profit organizations. Their core business is the provision of health care plans and operation of non for profit hospitals. The pricing models employed by the organization do not focus on profit making, but rather on provision of affordable health care.
The company sells premiums to clients for health care coverage. In setting price for its premiums, the organization considers expected claim costs, administrative costs and investment income. The pricing model takes into account these variables in the setting of the price of premiums for health care and as a result, its premiums are considerably lower than most of its competitors. In this case, the pricing model employed is the forecast pricing model since insurance coverage involves making realistic estimations on the occurrence of risks and charging an appropriate premium to cover such risks.
In its health facilities, the organization uses transaction based pricing model. In this model, clients are charged on the basis of the services that they receive from the organization’s health facilities. The same model is used when providing pharmacy services to clients since they are charged only for the medications that they receive. Low pricing as a pricing model extends to the health care facilities that the organization operates. The organization benefits from grants from other charities and this enable it to lower pricing for medical care in its facilities. The organization also employs a model where it has salaried doctors and medical practitioners rather than paid per service. This reduces the temptation by doctors to increase charges by conducting unnecessary procedure. Transaction pricing model is very appropriate for the services that the organization provides in its health facilities.
Forecast pricing model is used by the organization in the pricing of its insurance products. This is used especially in the provision group health insurance cover to other corporate organization. In this model, the company estimates the costs that it is likely to incur in such coverage using actuarial analysis. This is then used to determine the premiums that will be charged to such organizations for health coverage.
2014 Budgeting challenges
Uncertainty in the budgeting process regarding forecasting of revenues and expenses due to new regulations occasioned by the passage of Obamacare law will have an adverse impact on the budgeting process. It cannot be realistically determined if the new regulations will have a positive or negative impact on revenues and claim expenses of the organization.
Obamacare is a new law, and as such has brought with it new regulations that must be observed by insurers and health facilities. These new regulations affect the operations of such organizations since new members of staff have to be hired to deal with these regulations. Training has to be carried out to ensure that existing employees are aware of these new regulations. All these changes require financial resources to implement, and Kaiser Foundation Healthcare Inc had to make budgetary allocations for them. This means that the budget adjusted upwards as a result. Obamacare has therefore had the effect of increasing the budgetary allocations for training. If such allocations had not been, then the implication is that under-budgeting would have occurred. New regulations as a result of Obamacare that may result in higher non recurrent expenses will increase the difficulty of the budgeting process.
The regulations brought about by Obamacare require that medical facilities change the way that they charge for their services. The likely implication of this is that the organization will be unable to meet its revenue projections. Budgeted revenues will not be achieved and this may affect the ability of the organization to meet its obligations to clients and employees.
Regulations in the new law require that doctors and other medical staff always upgrade their written records to electronic version. This is meant to ensure that such records are used in a meaningful way. Upgrading manual filing systems to electronic filing requires large investment in equipment to carry out such conversion. Electronic files also have a higher risk of being compromised or lost, and exposing doctors and facilities to lawsuits for breaking of privileges. The costs of new equipment will have to be integrated in 2014 budgets and this will be as a result of introduction of Obamacare. Evaluation of risks associated with data loss and insurance of such risks will be a challenge that has been introduced to the budgeting process as a result of Obamacare.
Works Cited
KPMG (2014). Kaiser Foundation Health Plan, Inc. And Subsidiaries snd Kaiser Foundation Hospitals And Subsidiaries, Combined Financial Statements December 31, 2013 and 2012
