Free Essay Sample «Health Finance »

«Health Finance »

American medical security group Inc provides medical service and medical insurance services. Financial management and working capital management play an imperative role in ensuring profitability of various activities. Pricing and payment of fees charged by the company involves incorporation of the costing methods in the determination of the prices for the organization services. The organization considers the internal structure, since it operates a vast number of branches and subsidiaries in different states, in United States of America. Determination of the pricing model involves assembling of costs, while incorporating the complexity of hierarchical internal structure(Craig, 2011). Comprehensive assembling of costs and expenditures involves assessment of recently published financial statements, prepared by the financial department. Effective and efficient cost management strategy involves a comprehensive analysis of the organization performance.

Cost management involves both long term and short term strategies, where the long term strategies involve consideration of global factors such as the American forecasted political situation, as well as other countries where the firm outsources raw materials or export their services and goods. The short term aspect of cost management includes changes in the market dynamics and intensified competition from other competitors in the industry. This was reflected in 2011, when the organization minimized the manufacturing costs and increased the advertising costs to respond to the aggressive marketing adopted by its competitors(Maher, 2005).

Differential costing is a method of costing, which is essential in decision making where the costs and revenues vary across different alternatives. When the firm is evaluating decisions regarding the expansion, closing and reduction of an existing service, differential costing is used. Differential costing method involves calculation and determination of the expenses to be incurred during the expansion. The second step involves estimation of the revenues expected on implementation of such expansions. If the expected profits are higher than the estimated costs, the strategy can be termed as successful. On implementation, the estimated costs and revenues are put on a comparative chart, which indicates the degree of success. For example, the organization decision making process in 2004, when the firm started offering short term care facilities was dependent on differential costing(Craig, 2011). The firm carried out an evaluation of the manufacturing and marketing costs, which were compared with other years and formed a basis of projection. The projection indicated that in five years the profits will increase by 10-13%, over the initial investments.

The capital structure and decision regarding the capital structure in a firm play an essential role in determining the organization’s sources of funds. American medical security group Inc has a mix of long term and short term securities, as well as debt in its capital structure. However, the organization has changed management of it securities since the global recession in the period 2008-2010(Maher, 2005). The use of short term securities creates short term financial obligation in the organization, and the firm has embarked on issuance of long term securities rather than short term securities. The shareholders have also opted to retain the short term securities rather than sell them in external markets. For example, the company issued 143, 453 short term securities in 2007, and only 93, 321 shares in 2011. The long term shares have increased by 13%, from 2007, to 2011. The organization has also embarked on reduction on reducing debt financing as it has allocated 40% of all its accrued revenues in payment of the existing and emerging liabilities. Market indicators show that the organization is going to manage its liabilities more effectively as long as the profit allocation remains(Craig, 2011).

Currently American medical security group Inc is operating as for profit organization and the organization is obliged to pay the entire set of taxes of for-profit organizations. A change of the organization from profit oriented to non-for-profit organization will reduce the tax burden. However, the overall organization structure will have to be reconsidered, and organization's profits will not be shared among the shareholders and the partners of the organization(Craig, 2011). In addition, the accrued benefits of the organization will be spent on meeting the specific needs.

The health care reforms on affordable health care are expected to affect the performance of the organization positively. This is due to the simplification of the tax procedures, which provides lucrative tax havens used by medical security(Craig, 2011).



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