An insurance company is concerned about its large expenditures for influenza patients under its present insurance plan. Using annual data for the last 25 years, the company president estimates a linear model relating, P, the number of patients nationwide who incur insurance expenses for flu in year t, and S, the number of flu shots injected during the previous year t-1. The estimated model is

Use this information to answer the following questions:

a.     Interpret the regression coefficient.

b.     Suppose that I forgot to mention that, P, the number of patients was expressed
        in thousands of patients in the data set rather than single patients (for example
        10,850 would be 10.850 thousands). Now go back and interpret the -5.10.
 

Return to the original units to continue this exercise.
 

c.     On average, insurance companies currently pay $28.75 per flu patient. If the flu
        shots cost $9.99 (and any other costs are negligible), would insurance
        companies nationwide be better off to subsidize the cost of the flu shot for
        customers?     Explain.

d.     Suppose our company generally insures 20% of all patients nationwide. Would it
        benefit from subsidizing the shots? If so, how much?

e.     How much could the company pay its customers to get flu shots, in addition to
        paying for the shot, and still benefit?

f.     Forecast the number of flu patients nationwide who will seek reimbursement next
        year, if 3 million people obtain flu shots (assume the subsidy program is not in
        place). Using the information in Part d, forecast the number who will be insured
        by this company. Then, using the information in Part c, forecast the company's
        flu expenditures, if costs do not change next year.
 
 
 

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