Which of the following analytical review procedures would best evaluate the reasonableness of the increase in health-care costs?

An organization’s health-care insurance costs have been rising approximately 10 percent per year for several years.

Which of the following analytical review procedures would best evaluate the reasonableness of the increase in health-care costs?
A . Develop a comparison of the costs incurred with similar costs incurred by other organizations
B . Obtain the government index of health-care costs for the comparable period of time and compare the rate of increase with that of the cost per employee incurred by the organization.
C . Obtain a bid from another health-care administrator to provide the same administrative services as the current health-care administrator.
D . Review all claims and compare with appropriate procedures to ensure that overpayments have not occurred

View Answer

Answer: B

Explanation:

Analytical review procedures involve evaluating financial information by studying plausible relationships among financial and non-financial data.

Government Index Comparison: Comparing the organization’s increase in health-care costs with a relevant government index provides a benchmark to assess whether the cost increases are in line with broader economic trends.

Claims Review: While reviewing all claims could help identify specific overpayments, it is more labor-intensive and less effective for evaluating overall reasonableness.

Competitive Bids: Obtaining bids from other health-care administrators might control future costs but does not evaluate the reasonableness of past cost increases.

Industry Comparison: Comparing costs with those incurred by similar organizations could be useful but might not provide a standardized measure like a government index.

Reference: "Auditing and Assurance Services: An Integrated Approach," which details the use of analytical procedures in evaluating financial data.