What is the income calculation for a health plan when determining operating profit?

The determination of operating profit for a health plan primarily involves assessing the profitability derived from its core operations, which includes underwriting. The formula focuses on how much profit is generated specifically from the activities directly related to health plan operations, subtracting the administrative expenses that are necessary to maintain those operations.

Using underwriting profit as the basis, which represents the profit from premiums collected after accounting for paid claims and expenses related to that underwriting activity, allows for a clear understanding of how efficiently the health plan is generating profits. By subtracting the administrative expenses from this underwriting profit, one arrives at the operating profit. This equation provides insight into the health plan's operational efficiency and effectiveness in managing both revenues from premiums and costs associated with claims and administration.

Other options misrepresent the components of operating profit. For instance, calculating operating profit through net income and non-operating income does not focus solely on core operations, as it incorporates income sources that are not relevant to ongoing operational performance. Similarly, combining revenues and administrative expenses does not reflect a true calculation of profitability, as it fails to consider claims costs which are essential to determining true operational efficiency. Lastly, subtracting underwriting profit from medical claims does not provide a coherent picture of operating profit since it does not account properly for the revenue side