In what situation would step variable costs come into play in health plans?

Step variable costs are the costs that can change in response to the level of activity but in increments rather than proportionately. In the context of health plans, these costs are particularly relevant when considering minimum staffing requirements that correspond to membership volume.

When an organization experiences changes in membership, it may reach certain thresholds that necessitate additional staffing to maintain effective operations and ensure quality service delivery. For example, as enrollment increases, a health plan may need to hire additional personnel to manage the increased workload, thereby reflecting the nature of step variable costs.

This relationship highlights how step variable costs react to specific thresholds—up to a point, costs remain constant, but once a certain level of membership is reached, additional costs (such as hiring more staff) are incurred. This dynamic is crucial for financial planning and resource allocation in health care organizations, as it helps in forecasting costs related to increasing membership and ensuring that staff levels meet demand without overspending.

Other situations provided in the options do not fundamentally change costs in a way that aligns with the concept of step variable costs. Service quality improvements and reducing administrative overheads, for instance, might involve more fixed costs or incremental changes in a more linear fashion rather than in distinct steps associated with membership volume changes. Fixed payment allocations relate