Question

In: Finance

Let's say your health insurance plan has the following features:   • Deductible: $500 • Coinsurance: 80/20...

Let's say your health insurance plan has the following features:  

• Deductible: $500 • Coinsurance: 80/20 (you pay the 20%; insurance company pays 80%) • Out-of-Pocket Maximum: $5,000  

Now, let's say that you go to the hospital and incur $7,500 worth of medical expenses. How much do you have to pay out of pocket?  

  1. What would be your out-of-pocket cost for $20,000 of annual medical expenses?

  2. What would be your out-of-pocket cost for $40,000 of annual medical expenses?

Solutions

Expert Solution

first part;

medical expenses 7,500
less; deductible (500)
net expense 7,000
amount of net expense to be met by policy holder ($7000*20%) 1,400
Total of out of pocket (500 deductible + 1400 met by policy holder) 1,900

second part;

medical expense 20,000
less; deductible (500)
net expense 19,500
amount of net expense to be met by policy holder ($19,500*20%) 3,900
total out of pocket payment ($3900+500) $4,400

third part;

medical expense 40,000
less; deductible (500)
net expense 39,500
amount of net expense to be met by policy holder ($39,500*20%=>$7900) but subjected to a maximum of $5000 5000
total out of pocket payment (500+5000) $5,500

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