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Latesha Moore has a choice at work between a traditional health insurance plan that pays 80...

Latesha Moore has a choice at work between a traditional health insurance plan that pays 80 percent of the cost of doctor visits after a $250 deductible and an HMO that charges a $10 co-payment per visit plus a $20 monthly premium deduction from her paycheck. Latesha anticipates seeing a doctor once a month for her high blood pressure. The cost of each office visit is $50. She normally sees the doctor an average of three times a year for other health concerns. Comment on the difference in costs between the two health-care plans and the advantages and disadvantages of each.

Expert Solution

Ans.

Latesha have to visit a doctor (12+3) 15 times a year (once a month for her high blood pressure and three times a year for other health concerns)

The cost of each office visit is $50 (given)

Total annual cost = No. of visit * Cost of each visit

= 15 * 50 = $ 750

In Traditional Health Plan

$ 250 is deductible

Amount paid by Insurance ($750 - $ 250) * 80% = $500 * 80% = $ 400

Latesha has to pay annually = $ 750 - $ 400 = $ 350

In HMO

Co-payment per visit = No. of visit * cost of each visit

= 15 * 10 = $ 150

Annual premium to be paid = 12 * 20 = $ 240

Latesha has to pay annually = $ 150 +$ 240 = $ 390

The alternative with lower cost is to be selected i.e. Traditional Health Plan.

While choosing traditional health insurance plan there is no restriction on the choice of doctor, one can choose any doctor for treatment But in Health Maintenance Organization (HMO) Plan one has to choose doctors and clinics from the predefined list and not by their own choice. The list of doctors is already decided and one has to choose doctor only from the selected list.

But if we consider cost, the per visit cost is minimum in HMO as compared to traditional health plan but if we consider annual cost the traditional health plan is more cost effective than HMO.

jeff jeffy answered 6 months ago

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