Question

Bonnie and Clyde are married and have purchased a comprehensive major medical policy which covers them and their two sons, Smith and Wesson. The policy has a $500 calendar year family deductible, a $2,500 stop-loss provision, and an 80% co-insurance clause. The following losses occur: On January 1, 2013 Bonnie was treated for an infection at a cost of $200, on July 1, 2013 Smith was treated for an injury suffered while waterskiing at a cost of $10,000, on December 5, 2013 Clyde underwent eye surgery at a cost of $1,500, and on January 5, 2014 Wesson was treated for a broken leg at a cost of $2,000. How much will the insurer pay for each of these losses?

Answer 1

A stop-loss provision in a medical insurance refers to the maximum amount of out-of-pocket expenses; beyond which insured is not required to pay his/her co-insurance percentage. So, for the given question, Bonnie and Clyde will be contributing their 20% in medical expenses, unless they reach $2,500 of stop-loss. Beyond this amount, entire expense will be paid by insurance company in a calendar year. However, in the given question, since there is $500 family deductible, all expenses up to $500 will be paid by insured only and insurer will start paying expenses once $500 limit is reached.

Date	Total Expense	Expense paid by Bonnie & Clyde (20% of total expense)	Expense paid by Insurance Company (80% of expense)	Aggregate expense by Bonnie
01-Jan-13	$200	$200	$0	$200
01-Jul-13	$10,000	$300 + $1,940 = $2,240	$7,760	$2,440
05-Dec-13	$1,500	$60	$1,440	$2,500

Since the last claim was made in a new year, the stop-loss provision and family deductible limit gets reset at $2,500 and $500 again.

So, amount paid by insurer on 5- Jan-14 = ($2,000 - $500) x 80% = $1,200