Suppose that Larrys annual deductible for his health insurance plan is $10,000. His coinsurance rate is...

Suppose that Larrys annual deductible for his health insurance plan is $10,000. His coinsurance rate is 25%. The price of healthcare is $100 per visit, and Luke goes on 200 visits per year (after losing his hand, he’s REALLY sickly). Answer the following questions:

How much does Luke spend out-of-pocket on healthcare?

If Luke’s health insurance policy has a maximum out-of-pocket of $15,000, will this policy affect him? WHY or WHY NOT.

Expert Solution

This Question is from the field of Actuaries.

Coinsurance rate of 25% means that out of 100% medical expenses, the Insurance plan covers just 75% of that and the rest 25% will need to be paid by Larry.

Annual Deductible Paid: $10,000

Total Expenditure on Health Care = 200 visits*$100 = $20,000

Coinsurance paid: 25/100*20,000 = $5000

Annual Deductible Paid: $10,000

Larry's Total Out of Pocket Expenditure: $5,000 + $10,000 = $15,000

Given what he pays and what he needs, we see that the policy will impact him. This is because what he pays for the plan, that is the total Out of Pocket Expenditure is equal to $15,000, while the Total expenditure on his health care turns out to be $20,000. Thus, he saves $5000 ($20,000 - $15,000) by taking this insurance plan. Thus the policy affects him positively.

Rahul Sunny answered 2 years ago

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