Question

Walter Burton was a self-employed window washer earning approximately $700 per week. One day, while cleaning windows on the eighth floor of the Commercial Bank Building, he tripped and fell from the scaffolding to the pavement below. He sustained severe multiple injuries but miraculously survived the accident. He was immediately rushed to the local hospital for surgery. He remained there for 51 days of treatment, after which he was allowed to go home for further recuperation. During his hospital stay, he incurred the following expenses: surgeon, $2,400; physician, $1,200; hospital bill for room and board, $300 per day; nursing services, $1,500; anesthetics, $600; wheelchair rental, $100; ambulance, $150; and drugs, $350. Walter has a major medical policy that has a $3,300 deductible clause, an 80 percent co-insurance clause, internal limits of $160 per day on hospital room and board, and $1,500 as a maximum surgical fee. The policy provides no disability income benefits.

Explain the policy provisions as they relate to deductibles, co-insurance, and internal limits.

How much should Walter recover from the insurance company?
$  
How much must he pay out of his own pocket?
$  

Would any other policies have offered Walter additional protection? What about his inability to work while recovering from his injury?

Based on the information presented, how would you assess Walter's health care insurance coverage?


Explain.

Answer 1

Deductible:In health insurance policies, there are clauses such as ‘deductible’ which limit the liability of the insurance company to a pre-determined extent as specified in the insurance policy document. These are important clauses in health insurance as the claim of the insured will be impacted by the ‘deductible clause. Let us look at what this clause mean and how it impact the settlement of claim.

A deductible is an amount the insured needs to pay before the insurance company becomes liable to pay up. Hence, if the policy document of an insured person specifies the deductible as Rs20,000, the insurance company becomes liable for payment only when the amount exceeds Rs 20,000. For example, if the claim submitted by the insured is for, say, Rs 30,000, the insurance company will be liable to pay only Rs 10,000 (i.e. Rs 30,000 less deductible of Rs 20,000). However, if the claim is for Rs 15,000, the insurance company is not liable to pay any amount at all.

There are high and low deductible insurance policies available from the insurance companies. The high deductible policies are available at a lower premium, while the low deductible policies are available at higher premium.

Coinsurance:Coinsurance is the amount of money insured will pay out of pocket for a covered medical or health care cost after you pay the deductibleon your health care plan. Coinsurance is usually expressed as a percentage amount. The coinsurance clause will indicate what percentage you will pay, and what percentage the insurance company will pay.

With coinsurance the insurance policy beneficiary shares the cost of the insured service with the insurance company at a predetermined percentage outlined in the coinsurance clause of the policy.

Internal Limit:Certain benefits have a limit on how much the plan will cover. This can be done in two ways, either by placing a maximum dollar amount on coverage or by limiting the number of days the plan will cover a condition or treatment. Some plans may try to hide internal caps by failing to mention this in the table of benefits, so it’s important to read through the benefit wording in the Certificate to avoid any misconceptions. These benefit caps, also known as internal limits, can be potentially applied to hospital visits, whereby the plan may only cover hospitalization up to $500 per day, or only cover 15 days of hospitalization. Internal benefit caps like these can lead to expensive bills so be sure to be familiar with the benefit wording and how the plan works in practice.

Parriculars	Amount($)
Surgeon	2400
Physicion	1200
Room(300*51)	15300
Nursing services	1500
Anesthetics	600
Wheelchair rentals	100
Ambulance	150

Drugs.	350
Total	21600

Deductible clause is $3300.So insurance company can be held liable to pay maximum $18300 (21600-3300).

Due to coinsurance clause of 80% insurance company will pay 20%of 21600=$4320

Out of this also internal limit set for hospital room,only $160/day will be paid by insurance company and $1600 for surgical.

Hence (300-160)*51=$7140 will be paid by Walter for room and $900(2500-1600) will be paid by him.

On the basis of above insurance company will pay $4320 and rest $ 17280(21600-4320)

He should have taken a policy when coinsurance clause would have been of lower percentage and should also have higher hospital room per day limit and surgical charges.

Due to his inability to work he would not get any income during such time.He should have taken some social security insurance which would provide him regular flow of income during his injury period.

Policy is not wise for Walter.It has very high coinsurance and low room day and surgical charges.