Question

Sarah’s comprehensive major medical health insurance plan at work has a deductible of $600. The policy pays 85 percent of any amount above the deductible. While on a hiking trip, she contracted a rare bacterial disease. Her medical costs for treatment, including medicines, tests, and a six-day hospital stay, totaled $9,030. A friend told her that she would have paid less if she had a policy with a stop-loss feature that capped her out-of-pocket expenses at $3,800. The policy with the stop-loss feature has the same deductible and coinsurance requirement as Sarah's current policy.

Determine which policy would have cost Sarah less and by how much. (Round your intermediate calculations and final answer to 2 decimal places.)

Current policy

Stop-loss feature

No difference in Sarah's cost for this claim.

Answer 1

Deductible = $600

Policy payment = 85% above deductible

Medical costs = $9,030

Out of pocket expenses cap in stop-loss feature suggested by her friend = $3,800

Step 1: Find the own amount paid by Sarah under current policy

Medical costs = $9,030

Less: Deductible = $600

Net Amount eligible for claim after deductible= $8,430

Policy payment = 85% * Net Amount eligible for claim after deductible = 85% * $8,430 = $7,165.50 or $7,166.

Total Amount paid by Sarah (out of pocket expenses) = Medical costs - Policy payment

=$9,030-$7,166 = $1,864.50

Step 2: Compare with the Out of pocket expenses cap under Stop-loss feature

Out of pocket expenses cap of Stop-loss feature policy = $3,800

Since the out of pocket expenses paid by Sarah under current plan is $1,864.50 which is less than the cap limit of $3,800, there will be no difference whether or not Sarah had the stop-loss feature in the policy.

Even if she had stop-loss feature, she would have still paid the same $1,864.50 from her own funds.

Thus, her friend is wrong as stop-loss feature does not reduce the out of pocket expenses for this particular medical expense.