Question

In: Finance

Alonzo has basic coverage and supplemen tary major medical with a $200 deductible, 20 percent co-insurance...

Alonzo has basic coverage and supplemen tary major medical with a $200 deductible, 20 percent co-insurance , and a $2,000 stop loss on co-insurance payments . How much will the major medical coverage pay if Alonzo incurs $1,500 in expenses during the year that are not covered by basic cover age but that are eligible for major medical ? If he incurs $6,000 in eligible expenses ? At what level of eligible expenses will major medical coverage begin to pay 100 percent of additional expenses?

Solutions

Expert Solution

Sol:

a) To determine how much major medical coverage will pay if Alonzo incurs $1,500 in expenses during the year that are not covered by basic cover age but that are eligible for major medical:

Medical expense = $1500

Deductable = $200

Stop loss on co-insurance payments = $2000

Coinsurance provision without stop-loss = 20%

= ($1500 - $200) x 20%

= $1300 x 0.20 = $260

Coinsurance with a stop-loss provision will be = $260

Insurance amount to be paid = $1500 - ($260 + $200)

Insurance amount to be paid = $1500 - $460 = $1040

b) To determine Insurance amount to be paid if Alonzo incurs $6,000 expense:

Medical expense = $6000

Deductable = $200

Stop loss provision on co-insurance payments = $2000

Coinsurance provision without stop-loss = 20%

= ($6000 - $200) x 20%

= $5800 x 0.20 = $1160

Coinsurance with a stop-loss provision will be = $1160

Insurance amount to be paid = $6000 - ($1160 + $200)

Insurance amount to be paid = $6000 - $1360 = $4640

c) Level of eligible expenses will major medical coverage begin to pay 100 percent of additional expenses:

Let the level of expense be X that the coinsurance amount = Stop loss provision on co-insurance payments of $2000

= (X - $200) x 20% = $2000

X = ($2000 / 0.20) - $200

X = $10000 - $200

X = $9800


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