Personal Finance 1st Edition by Jack R. Kapoor

Exercise 26

Ronald Roth started his new job as controller with Aerosystems today. Carole, the employee benefits clerk, gave Ronald a packet that contains information on the company’s health insurance options. Aerosystems offers its employees the choice between a private insurance company plan (Blue Cross/Blue Shield), an HMO, and a PPO. Ronald needs to review the packet and make a decision on which health care program fits his needs. The following is an overview of that information.

a. Blue Cross/Blue Shield plan: The monthly premium cost to Ronald will be $42.32. For all doctor office visits, prescriptions, and major medical charges, Ronald will be responsible for 20 percent and the insurance company will cover 80 percent of covered charges. The annual deductible is $500.

b. The HMO is provided to employees free of charge. The copayment for doctors’ office visits and major medical charges is $10. Prescription copayments are $5. The HMO pays 100 percent after Ronald’s copayment. No annual deductible.

c. The POS requires that the employee pay $24.44 per month to supplement the cost of the program with the company’s payment. If Ron uses health care providers within the plan, he pays the copayments as described above for the HMO. He can also choose to use a health care provider out of the service and pay 20 percent of all charges after he pays a $500 deductible. The POS will pay for 80 percent of those covered visits. No annual deductible.

Ronald decided to review his medical bills from the previous year to see what costs he had incurred and to help him evaluate his choices. He visited his general physician four times during the year at a cost of $125 for each visit. He also spent $65 and $89 on prescriptions during the year. Using these costs as an example, what would Ron pay for each of the plans described above? (For the purposes of the POS computation, assume that Ron visited a physician outside of the network plan. Assume he had his prescriptions filled at a network–approved pharmacy.

What total costs will Ronald pay if he enrolls in the HMO plan?

Step 1 of 3

Ronald wants to take health insurance for the employees of the company.

a) Blue cross/Blue Shield Plan:

The monthly premium costs $42.32

The annual deduction is $500

Insurance company will cover 80%.

b) HMO:

The major medical charges are $10

The prescription copayment $5

100% after Ronald’s copayment.

c) PPO:

The employee payment is $22.44 per month

The deduction is $500

The insurance coverage after deduction is 80%

The number of visits are 4

The cost per visit is $125

Amount spent towards prescription are $65 and $89

Total payment under HMO is the addition of copayment made for every doctor visit and prescription copayment.

The formula to find the Copayment for doctor visit is calculated as:

Substitute the values in the formula:

The copaymnt for doctor visit is $40