Question

Sarah’s comprehensive major medical health insurance plan at work has a deductible of $650. The policy pays 90 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 $9,860. 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 $3,400. 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

Current policy:

Coinsurance expenses = Total expenses − Deductible = $9,860 - 650 = $9,210

Insured's costs = Deductible + [(1 - Insurance percent) × Coinsurance expenses] = $650 + [(1 - 0.90) × $9,210] = $1,571

Sarah's costs would also be $1,571 with the stop-loss policy since her total costs are less than $3,400. The benefit of the stop-loss feature is that Sarah would not pay more than $3,400 total for her medical expenses for the year. Thus, the stop-loss feature could save Sarah money if she has future claims.