Question

Ronald 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.

1. The monthly premium cost to Ronald for the Blue Cross/Blue Shield plan will be $45.07. For all doctor office visits, prescriptions, and major medical charges, Ronald will be responsible for 15 percent and the insurance company will cover 85 percent of covered charges. The annual deductible is $400.

2. The HMO is provided to employees free of charge. The copayment for doctors' office visits and major medical charges is $5. Prescription copayments are $8. The HMO pays 100 percent after Ronald's copayment. There is no annual deductible.

3. The POS requires that the employee pay $26.09 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 25 percent of all charges after he pays a $600 deductible. The POS will pay for 75 percent of those covered visits. There is no annual deductible for in-network charges.

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 three times during the year at a cost of $115 for each visit. He also spent $98 and $80 on prescriptions during the year. (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.)

If Ronald selects the POS plan, what would his annual medical costs be? (Round your intermediate calculations and final answer to 2 decimal places.)

Answer 1

As per the details: The HMO is provided to employees free of charge. The copayment for a doctor's office visits and major medical charges are $5. Prescription copayments are $8. The HMO pays 100 percent after Ronald's copayment. There is no annual deductible.

General Physician visit was 3 times, so if he enrolls with HMO total cost will be $115 instead of $345 ($115*3); Prescription payment will be $16 instead of $178 ($80 and $98), further once co-payment is done HMO pays 100%.

Calculation table:

Particulars	Per unit cost	Total visits/payments	Total cost	Calculation
Copayment for doctors' office visits and major medical charges	$5.00	3	$15.00	=15*3
Prescription co-payments	$8.00	2	$ 16.00	=8*2
			$31.00

So the total costs Ronald will pay if he enrolls in the HMO plan = $31