Question

A health insurance policy pays 75 percent of physical therapy costs after a $300 deductible. In contrast, an HMO charges $17 per visit for physical therapy. How much would a person save with the HMO if he or she had 10 physical therapy sessions costing $40 each? (Do not round intermediate calculations.)

What is the amount of savings?

Answer 1

Given,

Coinsurance rate = 75% or 0.75

Deductible = $300

Cost per visit = $17

No. of visits = 10

Cost per session = $40

Solution :-

Health Insurance Policy :-

Coinsurance expenses = (No. of visits x cost per session) - deductible

= (10 x $40) - $300

= $400 - $300 = $100

Insured's cost = Deductible + [(1 - coinsurance rate) x coinsurance expenses]

= $300 + [(1 - 0.75) x $100]

= $300 + [0.25 x $100]

= $300 + $25 = $325

HMO :-

Insured's cost = No. of visits x cost per visit

= 10 x $17 = $170

Now,

Amount of savings = Insured's cost(health insurance policy) - Insured's cost(HMO)

= $325 - $170 = $155