Question

Peter and Lois are a dual-earner couple with a young son, Chris. Peter and Lois each receive health care coverage for themselves from their respective employers. Their employers pay the premiums for the workers, and coverage for dependents is available if the worker pays the premium cost. They are trying to decide which policy to cover Chris under for the upcoming year. The following is a brief description of their policies and projected medical expenses for Chris.

	Peter's HMO Coverage	Lois's Major Medical Coverage
Maximum Limits	unlimited	$500,000/year/person
Deductible/Copayment	$20/doctor's visit, $50/emergency clinic visit, $15/prescription, $ 0/in-hospital charges	$500/year/person
Participation	not applicable	175/20 with a $2,500/year/person cap
Major exclusions	Dental and vision	Prescriptions, dental, and vision
Monthly premiums for dependents	$105/dependent/month	$90/dependent/month

Chris is a healthy 8-year-old who is accident prone. Based on his past medical records, Peter and Lois expect the following covered medical costs for the year:

6 trips to the doctor--average cost of $75 per trip

2 trips to the emergency clinic--average cost of $300 per trip

1 broken bone--average cost of in-hospital surgery $1,250

12 prescriptions--average cost of $45 per prescription

What would the combined cost of premiums plus out-of-pocket medical costs be for Chris under Peter's HMO?

Answer 1

As per the available past record, the total medical expense for Chris per year is = 6 x 75 + 2 x 300 + 1 x 1250 + 12 x 45 = 2840

Annual medical expense as per Peter's HMO coverage = 105 x 12 (premium) + 6 x 20 (copayment) + 2 x 50 (copayment) + 15 x 12 (copayment) = 1660

Annual medical expense as per Lois's Major Medical coverage = 90 x 12 (premium) + 500 (copayment) + 12 x 45 (prescription as major exclusion) = 2120

Clearly, Peter's HMO coverage is better option.