91Ó°ÊÓ

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 \(H M O\) 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 \(P O S\) 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. If Ronald selects the POS plan, what would annual medical costs be?

Step by step solution

01

Calculate Costs for Blue Cross/Blue Shield

For the Blue Cross/Blue Shield plan, Ronald will pay a 20% responsibility for all medical costs.**Annual Premium Cost:**- Monthly cost = \(42.32- Annual cost = \)42.32 \times 12 = \(507.84**Doctor Visits:**- Total cost = 4 visits \times \)125 = \(500- Ronald's cost = 20% of \)500 = 0.20 \times \(500 = \)100**Prescriptions:**- Total cost = \(65 + \)89 = \(154- Ronald's cost = 20% of \)154 = 0.20 \times \(154 = \)30.80**Total Annual Cost:**- Total = Premium + Doctor Costs + Prescription Costs = \(507.84 + \)100 + \(30.80- Total = \)638.64.

02

Calculate Costs for HMO

For the HMO plan, Ronald only pays the copayments for visits and prescriptions.**Annual Premium Cost:**- Free for employees, so the premium cost = \(0**Doctor Visit Copayments:**- Copayment for each visit = \)10- Total = 4 visits \times \(10 = \)40**Prescription Copayments:**- \(5 for each prescription- Total prescription cost = 2 \times \)5 = \(10**Total Annual Cost:**- Total = Doctor Visit Copayments + Prescription Copayments- Total = \)40 + \(10 = \)50.

03

Calculate Costs for POS Inside Network

The POS plan has copayments similar to the HMO when using in-network providers. However, since Ronald used an out-of-network provider, we will only mention the calculations required for in-network providers later if needed.

04

Calculate Costs for POS (Out-of-Network Provider)

For out-of-network services, there's a \(500 deductible, and after reaching this, Ronald pays 20%.**Annual Premium Cost:**- Monthly cost = \)24.44- Annual cost = \(24.44 \times 12 = \)293.28**Doctor Visits (Out-of-Network):**- Total cost = 4 visits \times \(125 = \)500- Due to the \(500 deductible, Ronald covers this amount himself, so the insurance coverage does not happen as exact \)500 is spent.- Ronald's cost = \(500 (as this hits deductible limit and stops)**Prescription Costs (In-Network Pharmacy):**- According to the given data, considered as copayment- Total = \)10 (copayment rates similar to HMO in-network rates)**Total Annual Cost for POS:**- Total = Premium + At Limit Costs for Doctor + Prescription Costs- Total = \(293.28 + \)500 + \(10 = \)803.28.

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Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Premium Costs

Premium costs refer to the amount you pay, typically on a monthly basis, to maintain health insurance coverage. These costs vary significantly depending on the type of plan chosen. In Ronald's case, the Blue Cross/Blue Shield plan requires a monthly premium of \(\\(42.32\), whereas the Point of Service (POS) plan costs \(\\)24.44\) per month. The Health Maintenance Organization (HMO) plan, on the other hand, offers free premium coverage to employees.

Understanding premium costs is crucial since it represents the baseline expense required just to be covered under a specific plan. The lower monthly premium of the POS plan might seem attractive, but potential users should consider other factors as well, such as copayments and deductibles.

• Blue Cross/Blue Shield: \(\\(507.84\) annually
• HMO: Free
• POS: \(\\)293.28\) annually

Choosing between different health insurance options involves comparing these premium costs alongside expected medical needs and other out-of-pocket expenses.

Copayments

Copayments are fixed fees paid at the time of receiving medical services or purchasing prescriptions, required for each visit or prescription filled. Ronald discovered that these vary significantly between plans, and understanding them is essential when evaluating costs.

For the HMO plan, copayments are straightforward. A \(\\(10\) cost for office visits and \(\\)5\) for prescriptions means predictable expenses, which can facilitate budgeting. With the POS plan, copayments follow similar rules when using network providers. However, going out-of-network may change these rules as Ronald found out.

• HMO copayments: \(\\(10\) per doctor visit, \(\\)5\) per prescription
• POS (in-network): Same as HMO

Your out-of-pocket expenses heavily depend on these copayments, particularly if you frequently see doctors or need prescriptions. Plans with lower copayments are beneficial if continuous medical care is required.

Deductibles

A deductible is the amount you must pay each year for your medical expenses before your health insurance begins to cover the costs. This concept is important because it outlines what needs to be spent on eligible out-of-pocket costs before insurance aids effectively.

In Ronald's analysis, the Blue Cross/Blue Shield and out-of-network POS options both feature a \(\\(500\) deductible. Simply put, Ronald will pay all medical expenses up to \(\\)500\) before falling into the insurer's payment structure.

• Blue Cross/Blue Shield: \(\\(500\) deductible
• HMO: No deductible
• POS (out-of-network): \(\\)500\) deductible

A plan with a high deductible might seem uneconomical if frequent visits or medical services are necessary. Evaluating how often you'll need care, and your anticipated annual medical costs, aids in selecting a plan that makes financial sense.