Life & Health Insurance Exam (National Portion)Health InsuranceMedium
A client has a comprehensive major medical policy with a $500 deductible and an 80/20 coinsurance clause. The policy also has a $5,000 out-of-pocket maximum. If the client incurs $25,000 in covered medical expenses, how much will the insurance company pay?
- A$20,500
- B$20,000
- C$24,500
- D$19,600
Show answer & explanationAnswer & explanation
Correct answer: D. $19,600
First, subtract the deductible: $25,000 - $500 = $24,500. Then, apply coinsurance: $24,500 * 80% = $19,600. The client's share would be $4,900, which is less than the $5,000 out-of-pocket maximum, so the maximum does not apply.
Why the other options are wrong
- A. Incorrect, likely a miscalculation of coinsurance or deductible application.
- B. Incorrect, does not account for the deductible or applies coinsurance to total expenses.
- C. Incorrect, this is the amount remaining after the deductible, before coinsurance.
Major Medical Expense Calculation
The process of determining the insurer's and insured's financial responsibility for medical expenses under a policy with a deductible, coinsurance, and out-of-pocket maximum.
- Deductible is paid first by the insured.
- Coinsurance applies to the remaining balance after the deductible.
- Out-of-pocket maximum limits the insured's total spending on deductibles and coinsurance.
Memory trick: Deductible first, then coinsurance, then check the max.