A client has a comprehensive major medical policy with a $1,000 deductible and an 80/20 coinsurance clause. Their policy also has a $5,000 out-of-pocket maximum (excluding deductibles). If the client incurs $12,000 in covered medical expenses, how much will the insurance company pay?
- A$11,000
- B$9,600
- C$8,800
- D$10,000
Show answer & explanationAnswer & explanation
Correct answer: B. $9,600
First, the client pays the $1,000 deductible. Of the remaining $11,000, coinsurance applies. The client's 20% share is $2,200. This $2,200 is less than the $5,000 out-of-pocket maximum. So, the client pays $1,000 (deductible) + $2,200 (coinsurance) = $3,200. The insurance company pays $12,000 - $3,200 = $8,800. Oh wait, this calculation is incorrect. Let's re-calculate. Covered expenses: $12,000. Deductible: $1,000. Remaining for coinsurance: $11,000. Client's 20% coinsurance: $11,000 * 0.20 = $2,200. Insurance company's 80% coinsurance: $11,000 * 0.80 = $8,800. Total client out-of-pocket: $1,000 (deductible) + $2,200 (coinsurance) = $3,200. This is below the $5,000 out-of-pocket maximum. Therefore, the insurance company pays $8,800.
Why the other options are wrong
- A. This would imply the client paid only $1,000, which is incorrect.
- C. This is the correct calculation for the insurance company's portion after deductible and coinsurance. $12,000 (total) - $1,000 (deductible) = $11,000. $11,000 * 0.80 (insurer's share) = $8,800.
- D. This would imply the client paid only the deductible and coinsurance up to $2,000, which is not the case.
Coinsurance Calculation (Major Medical)
The process of determining the financial responsibility of the insured and the insurer for covered medical expenses after the deductible has been met, up to the out-of-pocket maximum.
- Deductible is paid first by the insured.
- Coinsurance percentage applies to the remaining balance.
- Out-of-pocket maximum limits the insured's total spending.
Memory trick: Deductible first, then Coinsurance, finally check Out-of-Pocket.