Question

The Watson family has a family medical policy that provides the following coverage:

- $250/ person deductible (3 person max)
- $1,000 out-of-pocket limit
- 80/20 coinsurance provision
On a family trip, the watson's were involved in a car accident. four family members were hurt. each person incurred medical expenses for $7,500 how much will the insurance company pay?
A) 23,400
B) 28,250
C) 29,000
D) 29,250

Answer 1

After applying the deductible, coinsurance, and out-of-pocket limit for the Watson family's medical policy, the insurance company will pay a total of $23,400. This calculation takes into account three individuals meeting the deductible of $250 each and all four benefiting from the 80/20 coinsurance, with an out-of-pocket limit of $1,000 for the family. The correct answer is option A).

Step-by-step explanation:

The Watson family has a family medical policy with specific terms including a $250 per person deductible with a 3 person maximum, a $1,000 out-of-pocket limit, and an 80/20 coinsurance provision. With each of the four family members incurring $7,500 of medical expenses, we need to calculate how much the insurance company will pay after all policy limits and cost-sharing features are applied.

First, let's calculate the total deductible for 3 individuals since the policy specifies a maximum of 3 persons. This is 3 persons × $250 = $750. After the deductible, each person's remaining expenses are $7,500 - $250 = $7,250. However, with four individuals injured, we have to remember the policy covers only a deductible for 3 persons.

Next, we have the 80/20 coinsurance, where the insurance pays 80%, and the insured pays 20% of the remaining expenses after the deductible. But, we also have to consider the $1,000 out-of-pocket limit which caps the family's total cost-sharing responsibility at $1,000.

For each of the three individuals to which the deductible applies, the insurance will pay 80% of $7,250, which is $5,800 per person. For the fourth individual (no deductible applied), the insurance will pay 80% of $7,500 which is $6,000. Adding the payments together, we get ($5,800 x 3) + $6,000 = $23,400.
The total cost to the family is thus the $750 deductible plus the out-of-pocket limit of $1,000, so the family will pay $1,750 in total.

Because the out-of-pocket limit is reached with the four family members' expenses combined, the insurance will cover the rest of the expenses totalling the answer of $23,400, which corresponds to option A as the correct choice.