Question

Which of the following is true about the 80/20 coinsurance provision in a major medical policy?

The insurer covers 80%, and the insured covers 20% of covered expenses.
The insured covers 80%, and the insurer covers 20% of covered expenses.
Both the insurer and insured cover 80% of covered expenses.
There is no coinsurance provision in major medical policies.

Answer 1

An 80/20 coinsurance provision in a major medical policy indicates that the insurer pays 80% and the insured pays 20% of covered healthcare expenses after the deductible is met. This form of cost-sharing encourages policyholders to be more conscientious about their healthcare spending.

Step-by-step explanation:

The question revolves around the concept of coinsurance, which is commonly found in major medical policies. In such a provision, after the deductible has been met, the insurer and the insured share the cost of covered expenses at predetermined percentages. Specifically, an 80/20 coinsurance provision means that the insurer covers 80% of the covered expenses after the deductible has been paid, and the insured covers 20% of the costs. This form of cost-sharing is implemented to reduce moral hazard by ensuring that the insured party also has a financial stake in their healthcare costs. Coinsurance, along with deductibles and copayments, motivates policyholders to make prudent healthcare decisions, possibly leading to lower overall healthcare expenditures.