Question

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) The monthly premium cost to Ronald for the Blue Cross/Blue Shield plan 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 HMO 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. There is no annual deductible. c) The POS 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 with no annual deductible. He can also choose to use a health care provider out of the network and pay 20 percent of all charges after he pays a $500 deductible. The POS will pay for 80 percent of those covered visits. 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 two prescriptions during the year. What annual medical costs will Ronald pay using the sample medical expenses provided if he enrolls in the Blue Cross/Blue Shield plan? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

Ronald's annual medical costs under the Blue Cross/Blue Shield plan, considering the premium, deductible, and coinsurance, would amount to $1161.84. This is calculated by adding his annual premium of $507.84 to the full cost of his medical expenses, as they do not exceed the $500 annual deductible.

Step-by-step explanation:

To calculate Ronald's annual medical costs under the Blue Cross/Blue Shield plan, we need to take into account the monthly premium, deductible, and coinsurance rate of 20%.

1. Calculate the annual premium: $42.32 monthly premium × 12 months = $507.84.
2. Calculate the total cost for doctor's visits: 4 visits × $125 per visit = $500.
3. Since Ronald's total cost for visits does not exceed the deductible, he will pay the full $500 for the doctor's visits.
4. Calculate the total cost for prescriptions: $65 + $89 = $154.
5. Ronald pays 20% of the prescription cost after the deductible has been met: $154 × 20% = $30.80.
6. However, since the deductible for Ronald's visits has covered the full cost, he needs to first meet the deductible with his prescription expenses. Therefore, Ronald pays the full prescription cost of $154, as it does not exceed the deductible.
7. Combine the costs to determine total annual medical expenses.

Annual premium: $507.84

Doctor's visits: $500

Prescriptions: $154

Total annual medical costs = $507.84 + $500 + $154 = $1161.84