1. An insured who is covered by a major medical policy with an 80/20 Coinsurance clause and a $500 deductible is hospitalized after a hiking accident. If the covered medical expenses total $1,500, the insured will pay a MAXIMUM of:
Answer: C
The insured will pay a MAXIMUM of $700.
After applying the deductible and calculating the coinsurance, the insured's maximum out-of-pocket expense amounts to $700. This is determined by first subtracting the $500 deductible from the total medical expenses of $1,500, leaving $1,000. Then, with an 80/20 coinsurance clause, the insured is responsible for 20% of that remaining amount, which totals $200, thus resulting in a total payment of $700 when combined with the deductible.
A) $0
This option is incorrect because the insured must first satisfy the $500 deductible before any coinsurance applies. Since the total medical expenses are $1,500, the insured cannot have a total payment of $0.
B) $200
This option is misleading as it only considers the coinsurance portion of the medical expenses after the deductible. While the insured is responsible for 20% of the amount after the deductible, this does not account for the initial $500 that must be paid first, making this option incomplete.
C) $700
This option is correct because it accurately reflects the total amount the insured will pay. After the $500 deductible is subtracted from the $1,500 total, the remaining $1,000 incurs the 20% coinsurance responsibility, which is $200. Adding the deductible and the coinsurance results in a total of $700.
D) $1,000
This option is incorrect as it miscalculates the total amount owed. While it might seem logical to add the deductible to the entire medical expenses, the coinsurance must be applied to the amount remaining after the deductible has been paid. Therefore, the insured's payment does not reach $1,000.
Conclusion
The correct answer is $700, which is derived from the $500 deductible plus the 20% coinsurance on the remaining $1,000 after the deductible is applied. All other options fail to accurately account for the deductible or misinterpret the application of coinsurance, leading to incorrect calculations. Thus, $700 is indeed the maximum the insured will pay in this scenario.