20. In a health insurance policy, an insured has an out-of-pocket limit of $10,000, a deductible of $500, and an 80%/20% coinsurance. The insured incurs $50,000 of covered losses in an accident. How much will the insurer have to pay?
Answer: C
The insurer will have to pay $40,000.
To determine how much the insurer will pay, we first need to calculate the total amount the insured is responsible for, including the deductible and coinsurance, and then apply the out-of-pocket limit.
A) $35,500
This option is incorrect because it does not account for the full amount covered after applying the deductible and coinsurance correctly. After the deductible of $500, there remains $49,500 in covered losses, and calculating the coinsurance correctly leads to a larger payment by the insurer.
B) $39,600
This option is also incorrect. While it seems to factor in the deductible and coinsurance, it likely underestimates the amount due to not applying the coinsurance on the correct amount after the deductible has been subtracted.
C) $40,000
This is the correct answer. After the insured pays the $500 deductible, the remaining covered losses amount to $49,500. The insurer pays 80% of this amount, which equals $39,600, but since the total out-of-pocket limit is $10,000, the insurer's payment plus the insured's maximum out-of-pocket payment must not exceed this limit. Therefore, the insurer pays $40,000, ensuring the insured does not exceed the out-of-pocket limit.
D) $49,500
This option is incorrect as it implies the insurer would cover the total remaining amount after the deductible without considering the coinsurance. Since the insured is responsible for 20% of the costs after the deductible, the insurer's payment would not be the entire remaining amount.
Conclusion
The correct answer of $40,000 reflects the insurer's responsibility after the deductible and the application of coinsurance considering the out-of-pocket limit. The other options fail to accurately calculate the insurer's payment based on the deductible and coinsurance, or they exceed the out-of-pocket limit established by the policy.