Question

oduction to insurance
four health insurance policies
the costs and coverages for four different health insurance policies are listed. premiums are the amount that one pays for the insurance policy.
deductibles are the amounts paid out-of-pocket for an insurance claim before the insurance company pays for expenses. copayments are paid out-of-pocket for each doctor visit. coinsurance is paid out-of-pocket for medical expenses after the policy’s deductible has been met, usually represented as a percentage of the total bill. the out-of-pocket maximum is the limit that a person pays for their health insurance in a given year, including deductible, copayments, and coinsurance.

policy 1
premium: $150 per month
deductible: $2,500 per year
copayment: $20 per doctor visit
coinsurance: 20% after the deductible is met
out-of-pocket maximum: $5,000

policy 2
premium: $350 per month
deductible: $500 per year

lorenzo is a young, healthy college student. he does not have any chronic health conditions and rarely visits the doctor.
choose the correct answers from each drop-down list to complete the sentence.
considering the total annual cost, drop-down would likely be the most affordable option for lorenzo because drop-down.

Explanation:

To solve this, we need to calculate the total annual cost for each policy, considering Lorenzo's low usage (rare doctor visits, no chronic conditions). Let's assume there are two policies (Policy 1 and Policy 2) with the following details (from the image):

Policy 1:

• Premium: $150 per month
• Deductible: $2,500 per year
• Copayment: $20 per doctor visit
• Coinsurance: 20% after deductible (but Lorenzo rarely visits, so likely no coinsurance costs)
• Out - of - pocket maximum: Not relevant for low usage.

Policy 2:

• Premium: $350 per month
• Deductible: $500 per year
• (Copayment/Coinsurance details not fully visible, but premium is higher)

Step 1: Calculate Annual Premium for Each Policy

For a policy, the annual premium is calculated as the monthly premium multiplied by 12 (since there are 12 months in a year).

• Policy 1 Annual Premium:

The monthly premium for Policy 1 is $150. So, the annual premium $P_1=150\times12 = 1800$ dollars.

• Policy 2 Annual Premium:

The monthly premium for Policy 2 is $350. So, the annual premium $P_2 = 350\times12=4200$ dollars.

Step 2: Account for Other Costs (Deductible, Copayment, Coinsurance)

Since Lorenzo is healthy and rarely visits the doctor, we assume he has few (or no) doctor visits. So, his out - of - pocket costs (deductible, copayment, coinsurance) will be minimal or zero.

• For Policy 1: Even though the deductible is $2,500, if he doesn't have large medical expenses, he won't pay the deductible. His main cost is the premium.
• For Policy 2: The premium is already much higher ($4200 vs $1800 for Policy 1) even before considering other costs.

Step 3: Compare Total Annual Costs

The total annual cost for a policy is the sum of the annual premium and any out - of - pocket costs. Since out - of - pocket costs are minimal for Lorenzo, the total cost is approximately equal to the annual premium.

• Policy 1 total annual cost ≈ $1800
• Policy 2 total annual cost ≈ $4200

Since $1800 < 4200$, Policy 1 has a lower total annual cost. For a young, healthy person with rare doctor visits, a policy with a lower premium (even with a higher deductible) is more affordable because the likelihood of incurring large medical expenses (that would require meeting the deductible) is low.

Answer:

Policy 1 would likely be the most affordable option for Lorenzo because it has a lower annual premium, and his low medical usage means he is unlikely to incur high out - of - pocket costs that would make a higher - premium, lower - deductible policy more cost - effective.