Let's break down the expenses and calculate what the Baulding family and the insurance company will pay.

Part 1: The Baulding Family's Share

1. Individual Medical Expenses:

   • Family Member 1: $943
   • Family Member 2: $1,870
   • Family Member 3: $200

2. Deductible Applied (per person):

   • Each family member must pay the first $250 of their expenses before insurance covers 80%.

3. Calculating Out-of-Pocket Expenses for Each Member:

   • Family Member 1:

     • Total expenses = $943
     • Deductible = $250
     • Remaining amount = $943 - $250 = $693
     • Insurance covers 80% of $693 = $554.40
     • Family Member 1 pays: $250 + (20% of $693) = $250 + $138.60 = $388.60

   • Family Member 2:

     • Total expenses = $1,870
     • Deductible = $250
     • Remaining amount = $1,870 - $250 = $1,620
     • Insurance covers 80% of $1,620 = $1,296
     • Family Member 2 pays: $250 + (20% of $1,620) = $250 + $324 = $574

   • Family Member 3:

     • Total expenses = $200
     • Deductible = $250 (since $200 is less than the deductible, insurance doesn't cover any amount)
     • Family Member 3 pays the entire $200.

4. Total Out-of-Pocket Costs for the Baulding Family:

   • $388.60 + $574 + $200 = $1,162.60 (rounded to $1,163)

Part 2: The Insurance Company's Share

1. For Family Member 1, insurance covers $554.40.

2. For Family Member 2, insurance covers $1,296.

3. For Family Member 3, insurance pays $0 (no amount remaining after deductible).

4. Total Insurance Payment:

   • $554.40 + $1,296 = $1,850.40 (rounded to $1,850)

Final Answer:

• The Baulding family will pay: $1,163
• The insurance company will pay: $1,850

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Part 3: Benefits and Drawbacks of a Flexible Spending Account (FSA)

Answer:

The best choice here is B. An FSA would allow the Bauldings to pay for health care expenses not covered by insurance (such as co-pays, deductibles, and other medical expenses) with pre-tax dollars. The primary disadvantage is the "use it or lose it" policy, meaning any money left in the FSA at the end of the year will be forfeited.

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Do you want more details or have questions? Here are some related questions to explore:

1. How do pre-tax contributions to an FSA increase take-home pay?
2. What is the annual limit for FSA contributions?
3. Can unused FSA funds be rolled over to the following year in some plans?
4. How would a health savings account (HSA) compare to an FSA for the Bauldings?
5. Are there restrictions on what can be paid using an FSA?

Tip: FSAs can be a great way to manage predictable healthcare costs, but careful planning is essential due to the "use it or lose it" policy.