Part 1: How much will the Baulding family pay?

The family's total expenses for three members are as follows:

• $631
• $1,647
• $195

Step 1: Apply the deductible for each family member

The insurance plan has a deductible of $250 per person, which means the first $250 of expenses for each individual is paid entirely by the family.

• For the first member:
  $631 - $250 = $381 (expenses eligible for reimbursement)

• For the second member:
  $1,647 - $250 = $1,397 (expenses eligible for reimbursement)

• For the third member:
  $195 - $250 = $0 (expenses below the deductible; the family pays the full $195)

Step 2: Calculate the 20% co-insurance paid by the family

The insurance covers 80% of eligible expenses, so the family pays 20% of the eligible expenses for the first two members:

• For the first member:
  20% of $381 = $76.20
  Total paid by the family for this member: $250 deductible + $76.20 co-insurance = $326.20

• For the second member:
  20% of $1,397 = $279.40
  Total paid by the family for this member: $250 deductible + $279.40 co-insurance = $529.40

• For the third member:
  Expenses are below the deductible, so the family pays the full $195.

Step 3: Total family payment

Adding up all costs:

• Member 1: $326.20
• Member 2: $529.40
• Member 3: $195

Total paid by the family: $1,050.60

Rounded to nearest dollar: $1,051

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Part 2: How much will the insurance company pay?

The insurance company pays 80% of eligible expenses:

• For the first member:
  80% of $381 = $304.80

• For the second member:
  80% of $1,397 = $1,117.60

• For the third member:
  The insurance pays $0, as expenses are below the deductible.

Total paid by the insurance company: $304.80 + $1,117.60 = $1,422.40

Rounded to nearest dollar: $1,422

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

The correct choice is:

A.

• Advantages: A flexible spending account (FSA) allows the Bauldings to pay for health care expenses not covered by insurance (e.g., co-pays, deductibles, and other qualified expenses) using pre-tax dollars, reducing taxable income.
• Disadvantages: The FSA has a "use it or lose it" rule, meaning any unused funds by the end of the year are forfeited.

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Summary

1. Family pays: $1,051
2. Insurance pays: $1,422
3. Flexible Spending Account Benefits: Use pre-tax dollars to cover health expenses. Main disadvantage is forfeiture of unused funds.

Would you like a breakdown of FSAs or clarification on calculations?

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Related Questions:

1. How does a flexible spending account compare to a health savings account (HSA)?
2. Can the Bauldings negotiate lower prescription drug costs to reduce expenses?
3. What are other ways to minimize out-of-pocket healthcare expenses?
4. How does the "use it or lose it" rule vary among different employers?
5. What pre-tax benefit programs are available apart from FSAs?

Tip:

Always estimate your medical expenses for the year before contributing to an FSA to avoid losing unused funds.