Math Problem Statement
The Baulding family has a basic health insurance plan that pays 80 percent of out-of-hospital expenses after a deductible of $ 250 per person. If three family members have doctor and prescription drug expenses of $ 435, $ 1 comma 707, and $ 194, respectively, how much will the Baulding family and the insurance company each pay? How could they benefit from a flexible spending account established through Mr. Baulding's employer? What are the advantages and disadvantages of establishing such an account? Question content area bottom Part 1 The Baulding family will pay $ enter your response here. (Round to the nearest dollar.) Part 2 The insurance company will pay $ enter your response here. (Round to the nearest dollar.) Part 3 How could they benefit from a flexible spending account established through Mr. Baulding's employer? What are the advantages and disadvantages of establishing such an account? (Select the best choice below.) A. A flexible spending account offers the Bauldings the advantage of paying for all health care expenses with pre-tax dollars. The only disadvantage is not having the use of your money all year. B. A flexible spending account offers the Bauldings the advantage of paying for health care expenses not covered by insurance (such as unreimbursed medical or dental expenses including co-pays to doctors, deductibles, and qualified child care) with pre-tax dollars. Disadvantages include the "use it or lose it" feature of the plan; any contributions to the flexible spending account not used by the end of the year are lost.
Solution
Solution:
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Calculate the Total Out-of-Pocket Cost per Person:
- Family Member 1: $435
- Family Member 2: $1,707
- Family Member 3: $194
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Determine Costs After the Deductible:
- For each family member, they first pay the deductible of $250. Any remaining cost after this deductible is subject to the 80% coverage by insurance.
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Apply the Deductible and Insurance Coverage:
- Family Member 1:
- Total expenses: $435
- Deductible: $250
- Remaining amount after deductible: $435 - $250 = $185
- Insurance covers 80% of $185:
- Out-of-pocket for this member:
- Family Member 2:
- Total expenses: $1,707
- Deductible: $250
- Remaining amount after deductible: $1,707 - $250 = $1,457
- Insurance covers 80% of $1,457:
- Out-of-pocket for this member:
- Family Member 3:
- Total expenses: $194
- Deductible: $250 (Since expenses are below the deductible, insurance pays $0)
- Out-of-pocket for this member: $194
- Family Member 1:
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Calculate the Total Amount Paid by the Family and Insurance:
- Total out-of-pocket for the family:
- Total paid by insurance:
Answer:
- Part 1: The Baulding family will pay $1,022 (rounded to the nearest dollar).
- Part 2: The insurance company will pay $1,314 (rounded to the nearest dollar).
Part 3: Flexible Spending Account (FSA) Benefits
- Option B is correct:
- Advantages: An FSA allows the Bauldings to pay for healthcare expenses (like co-pays, deductibles, or other non-covered expenses) with pre-tax dollars, effectively reducing their taxable income.
- Disadvantages: FSAs have a "use it or lose it" feature, so any funds not used by the end of the year are forfeited.
Would you like more details or have any questions?
Related Questions:
- How does a high deductible plan differ from the Baulding family’s plan in terms of out-of-pocket costs?
- What tax savings can a flexible spending account provide for a family with similar expenses?
- How does an FSA compare to a Health Savings Account (HSA) in terms of flexibility?
- If the deductible was higher, how would that impact the Baulding family's out-of-pocket costs?
- What are other pre-tax accounts available for health-related expenses?
Tip: Flexible spending accounts offer pre-tax benefits, but remember to estimate healthcare expenses accurately to avoid losing unused funds at year-end.
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Math Problem Analysis
Mathematical Concepts
Percentage calculations
Deductible calculation
Out-of-pocket expenses
Formulas
Out-of-pocket expenses = Deductible + (Remaining balance after deductible - Insurance coverage)
Insurance payment = Remaining balance after deductible * Coverage percentage
Theorems
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Suitable Grade Level
Grades 10-12
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