A CPA Selects a Medical Care Plan
Your friend Taliesha Jackson of Stillwater, Oklahoma, recently changed to a new job as a CPA in a moderate-size accounting firm. Knowing that you were taking a personal finance course, she asked your advice about selecting the best health insurance plan. Her employer offered five options. In addition, she could open a flexible spending arrangement and pay any premiums she must pay through a premium conversion plan:
- Option A: A comprehensive health insurance plan with a $500 annual deductible and an 80 percent/20 percent coinsurance clause with a $2000 out-of-pocket limit. The policy has a $500,000 lifetime limit. Taliesha must pay $60 per month toward this plan.
- Option B: Same as option A except that a PPO is associated with the plan. If Taliesha agrees to have services provided by the PPO, her annual deductible drops to $100 and the coinsurance clause is waived. As an incentive to get employees to select option B, Taliesha's employer will provide dental expense insurance worth
- about $40 per month.
- Option C: A comprehensive health insurance plan with a $200 annual deductible and a 90 percent/10 percent coinsurance clause with a $1000 out-of-pocket limit. The major medical policy has a $1 million lifetime limit. Taliesha must pay $150 per month toward the cost of this plan.
- Option D: Membership in an HMO. Taliesha will have to contribute $40 extra each month if she chooses this option.
- Option E: A consumer-driven health plan at no monthly cost to Taliesha. The annual deductible is $3000. There is a 90 percent/10 percent coinsurance provision. The annual out-of-pocket maximum is $5000. Her employer offers a $1000 health reimbursement account, and if she chooses, Taliesha can set up a health savings account to help her pay her expenses during the year.
(a) To help her make a decision, Taliesha has asked you to list two positive points and two negative points about each plan. Prepare such a list.
(b) Why might Taliesha's employer provide an incentive of dental insurance if she chooses option B?
(c) Which plan would you recommend to Taliesha? Why?