John Chang was seriously injured in a snowboarding accident that broke both his legs and an arm. His medical expenses included five days of hospitalization at $900 a day, $6,200 in surgical fees, $4,300 in physician's fees (including time in the hospital and eight follow-up office visits), $520 in prescription medications, and $2,100 for physical therapy treatments. All of these charges fall within customary and reasonable payment amounts.
a. If John had an indemnity plan that pays 80 percent of his charges with a $500 deductible and a $5,000 stop-loss provision, how much would he have to pay out of pocket?
b. What would John's out-of-pocket expenses be if he belonged to an HMO with a $20 co-pay for office visits?
c. Monthly premiums are $155 for the indemnity plan and $250 for the HMO. If he had no other medical expenses this year, which plan would have provided more cost-effective coverage for John? What other factors should be considered when deciding between the two plans?