The information below outlines the Medicare prescription drug plans being considered by the Senate and the House of Representatives respectively back in the early 2000s. The information provided is for an individual person and in each case you are being asked to calculate the out of pocket drug expenditure with no insurance plan as well as the out of pocket drug expenditures under the House and Senate plans respectively. Note that even though this information is a little dated, this exercise should help build your understanding of how insurance plan work in terms of coverage and out of pocket expenditures.

Premium (Monthly)

House = $35

Senate = $35-$41 (use $38)

Deductible (Annual)

House = $250

Senate = $275

Initial Coverage (Annual)

House = 80% of drug costs from $250 to $2,000

Senate = 50% of drug costs from $275 to $4,500

Gap (Annual)

House = no coverage of drug costs from $2,000 to $4,900

Senate = no coverage of drug costs from $4,500 to $5,800

Catastrophic Coverage (Annual)

House = 100% of drug costs above $4,900

Senate = 90% of drug costs above $5,800

Suppose instead that this individual has monthly prescription costs of $1,000

Calculate the total dollar amount that this individual would have to pay out-of-pocket annually without any insurance plan as well as how much they would pay under the Senate and House plans respectively and which plan would this individual prefer?.