Reference no: EM132708647

Jesse is a full-time employee at Los Pollos Hermanos, a fast-food restaurant chain that specializes in fried chicken. His health insurance plan includes a $1,000 annual deductible and 90% coinsurance. His maximum out-of-pocket is $4,000 per year. The plan year starts January 1 and ends December 31. The total monthly premium for this plan is $800 - Jesse pays $300 and his employer pays $500.

Question 1: What type of benefit financing is this? Explain.

Question 2: One summer weekend, Jesse falls while riding his bike, suffering a concussion and a broken arm. He goes to the emergency room to get care. The total bill for the emergency room is $4,400. How much does Jesse pay for this visit?

Question 3: Three weeks after his bike accident, Jesse gets in a severe car accident and sustains multiple bone fractures and internal bleeding. He spends three days in the hospital. The total bill for the hospital is $35,000. How much does Jesse pay for this visit?

As the end of the year approaches, Los Pollos Hermanos is considering a number of changes to their plan for the following year.

Question 4: One option is to increase the deductible to $1,500 and change the coinsurance to 80%. Would this increase or decrease total premiums? Explain.

Question 5: Another option is for Los Pollos Hermanos to pay the full $800 monthly premium instead of asking employees share in the cost. If they made this change, would adverse selection increase or decrease? Explain.