Question of the Month (December 2020): Stop-Loss Provision

Posted by Jerry Mee, CFP®

Dec 1, 2020

This question was discussed in detail during the December 2020 episode of the BIF Bites podcast!

Todd has an unlimited major medical policy with a $350 deductible and 80/20 coinsurance to a $5,000 stop-loss. Todd has a claim of $10,000. How much must he pay out-of-pocket?

  1. $1,000
  2. $1,350
  3. $4,000
  4. $4,650

Scroll for answer...





Correct answer: B. $1,350

Instructor insight:

The total claim is $10,000. This brings the policy over the stop-loss limit. The payments from the Insured and Insurer can be determined as follows:

  Todd Pays Insurer Pays
Deductible $350 0
Coinsurance to stop-loss limit $1,000 (20% of $5,000) $4,000 (80% of $5,000)
Above stop-loss limit $0 $4,650
Total $1,350 $8,650

To double check the calculation add the amount paid by Todd ($1,350) to the amount paid by the Insurance Company ($8,650), then subtract the total claim ($10,000). If the amount equals $0, the calculation is correct.

$1,350 + $8,650 - $10,000 = 0

CFP® Exam tip:

The CFP® Exam often tests concepts and definitions at the level of application by presenting a real-life scenario. Health Insurance coverage provisions are commonly tested in this manner. Specifically, CFP® Board may present a scenario in which the Health Insurance policy benefits will be accessed and ask the candidate to calculate the amounts paid by the insured and/or insurer. To do so with precision you must first have a clear understanding of the core policy provisions and definitions (i.e., deductible, coinsurance provision, stop-loss, and maximum-out-of-pocket).



Topics: Practice Questions