Sammy is a full-time students who does not work. He is too old to stay on his parents health insurance and is looking for his own health care program. The two options he is considering are outlined in the tables below.

OPTION 1: Fee-for-service

OPTION 2: HMO

$225 monthly premium

$630 monthly premium
$7,500 deductible

No annual deductible

Co-pays:

Co-pays:
Name-brand Drugs:
$30

Name-brand Drugs:
$25
Generic Drugs:
$12

Generic Drugs
$10

Visits:

Visits:

Primary Care Physician
$30

Primary Care Physician
$20
Specialist:
$75

Specialist:
$62
Urgent Care:
$100

Urgent Care:
$50
Emergency Room:
$250

Emergency Room:
$175

The first option is a fee-for-service plan with a $7,500 deductible. Sammy must pay the deductible amount in health-related costs (not including co-pays) before the insurance company will contribute. This plan costs $225.00 per month and requires co-pays for most standard healthcare costs.

The second option is an HMO. It is significantly more expensive at $630 per month, but has no annual deductible. The standard co-pays are also less than those in the other option.

Sammy is a young man in very good condition. He visits his primary care physician every other month to get physicals for school sports. He fills a prescription for his name-brand asthma inhaler every month. Sammy is an avid sportsman who loves skiing and snowboarding, two potentially dangerous activities.

Considering the real possibility of a serious skiing or snowboarding accident that could put Sammy in the hospital for an extended period of time, which of the following statements is true for his situation? (Assume an extended hospital stay costs at least $12,000.)
a.
In the event of a serious accident, the $7,500 deductible makes Option 1 the cheaper of the two.
b.
The lower monthly premium associated with Option 1 is enough to offset the cost of a serious accident.
c.
Even with the higher premium, Option 2 covers more of Sammy’s health care costs in the event of a serious accident.
d.
Under Option 2, Sammy will have to pay for more of the health care costs resulting from a serious accident than he would under Option 1.