Mark, age 28, is insured under an individual medical expense policy that is part of a preferred provider organization (PPO) network. The policy has a calendar-year deductible of $1000, 75/25 percent coinsurance, and an annual out-of-pocket limit of $2000. Mark recently had outpatient arthroscopic surgery on his knee, which he injured in a skiing accident. The surgery was performed in an outpatient surgical center. Mark incurred the following medical expenses. (Assume that the charges shown are the charges approved by Mark’s insurer and that all providers are in the PPO network.)

Outpatient X-rays and diagnostic tests $800

Covered charges in the surgical center $12,000

Surgeon’s fee $3000

Outpatient prescription drugs $400

Physical therapy expenses $1200

In addition, Mark could not work for two weeks and lost $2000 in earnings.

a. Based on the above information, how much of the expenses will be paid by the insurance company?

b. How much of the expenses will Mark have to pay? Explain your answer.

c. Assume that a surgeon who is not in the PPO network actually performed the surgery. Will Mark’s policy cover this fee? Explain your answer.