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Select A Viable Plan And Calculate Expected Annual Cost

Question

Your company has recently revamped its health care insurance plan. You now have a choice of one of three plans as shown below:
Plan 1: The monthly cost is $32 and the insurer pays 90% of all expenses after you have paid the first $500 each year ($500 deductible).
Plan 2: The monthly cost is $5 and the insurer pays 90% of all expenses after you have paid the first $1200 each year ($1200 deductible).
Plan 3: The monthly cost is $24 and the insurer pays 70% of all expenses (no deductible).

You have gone back several years and examined past medical expenses and created the following probability distribution.

Annual Medical Expenses ($) Probability
100 0.15
500 0.30
1500 0.35
5000 0.15
10000 0.05

Required:

a) Determine which plan you should select.
b) Calculate the expected annual cost resulting from your choice.

 

Summary

The question belongs to Statistics and it discusses about selecting a plan with probabilities given and calculating the resultant expected annual cost.

Total Word Count 155

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Comments

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