Question: Question 1

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.

Required:

a) Determine which plan you should select.

b) Calculate the expected annual cost resulting from your choice.