Suppose that the number of hospital visits filed in a year under a specific empl

Question

Suppose that the number of hospital visits filed in a year under a specific employer’s health in- surance policy has mean 80 and standard deviation 10. Each hospital visit cost has a particular distribution with mean $50 and standard deviation $5. Hospital visit costs are mutually indepen- dent and independent of the number of hospital visits. Using the normal approximation, calculate the probability that yearly aggregate hospital visit cost under that health insurance policy will be less than $4800.

Explanation / Answer

Ans

The average of yearly aggregate hospital visit cost under that health insurance policy = 80*50 = 4000

The standard deviation of yearly aggregate hospital visit cost under that health insurance policy = 10*5 =50

P(cost <4800) = 1

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