State University has three health-care plans for its faculty and staff to choose

Question

State University has three health-care plans for its faculty and staff to choose from, as follows. Plan 1-monthly cost of $32 with a $500 deductible, the participants pay the first $500 of medical payments for the year, the insurer pays 90% of all remaining expenses. Plan 2-monthly cost of $5 but a deductible of $1200, with the insurer paying 90% of medical expenses after the insured pays the first $1200 in a year. Plan 3-monthly cost of $24 with no deductible, the participants pay 30% of all expenses with the remainder paid by the insurer. Tracy McCoy, an administrative assistant in the management department, estimates that her annual medical expenses are defined by the following probability distribution. Determine which medical plan Tracy should select.

Explanation / Answer

let annual medical expense is A, hence from plan 1- yearly cost =32+minimum(500$,A)+0.1*Max(A-500,0)

from plan 2- yearly cost =5*12+minimum(1200,A)+0.1*Max(A-1200,0)

from plan 3 yearly cost =24*12+0.3*A

from above cost for different plans is as given below

as lowest cost 557$ happens in plan 1 ; she should opt that,

A P C(1) C(2) C(3) P*(C1) P*(C2) P*(C3) 100 0.15 132 160 318 19.8 24 47.7 500 0.3 532 560 438 159.6 168 131.4 1500 0.35 632 1290 738 221.2 451.5 258.3 3000 0.1 782 1440 1188 78.2 144 118.8 5000 0.05 982 1640 1788 49.1 82 89.4 1000 0.05 582 1060 588 29.1 53 29.4 expected cost(total P*C) 557 922.5 675

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