I don't even know how to get started on this problem. Should I start with a payoff table? How would I go about doing that? Thanks.
Tech 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 costs 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 insurer 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 estimates her annual medical expenses are defined by the following probability distribution.
Annual Medical Expenses
$100 (Probability .15)
$500 (Probability .30)
$1500 (Probablity .35)
$3000 (Probability .10)
$5000 (Probability .05)
$10,000 (Probability .05)
Determine which plan Tracy should select