Calculating the afps for different insurance policies

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The following question provides some practice calculating the AFPs for different insurance policies. If the individual remains healthy (80% probability), she will consume $500 in medical care in the upcoming year. If the individual is afflicted by a moderate health condition (15% probability), she will consume $5000 in medical care. If the individual is afflicted with a serious condition (5% probability), she will consume $101,000 in medical care. Calculate the AFP for this person under each type of insurance described below.

a. An insurance policy with a $1000 deductible and no coinsurance (i.e. every dollar of HC spending beyond the $1000 deductible is fully covered by the insurance).

b. An insurance policy with a $1000 deductible and a coinsurance rate of 20%.

c. An insurance policy with a $1000 deductible, a coinsurance rate of 20%, and a catastrophic cap of $10,000.

Reference no: EM13862654

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