JoEllen Has a Major Medical Policy with a $500,000 Lifetime

question 34

Multiple Choice

JoEllen has a major medical policy with a $500,000 lifetime aggregate limit, a $1,000 annual deductible and 80% coinsurance. Her health losses for the year include the following: hospital bills of $42,000; surgeon's fees of $14,000, prescription medication expenses of $5,000. How much will JoEllen's insurance pay for this loss?

• A) $48,000
• B) $48,800
• C) $60,000
• D) $61,000

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Definitions:

Von Neumann-Morgenstern Utility Function

A utility function that assumes individuals can rank their preferences under uncertainty, used in expected utility theory to describe choices.

Insurance

A financial product that provides protection against financial loss or harm, in exchange for the payment of a premium.

Probability

A numeric representation ranging from 0 to 1 that describes the chance of an event taking place, where 0 is an event that won't occur and 1 is an event that is guaranteed.

Utility Function

A mathematical representation in economics that captures how consumers allocate their expenditure to maximize satisfaction or utility from goods and services.