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A family pays $800 per year for an insurance plan that pays [#permalink]
11 Nov 2003, 09:45

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Difficulty:

5% (low)

Question Stats:

100% (01:38) correct
0% (00:00) wrong based on 3 sessions

A family pays $800 per year for an insurance plan that pays 80 percent of the first $1,000 in expenses and 100 percent of all medical expenses thereafter. In any given year, the total amount paid by the family will equal the amount paid by the plan when the family's medical expenses total

Family pays $1000, $800 for the plan + $200 as 20% of first 1000, up until the expense is $1000. So for the plan to match that amount, the expense has to add $200 to 80% of first $1000 expense. And that happens when the total expense reaches $1200.

"A family pays $800 per year for an insurance plan that pays 80 percent of the first $1,000 in expenses and 100 percent of all medical expenses thereafter. In any given year, the total amount paid by the family will equal the amount paid by the plan when the family's medical expenses total "

I take issue with the wording.

For instance, if the total expenditure is $2000, the family will be on the hook for $1000.

800+ .2(1000)= 1000. So the family's expense is $1000, which means the insurance company's expense, to be equal, would also be $1000.

The phase "when the family's medical expenses total" is ambiguous.

I presume this possible misunderstanding is why $2000 is not one of the options.