Sub: Statistics Topic: Insurance
*The Homework solutions from ClassOf1 are intended to help the student understand the approach to solving the problem and not for submitting the same in
lieu of your academic submissions for grades.
ClassOf1 provides exert guidance for College, Graduate and High school homework and live online tutoring on subjects like
Finance, Marketing, Statistics, Economics and others. Check out more solved problems in our Solution Library.
A company is considering health insurance alternatives for the families of their 1000
employees. They expect annual health costs of a family is estimated to be 3000 with
standard deviation of 1600. Moreover, health costs of any two different families are not
independent, and are assumed to have a correlation of .1.
a. If they decide to self-insure all their employees, what is the companies expected total
cost and what is the resulting standard deviation?
b. An outside HMO is offering to insure any subgroup of their employees. The HMO
will charge the company 3600 per family with a 10% discount (3240) for families
beyond the first 500. What is the company expected cost and standard deviation if
they insure all their employees with the outside HMO (costs are covered entirely by
c. To reduce costs, they consider self insuring some of their employees and sending the
remaining ones to the HMO. While they wish to minimize expected cost, they want
to keep their standard deviation below 300,000. Find the lowest possible expected
costs, and the number of employees to send to the HMO, that meet their goals.
I want to double check my answers to make sure they are correct.
I want to double check my answers to see if they are correct. the only question i had
revolve around if the standard deviation associated with self insured (in part C) and if it is
better to find the square root of the variance or to simply multiply the