A small town has 1,000 people, 600 of whom are healthy and 400 of whom are sick. The annual expected medical claims of the healthy and sick are $500 and $9,000, respectively. If the insurance company cannot determine who is healthy and who is sick prior to the purchase of insurance, the annual premium must be at least $____.

Question

Quizplus · Accepted Answer

The expected medical claims per person is calculated by taking the weighted average of claims: (600/1000)*$500 + (400/1000)*$9,000 = $3,900.

A Small Town Has 1,000 People, 600 of Whom Are