a. Consider the case of a single employee with estimated annual expenses of $400. Which plan is

Question:

a. Consider the case of a single employee with estimated annual expenses of $400. Which plan is the cheapest? What is the total annual cost associated with this plan?
b. For the analysis in (a), construct a table to show the best plan and the associated cost for annual expenses ranging from $100 to $1,200 in steps of $100.
c. Consider the case of a married employee with estimated annual expenses of $1,000 and an equal amount for the spouse. Which plan is the cheapest? What is the total annual cost associated with this plan?
d. For the analysis in (c), construct a table to show the best plan and the associated cost for annual expenses ranging from$100 to $1,500 in steps of $100 for the employee, assuming that the employee's expenses and the spouse's expenses are the same.
e. For the analysis in (d), find the level of expenses at which the cost is the same under Plan 1 and Plan 2.
Refer to the Flexible Insurance Coverage case. From the corresponding exercise in Chapter 3, review the design of a spreadsheet that will allow an individual employee to compare the annual expenses for each plan and thereby choose the cheapest alternative.
Refer to the Flexible Insurance Coverage case,
A company health plan offers four alternatives for coverage, from a low-cost plan with a high deductible to a high cost plan with a low deductible. The details of coverage are given in the following table. The Human Resources Department would like to develop a means to help any employee, whether single or married, small family or large, low medical expenses or high, to compare these plan alternatives.

Plan Options and Costs Annual Premium Deductible $1,500/$2,500 500/1,000 Co-insurance 1-Person 2-Person Family Option 1

The deductible amount is paid by the employee. The first figure applies to an individual; the second applies to two-person or family coverage. In the case of Option 1, for example, this means that the insurance coverage takes effect once an individual has paid for $1,500 worth of expenses. (This limit holds for any individual under two-person or family coverage, as well as for an individual with one-person coverage.) In the case of two person or family coverage, the insurance also takes effect once the household has incurred $2,500 worth of expenses.
The co-insurance is the percentage of expenses that must be paid by the employee when the insurance coverage takes effect. In the case of Option 2, for example, this means that the insurance covers 80 percent of all expenses after the deductible amount has been reached.
The Annual Premium is the cost of the insurance to the employee.