John believes he faces health costs in the current year of either $2,000 dollars with a probability

0.9 or $12,000 with a probability 0.1.

a- He can purchase a complete insurance for $4,000. Is the premium actuarily fair?

b- John obtains a major medical and hospital policy that covers all costs, aside from a 600

deductible and 10% coinsurance rate. If John actually incurs annual health charges of $4,000

dollars by how much the health insurance company will reimburse him?

c- A consumer faces a choice between a gold plan with lower coinsurance rate and higher

premium, and a bronze plan with higher coinsurance rate and lower premium. Otherwise the

plans are the same. If the consumer is risk averse, and rational, will the consumer choose the

gold plan, the bronze plan, or is either possible?