Question: A company provides its three employees with health insurance under
A company provides its three employees with health insurance under a group plan. For each employee, the probability of incurring medical expenses during a year is 0.9, so the number of employees incurring medical expenses during a year has a binomial distribution with p = 0.9 and n = 3. Given that an employee incurs medical expenses during a year, the total amount for the year has the distribution $100 with probability 0.9 or $10,000 with probability 0.1. The company has a $5,000 deductible clause with the insurance company so that each year the insurance company pays the total medical expenses for the group in excess of $5,000. Use the uniform random numbers 0.01 and 0.20, in the order given, to generate the number of claims based on a binomial distribution for each of 2 years. Use the following uniform random numbers, in the order given, to generate the amount of each claim: 0.80, 0.95, 0.70, 0.96, 0.54, 0.01. Calculate the total amount that the insurance company pays for 2 years.
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