Health insurance Plan A requires the insured to pay $1000 or 50% of total cost, whichever is lower. Plan B requires the insured to pay the initial $300, but then pays 80% of the cost over $300. Which of the following is a cost level for which both insurance plans pay out the same amount?
$600
$1000
$3800
$5300
$6200
THE INSURED is
the person covered by the insurance.
Plan A:
If $1000 is LESS than 50% of the cost level, then THE INSURED pays $1000, and PLAN A pays the remainder.
If $1000 is MORE than 50% of the cost level, then THE INSURED pays 50% of the cost level, and PLAN A pays the remainder.
Plan B:
THE INSURED pays the first $300.
PLAN B pays 80% of the remainder.
I've added the answer choices, which we can plug in for the cost level.
When the correct answer is plugged in, the amount paid by Plan A will be equal to the amount paid by Plan B.
Answer choice C: 3800
Plan A:
Since .5(3800) = 1900 -- which is greater than $1000 -- the insured pays $1000.
The remainder is paid by Plan A:
3800-1000 = 2800.
Plan B:
Amount paid by the insured = 300.
80% of the remainder is paid by Plan B:
.8(3500) = 2800.
Success!
The correct answer is
C.
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