Continuing for question 1, now Jack is considering buying health insurance to protect against this medical risk, and is deciding between the following three plans (or simply remaining uninsured):
Plan A: 0% coinsurance rate, $20,000 annual premium
Plan B: 20% coinsurance rate, $10,000 annual premium
Plan C: 80% coinsurance rate, $5,000 annual premium
(1) Compute his expected income and expected utility under each of these three plans.
(2) Which plan maximizes his expected income? How about compared to remaining uninsured?
(3) Which plan maximizes his expected utility? How about compared to remaining uninsured?
(4) For each of these three plans, please also compute the minimum premium that the insurance company should charge if we assume the loading fee is 0.