Healthcare Economics: There is a 1% chance that you will have healthcare bills of $100,000

Question

A 19% chance that you will have healthcare bills of $10,000, a 60% chance that you will have healthcare bills of $500 and a 20% chance that you will have healthcare bills of $0. what is your expected healthcare spending?

Answer 1

Healthcare spending = (1%)*($100,000)+ (19%)*($10,000)+(60%)*($500)+ (20%)*($0)

 

                              = (1/100)($100,000)+(19/100)($10,000)+(60/100)($500)+(20/100)*($0)

 

                              = $1000+$1900+$300+0

                       

                              = $3,200

Answer 2

expected value is the SUM of all terms, each of which is the dollar amount multiplied by its probability.

 

Expected bill = 0.19 * 10,000 + 0.60 * 500 + 0.20 * 0  0.01 * 100,000