SOA Exam FAM Sample Question 33

Study guide: Exam FAM

Annual prescription drug costs are modeled by a Pareto distribution with $\theta = 2000$ and $\alpha = 2$ .

A prescription drug plan pays annual drug costs for an insured member subject to the following provisions:

(i) The insured pays 100% of costs up to the ordinary annual deductible of 250.

(ii) The insured then pays 25% of the costs between 250 and 2250.

(iii) The insured pays 100% of the costs above 2250 until the insured has paid 3600 in total.

(iv) The insured then pays 5% of the remaining costs.

Calculate the expected annual plan payment.

Concepts tested