An injured worker incurred medical costs of $600 in 2004, $1,200 in 2005, and $800 in 2006. What is the recommended annual medical expense reserve?

• A. $800 a year
• B. $870 a year
• C. $1,000 a year
• D. $1,200 a year

Answer: (B)

The idea is to base the annual medical expense reserve on a three-year average of recent costs to smooth out year-to-year fluctuations. Add up the medical costs from the last three years: 600 + 1200 + 800 = 2600. Divide by three to get 866.7, then round to the nearest ten or hundred as typical in reserves, which becomes about $870 per year. This aligns with the expected ongoing medical funding rather than picking a single year's amount. The other options are either below or above what the three-year average supports, making them less representative of typical annual needs.