Exam 3 Study Guide Issue 4 Ratio Where does each item go Assets go in the balance sheet Liabilities go in the balance sheet Income goes in the income and expense statement Expenses go in the income and expense statement Ratios 1 Solvency Ratio Net worth total assets from b s Shows how much of a decline in the market value of their assets a family can tolerate before becoming insolvent Insolvent when you have no money The higher you have the more money you have The higher the better What is desirable or 0 50 2 Liquidity ratio Liquid assets Total current debt from i e and b s Shows how much of their one year liabilities they could pay with their liquid assets Liquid Assets from b s What do you include in Liquid Assets Shepard s b s Total current debt short term or current liabilities from b s and loan payments due within one year from i e Don t include credit cards in this Note when you think about loan payments due within one year make sure that they are actually at the end of the year checking the liabilities side of the balance sheet by Current liabilities unpaid bills revolving credit from b s Loan payments only the loans that appear on the b s as well they are due at the end of the year The higher the better What is desirable or 0 50 How many months would you survive on your present liquid assets Multiply ratio by 12 3 Saving Ratio from i e Cash surplus and purchase of assets if any from i e Annual net after tax income Shows the family s level of preparation for the future The higher the better Desirable savings ratio or 0 05 4 Debt Service Ratio from i e Loan payments and revolving credit items Gross income before tax income Shows the burden that the family s debt is relative to their income Their ability to repay the debt Debt relative to the family s income Here you include all loan payment irrespective of whether they appear on the b s or not and credit card purchases or repayments The LOWER the better What is desirable 0 35 Issue 5 Health Care Decisions National Health Expenditures NHE is increasing dramatically People in the highest quintile of income have the highest increase in health care Other trends contributing to the increase such as premium increase uninsured expenditure increase ect Modes of Paying for Health Care Historical Progression Out of Pocket Payments Doctor patient Patients paid physicians and other health care providers in cash or through bartering Most common in 1st half of the 20th century Individual Private Insurance Doctor Insurer Patient A third party the insurer is added to the picture Requires two transactions a premium payment from individual to an insurance plan AND a reimbursement payment from the insurance plan to the provider Employment Based Private Insurance Doctor Insurer Patient and Employer During WWII with the labor shortage companies competing for workers began to offer health insurance as a fringe benefit After the war unions picked up on this trend Government Financing Obamacare When the government is paying for your healthcare Know the factors possibly related to rise in health care costs Increased cost of high tech medicine 1 Equipment Testing procedures Drugs and treatments 2 The high cost of treating such illnesses as AIDS and cancer 3 Aging of population 4 Fraudulent practices by some providers 5 The administrative cost of complying with government regulations 6 The large number and high cost of malpractice suits 7 The practice of defensive medicine Unnecessary testing Know the different types of health insurance plans their characteristics pros and cons associated with a health care plan 1 Indemnity fee for service plans insurer pays the provider or reimburses the insured you for a specified percentage of expenses after a deductible is met Typically insurer pays 80 of the healthcare expenses after insured meets deductible Amount paid based on UCR usual customary reasonable If a doctor charges more than the UCR you may be responsible for full amount in excess of from the UCR Most flexible type of health plan A plan of the past not often offered anymore 2 Managed Care Plans Health Maintenance Organization HMO Restrictive Inflexible requires you to choose a PCP Your primary care physician has to write a referral for any specialists visits Low quality care you have to rely on your PCP It s cheap no annual deductible or an extremely low deductible Low co payments low premiums Patients seek preventative care Point of Service POS Hybrid form of HMO is called Point of Service or POS You have a specific set of doctors but you can go somewhere else if you want to you just have to pay more Participation Provider Organization PPO More flexible than HMOs Uses services of particular physicians and hospitals that agree to specific set schedule of fees Network for physicians facilities ancillary provider In network vs Out of network payments Deductible there is one Co payments co insurance Most of the time they ll have co insurance Follow the rules to get most for your money avoid balance billing Balance billing may happen when your health plan pays less then what your doctor or hospital charges Your healthcare provider may demand the balance of the bill from you It is often illegal High Deductible Health Plan HDHP Health Saving Account HAS A high deductible health care plan At least a deductible of 1 000 for an individual 2 000 for a family Assumes you ll open a Health Savings Account A tax advantage personal savings account What you contribute every month is not taxable Must satisfy entire deductible before insurer pays for services subject to the deductible Definitions Premium The periodic payment made on an insurance policy The amount you and or your employer pay This is in addition to co payments coinsurance and deductibles in exchange for insurance coverage Differs depending on individual coverage family coverage ect Deductible The initial amount NOT covered by an insurance policy and thus the insured s responsibly Usually determined on a calendar year You must met your deductible BEFORE your plan deigns to pay benefits Co payment co pay a fixed dollar amount that you pay each time you visit a doctor for certain services No matter how many times you go to the doctor you ll still have to pay a copay Participation Co insurance Stipulation that the insurer will pay some portion of the amount of the loss in excess of the rather than the entire amount 80 is paid by the insurance company 20 is paid by you Co Pay is a FIXED dollar amount