Exam 3 Study GuideIssue #4 RatioWhere does each item go?Assets go in the balance sheetLiabilities go in the balance sheet Income goes in the income and expense statement Expenses go in the income and expense statementRatios1) 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 insolventInsolvent: when you have no money The higher, the betterThe higher you have the more money you haveWhat is desirable?> or = 0.502) 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 assetsLiquid 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/eDon’t include credit cards in thisNote: when you think about loan payments due within one year, make sure that they are actually at the end of the yearby checking the liabilities side of the balance sheetCurrent liabilities = unpaid bills + revolving credit from b/sLoan payments: only the loans that appear on the b/s as well they are due at the end of the yearThe higher, the betterWhat is desirable?> or = 0.50How many months would you survive on your present liquid assets?Multiply ratio by 123) 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 betterDesirable savings ratio > or = 0.054) 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 debtDebt relative to the family’s incomeHere you include all loan payment (irrespective of whether they appear on the b/s or not) and credit card purchases or repaymentsThe LOWER, the better What is desirable?< 0.35Issue #5 Health Care DecisionsNational Health Expenditures (NHE) is increasing dramaticallyPeople in the highest quintile of income have the highest increase in health care expenditureOther trends contributing to the increase such as premium increase, uninsured increase ect…Modes of Paying for Health Care (Historical Progression)Out-of-Pocket Payments: Doctor – patientPatients paid physicians and other health care providers in cash or through barteringMost common in 1st half of the 20th centuryIndividual Private Insurance: Doctor – Insurer – Patient A third party, the insurer, is added to the pictureRequires two transactions  a premium payment from individual to an insurance plan AND a reimbursement payment from the insurance plan to the providerEmployment Based Private Insurance: Doctor – Insurer – Patient and EmployerDuring WWII, with the labor shortage, companies competing for workers began to offer health insurance as a fringe benefitAfter the war, unions picked up on this trend Government Financing: ObamacareWhen the government is paying for your healthcareKnow the factors possibly related to rise in health care costs1) Increased cost of high-tech medicineEquipmentTesting proceduresDrugs and treatments2) The high cost of treating such illnesses as AIDS and cancer3) Aging of population4) Fraudulent practices by some providers5) The administrative cost of complying with government regulations6) The large number and high cost of malpractice suits7) The practice of defensive medicine Unnecessary testingKnow 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 from the Typically insurer pays 80% of the healthcare expenses afterinsured meets deductible Amount paid based on UCR – usual, customary, reasonableIf a doctor charges more than the UCR, you may be responsible for full amount in excess of UCRMost 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 PCPIt’s cheap – no annual deductible or an extremely low deductible Low co-payments & low premiumsPatients seek preventative carePoint of Service (POS)Hybrid form of HMO is called Point of Service or POSYou have a specific set of doctors, but you can go somewhere else if you want to – you just have to pay moreParticipation Provider Organization (PPO)More flexible than HMOsUses services of particular physicians and hospitals that agree to specific, set schedule of feesNetwork for physicians / facilities / ancillary providerIn-network vs. Out-of-network paymentsDeductible – there is oneCo-payments & co-insuranceMost of the time they’ll have co-insuranceFollow the rules to get most for your money - avoid balance billingBalance billing may happen when your health plan pays less then what your doctor or hospital chargesYour healthcare provider may demand the balance of the bill from youIt is often illegalHigh 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 familyAssumes you’ll open a Health Savings AccountA tax-advantage personal savings accountWhat you contribute every month is not taxableMust satisfy entire deductible before insurer pays for services subject to the deductibleDefinitions Premium: The periodic payment made on an insurance policy The amount you and/or your employer payThis is in addition to co-payments, coinsurance and deductibles, in exchange for insurance coverageDiffers 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 benefitsCo-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