HACE 2100: Exam # 3
33 Cards in this Set
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Solvency Ratio (from balance sheet)
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-Shows how much of a decline in the market value of their assets a family can have before becoming insolvent (insolvent = bankruptcy)
-Solvency Ratio = Net Worth/Total Assets
-The higher your net worth, the stronger the family's financial position.
-Desirable Solvency Ratio > .50
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Liquidity Ratio (from balance sheet and income and expense statement)
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-Shows how much of your one-year liabilities that you could pay with your liquid assets.
-Liquidity Ratio: Liquid Assets/Total Current Debt
-The higher, the better
-Desirable liquidity ratio >.5
-Where are the total liquid assets from?
*Balance Sheet
-Where are the current debts fro…
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Savings Ratio (from income and expense statement)
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-Shows the family's level of preparation for the future
-Cash surplus (or amount saved)/annual net (after-tax income)
-The higher, the better - the more you save, the better prepared you are for the future.
-Desirable savings ratio >.05
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Debt Service Ratio (from income and expense statement)
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-Shows the burden that the family's debt is relative to their income (their ability to repay that debt)
-Monthly Loan Payments/Monthly Gross Income = Debt Service Ratio
-The lower, the better - the lower amount of monthly loan payments you need to make, the better off financially you wi…
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Modes of Paying for Health Care (historical progression)
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-Out-of-the-Pocket Payments (most common in the first half of the 20th century)
*Paid physicians and other health care providers in cash or through barter
-Individual Private Insurance
*A third party, the insurer, is added to the picture
*Requires two transactions, a premium payment f…
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Factors Related to the Rise of Healthcare
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-Increase in cost of technology used
*Equipment, test procedures, drugs and treatments
-High cost of treating illeness such as AIDS and cancer
-Aging population
*Medicare
-Fraud by some providers
-Administrative cost of complying with government regulations
-Large number and high c…
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When Do You Make the Healthcare Decision?
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-When hired
-During open enrollment
*For example: October 24-November 18 for UGA employees
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Types of Plans
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-Private health plans
*Indemnity: fee for service plans; fairly applicable for wherever you go
*Managed care plans (restricted doctors); HMO health maintenance organizations, PPO participating provider organization, HDHP high deductible health plan
-Government health insurance plans
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Network
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-In means "accepts plan"
-Out means "doesn't accept plan"
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Premium
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-Periodic payment made on insurance policy
-You pay it whether you use your insurance or not
-Amount you and/or your employer pays
*Differs depending on individual/family coverage
*Does not include co-pay or deductible
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Deductible
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-The initial amount NOT covered by an insurance policy
-The insured customer's responsibility
-You must meet your deductible before you plan begins to pay benefits
*Usually determined by calendar year
*Some plans determined per illness or per accident
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Participation (Co-Insurance)
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-After you pay the deductible amount, the amount that insurance company will pay of your expenses
*EX: You pay your $500 deductible, and then pay $250 over. You pay 10% of the $250 and insurance pays 90%.
-Stop loss prevention
*"Cap" on the amount you will pay
*EX: If your $1 million …
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Co-Payment
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-A fixed amount that you pay for certain services, at each payment
-EX: You pay $25 each time you visit the doctor
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Indemnity (fee for service) Plan
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-Insurer different from the health care provider
-Insurer pays the provider or reimburses the insured for a specified percentage of expenses after deductible is met
*Typically the insurer pays 80%
*Amount insurer pays based on "usual, customary and reasonable"; if your doctor charges m…
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Health Maintenance Organization (HMO)
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-Restrictive
-Inflexible
-Low co-payments
-No annual deductible
-Low premium
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General Description of Health Maintenance Organization (HMO)
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-Restrictive/inflexible
-No annual deductible
-Low co-payments
-Low premium
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General Description of Preferred Provider Option (PPO)
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-Use of services of particular physicians and hospitals that agree to specific, set schedule of fees
-Deductible
-Co-payments/co-insurance
-Network for physicians/facilities/ancillary providers
-In-network vs. Out-of-network payments
-Follow the rules to get most for your money; avoi…
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High Deductible Health Plan (HDHP)/Health Savings Account (HSA) PPO
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-A "high deductible" health care plan must have a deductible of at least $1000 for individual and $2000 for family
-Assumes you'll open a Health Savings Account
*A tax-deferred personal savings account
-Must satisfy entire deductible before insurer pays for services subject to the dedu…
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Healthcare and Education Affordability Reconciliation Act of 2010: Goals
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-Cover >94% of all Americans
-Bars insurance companies from discriminating based on pre-existing conditions, health status and gender
-Creation of health insurance exchanges
-Tax credits and cost sharing for insured from lower and middle income households
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Healthcare and Education Affordability Reconciliation Act of 2010: Implementation
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-Immediate access to insurance for the uninsured with pre-existing condition through the "high risk" pool
-Small business that buy health insurance for employees can claim up to 35% in tax credit
*25% for small non profits
-Eliminates life time limits on health insurance plans
-Establ…
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Is Coverage Mandatory?
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-Certain religious groups can opt out
-Many states are filing lawsuits claiming mandatory coverage to be unconstitutional
-No provision for reduction of insurance premiums or healthcare costs
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Calculations
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-Premium Cost for 1 year: Monthly Premium x 12
-How much of the deductible was paid for the year:
*Total medical costs < deductible amount, all of the medical costs go towards paying the deductible
*If more than the deductible amount, deductible was met.
-How much of co-pay or co-insu…
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Re-evaluating the Housing Decision
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-Family factors: The typical family owns 3 dwellings in its lifetime
*Starter Home: low cost, small
*Full-nest Home: high cost, more space
*Empty-nest: smaller, low upkeep
-Macroeconomic Factors
*Wide range of financing options
*Economic conditions
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Three Characteristics to Consider When Financing A Home
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-Mortgage Loan Principal
-Maturity of term of the loan
-Interest rate
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Increasingly Important Characteristics
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-Whether interest rate and/or monthly payment changes over the life of the loan, and if it can:
*How often can it change?
*How much can it change?
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Types of Mortgages
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Fixed Rate Mortgage
-As the years continue, your income increases and your fixed mortgage rate stays the same. Therefore, as years continue your mortgage as a percent of your income decreases.
-Advantages:
*Stable payment
*Long-term tax advantages
*Shield from future interest rate in…
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Adjustable Rate Mortgage (ARM)
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-What is an ARM? A mortgage on which the rate of interest, and therefore the size of the monthly payment, is adjusted based on market interest rate movements.
-Interest Rate on ARMS
*The interest rate on an ARM is made up of two parts:
*Index - Measure of baseline interest rate. Rates …
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What is Adjustment Period?
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-Frequency of Rate Change
*Tells you how often the interest rate CAN change.
*Can be as often as every 3 months or between 3-5 months.
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What are Interest Rate Caps?
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-Rate cap (x/y)
*Periodic Cap (x): In a given interval (time period) the interest rate can only change by x% points
*Overall or Lifetime Cap (y): Maximum the interest rate can ever change (up or down). Adding y% will be the highest rate the ARM could ever have. Subtracting y% will be th…
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Example of an ARM
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1 year adjustable - 5.5% 2/6; $100,000 mortgage
*Interval = 1 year
*Interest rate starts at 5.5% (for year 1)
What is the most the interest rate could be in year 2?
-Increases max - periodic (7.5%)
What is the lowest the interest rate could be in year 2?
-Decreases max - periodic (3…
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ARMS: Beware of the Possibility of Negative Amortization
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-Amortization: Repaying debt gradually through payments of principal and and interest. A sophisticated word for "repaying your debt".
-Negative Amortization: An increase in your loan balance when the monthly loan payments are lower than the amount of monthly interest changed.
EX: Suppo…
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Adjustable Mortgage Rate (ARM) Advantages
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-Initial interest rate and monthly payment lower
*Length of time that you would own the home
-Some long-term tax advantages
-More available during certain periods
-Caps reduce uncertainty
-When interest rates are high and you expect the rates to drop, ARM avoids the cost of refinanci…
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Adjustable Mortgage Rate (ARM) Disadvantages
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-Uncertainty
-Negative amortization
-May be a higher total cost than having a fixed mortgage rate, if rates increase
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HACE 2100: Exam # 3