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Solvency Ratio (from balance sheet)
-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
Liquidity Ratio (from balance sheet and income and expense statement)
-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…
Savings Ratio (from income and expense statement)
-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
Debt Service Ratio (from income and expense statement)
-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…
Modes of Paying for Health Care (historical progression)
-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…
Factors Related to the Rise of Healthcare
-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…
When Do You Make the Healthcare Decision?
-When hired -During open enrollment *For example: October 24-November 18 for UGA employees
Types of Plans
-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
Network
-In means "accepts plan" -Out means "doesn't accept plan"
Premium
-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
Deductible
-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
Participation (Co-Insurance)
-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 …
Co-Payment
-A fixed amount that you pay for certain services, at each payment -EX: You pay $25 each time you visit the doctor
Indemnity (fee for service) Plan
-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…
Health Maintenance Organization (HMO)
-Restrictive -Inflexible -Low co-payments -No annual deductible -Low premium
General Description of Health Maintenance Organization (HMO)
-Restrictive/inflexible -No annual deductible -Low co-payments -Low premium
General Description of Preferred Provider Option (PPO)
-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…
High Deductible Health Plan (HDHP)/Health Savings Account (HSA) PPO
-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…
Healthcare and Education Affordability Reconciliation Act of 2010: Goals
-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
Healthcare and Education Affordability Reconciliation Act of 2010: Implementation
-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…
Is Coverage Mandatory?
-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
Calculations
-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…
Re-evaluating the Housing Decision
-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
Three Characteristics to Consider When Financing A Home
-Mortgage Loan Principal -Maturity of term of the loan -Interest rate
Increasingly Important Characteristics
-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?
Types of Mortgages
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…
Adjustable Rate Mortgage (ARM)
-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 …
What is Adjustment Period?
-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.
What are Interest Rate Caps?
-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…
Example of an ARM
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…
ARMS: Beware of the Possibility of Negative Amortization
-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…
Adjustable Mortgage Rate (ARM) Advantages
-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…
Adjustable Mortgage Rate (ARM) Disadvantages
-Uncertainty -Negative amortization -May be a higher total cost than having a fixed mortgage rate, if rates increase

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