HACE 2100: Exam # 3

-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 from? *Short-term (current liabilities from balance sheet) and loan payments due within one year (from income and expense account)

-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

-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 will be. -Desirable debt ratio <.35 -Calculate monthly gross income = Unearned + earned income, then divide by 12 -Calculate Monthly Loan Obligations = (mortgage payments, installment loan, personal loan and revolving credit) then divide by 12

-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 from individual to an insurance plan AND a reimbursement payment from the insurance plan to the provider -Employment-Based Private Insurance *During World War II, 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 viewed as a tax-deductible business expense and employer portion is not taxable income to the employee -Government Financing

-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 cost of malpractice suits -Practice of defensive testing (unnecessary tests) 

-When hired -During open enrollment *For example: October 24-November 18 for UGA employees

-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

-In means "accepts plan" -Out means "doesn't accept plan"

-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

-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

-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 medical bill is insured, you would have to pay $100,000. But if you have paid your deductible your co-insurance will not exceed a certain amount, such as $2000 dollars.

-A fixed amount that you pay for certain services, at each payment -EX: You pay $25 each time you visit the doctor

-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 more than the UCR, you may be responsible for the full amount in excess of UCR. -Plan of the past *Not purchased by many because it does not cut costs by much. *Most flexible but worst in expenses

-Restrictive -Inflexible -Low co-payments -No annual deductible -Low premium

-Restrictive/inflexible -No annual deductible -Low co-payments -Low premium

-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; avoid balance billing

-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 deductible -90/10 or 80/20 in network -70/30 or 60/40 out of network

-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

-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 -Establishment of health insurance exchanges *Standardized health insurance packages *Tax credits for individual purchase *Choice through multi-state plan and nation-wide health plans -Penalty for being uninsured $95 (rising to maximum of $2250 per family by 2016)

-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

-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-insurance was paid for the year (if applicable): *If deductible was not met, than this amount would be zero. *If deductible was met, you need to figure out how many doctors visits happened and/or costs of the visits that happened after the deductible was met.

-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

-Mortgage Loan Principal -Maturity of term of the loan -Interest rate

-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?

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 increases -Disadvantages *Interest rate is higher *Monthly payment is higher *No benefits if the market interest rates decrease *Limited availability during some periods

-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 on 1-year constant maturity Treasury securities (CMT). Cost of Funds Index (COFI). London Interbank Offered Rate (LIBOR) *Margin - extra amount that lenders add *Index + Margin = ARM interest rate

-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.

-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 the lowest interest rate the ARM could ever have. EX of Rate Cap: *2 = maximum increase/decrease in rate each time it changes *5 = maximum increase/decrease in life time of the 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 (3.5%) What is the highest the interest rate could go to over the life of the loan? -Max increase - lifetime = 11.5%

-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: Suppose you borrowed $100,000 at 6% and the monthly payment is $600 -$500 is interest and $100 is principal -Next month your loan balance is $90,900; consider the following possibilities: *If you pay the $600, then fully amortizing payment. *f you pay the $500, then partially amortizing payment *If you pay $400, then interest added to the principal, so amount of loan balance is $100,100 - this is called Negative Amortization.

-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 refinancing to get lower rate

-Uncertainty -Negative amortization -May be a higher total cost than having a fixed mortgage rate, if rates increase