CHAPTER 10 ANALYZING JOBS AND EMPLOYEE BENEFITS: HEALTH, DISABILITY, AND RETIREMENT PLANS
SOLUTIONS TO END OF CHAPTER APPLICATION PROBLEMS
Page 337 in Textbook
1. Deductibles and Coinsurance
Total charges $20,000
Family deductible $ 1 ,000
$19,000
Coinsurance 20% 3,800
Total out of pocket = $1,000 + $3,800 = $4,800
2. Comparing Health Insurance Plans
a. FFS HMO
Annual Premium 1,200 2,400
Annual physical (200) 200 10 ($10 copay)
2 doctors visits (200) 100 20 ($5 copay)
10 prescriptions (500) 300 5
Total out of pocket 1,800 2,480
b.
Annual premium 1,200 2,400
Annual physical (200) 200 (ded) 10
Skiing injury (3000) 100 (ded) 10
580 (coins.)
4 prescriptions (200) 120 40
Total out of pocket 2,200 2,460
3. Defined-Benefit Plans
a. (15 years x 1.0%) + (15 x 1.5%) + (15 x 2%) = 67.5% of final salary
Benefit = 67.5% x 100,000 = $67,500 per year
b. 5 x 1% x 40,000 = $2,000 per year. But since you are only 60% vested (because of the 3 to 7 year vesting schedule) at that time, you are only entitled to 60% of 2,000, or $1,200 per year.
4. COBRA Coverage
a. The total cost of coverage is $400 per month, or $4,800 per year. Your COBRA coverage is the best option if you are unable to qualify for inexpensive individual health insurance, either because of a health condition or otherwise. You will also want to consider how long you expect to need the coverage. You must notify your employer within 60 days of being laid off.
b. 400 x (1.02) = $408/month
c. An individual health insurance policy may be less expensive than the employer’s group coverage if you and your family are young and healthy. You may also have the option of being added to your spouse’s employer coverage, but there is likely to be a waiting period so you may need to use the COBRA coverage until then.
5. Comparing Salaries in Different Areas
(40,000 x 1.05)/0.85 = $49,412
This implies that Urban City pays $588 more in purchasing power than Rural Town even though the cost of living is substantially higher there.
6. Disability Income Needs
a. She needs enough to cover the 25 days of potential disability before the employer’s short term disability insurance kicks in. Assuming 20 workdays per month, she will receive take-home pay of (5/20) x 2,300 = 575. Since her expenses are $2,000, she will be short by $1,425. In addition, in each month of her disability, she will receive 60% of her $3,000 salary, or 1,800, which is $200 less than her expenses. To cover a full year of disability, she will need $1,425 + (11 x 200) = 3,625 to cover her costs.
b. She needs enough to cover 2,000 per month in expenses. This is 2,000/3,000 = 67% of her pretax income. She should probably opt for 70% coverage.
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