fin355_milestone_two_case_study.pdf

FIN 355 Milestone Two Case Study

Part A

Health Insurance

John’s company recently changed their health insurance offering. Jenny’s dental office does not offer any health insurance options. John and Jenny can choose between the following two health offerings:

Option 1 Option 2

Annual Deductible

• $1,500 if you cover yourself only • $3,000 if you cover yourself plus one or more dependents

• $2,500 if you cover yourself only • $5,000 if you cover yourself plus one or more dependents

Medical Coinsurance

• 10% of all covered in-network services other than certain preventive care • 30% up to MRC of all covered out-of-network services other than certain preventive care

• 10% of all covered in-network services other than certain preventive care • 30% up to MRC of all covered out-of-network services other than certain preventive care

Prescription Coinsurance

• 15% of the cost of the generic (tier 1) drug up to the per-prescription maximum ($25 pharmacy, $63 home delivery) • 30% of the cost of the preferred brand name (tier 2) drug up to the per-prescription maximum ($100 pharmacy, $250 home delivery) • 50% of the cost of the non-preferred brand name (tier 3) drug up to the per-prescription maximum ($150 pharmacy, $375 home delivery)

• 15% of the cost of the generic (tier 1) drug up to the per-prescription maximum ($25 pharmacy, $63 home delivery) • 30% of the cost of the preferred brand name (tier 2) drug up to the per-prescription maximum ($100 pharmacy, $250 home delivery) • 50% of the cost of the non-preferred brand name (tier 3) drug up to the per-prescription maximum ($150 pharmacy, $375 home delivery)

Annual Out-of-Pocket Maximum total amount of deductible plus coinsurance for covered in- and out-of-network medical and prescription drug expenses you may pay in a calendar year

• $3,000 if you cover yourself only • $6,000 if you cover yourself plus one or more dependents

• $4,500 if you cover yourself only • $9,000 if you cover yourself plus one or more dependents

Cost $750/month $280/month

Long-Term Disability Insurance

Both spouses have group disability insurance from their employers. John: Benefits equal 50% of salary subject to a maximum of $2,500 per month.

Coverage benefits are limited to 5 years. John’s employer pays for this coverage.

Jenny: Benefits equal to 50% of salary subject to a maximum of $2,000 per month. Jenny pays a premium for this, and she has a choice to pay with pre-tax dollars or after-tax dollars. She currently has the premiums paid with pre-tax dollars.

Additional Client Notes

Clients John and Jenny have a nice-size savings account with around $40,000 and a 401K

through John’s work that has a balance of $265,000. Jenny does not have a retirement account.

Part B

John and Jenny also want your help in answering questions about Social Security, Medicare,

Medicaid, and long-term care insurance. Below is information they have provided for your

analysis.

Demographics

Family Members Age Occupation Health

Jenny 54 Office manager Treated for mild depression. 5'4", 135 pounds. No other health issues.

John 56 Sales manager Treated for high cholesterol. 6'1", 186 pounds. No other health issues.

Emily (Child) 30 Married, lives in another state far away

No health issues

Tiffany (Child) 28 Single, attending a graduate program in England

No health issues

Incomes

Income for the past three years and projected current year income for each spouse is shown below in Table 1:

Table 1

Family Income

Year John Jenny

2013 $64,000 $0

2014 $67,000 $0

2015 $71,000 $47,000

2016 $74,000 $50,000

Table 1: Income for the past three years and projected current year income for each spouse

Current Assets/Information

Home valued at $550,000 is almost paid for. Six years remaining with a balance of $100,000.

John has a 401K with an approximate value of $480,000.

Jenny has a Roth IRA with an approximate value of $25,000.

Joint savings of roughly $50,000.

Both cars are paid for and in reasonable shape. John and Jenny expect to replace at least one car in the next 5 years.

John has worked full-time as a sales manager for more than 30 years. Jenny has worked as an office manager for the last 2 years and did not work previously. Jenny is uncertain about her

future with her current company and may not work much longer. She plans to work on some home improvements around the house should she stop working and is hoping to spend more time with some of her hobbies that she has missed over the years.

John’s expected Social Security benefits are as follows:

Age 62: $1,780/month Age 66 (full retirement): $2,456 Age 70: $2,914