Download 1 - College of Business

UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN
College of Commerce and Business Administration
DEPARTMENT OF FINANCE
First Exam
Finance/LIR 360
Name:_______________________ Fall, 2001
Maximum Number of Points: 30
This exam is open book, open note. Calculators can be used but not shared. Unless
otherwise indicated, each part of each question is worth one point.
1.
a.
b.
List the three most important factors influencing employee benefits in
the correct order:
#1.
____________________________________________________
#2.
____________________________________________________
#3.
____________________________________________________
Give a comparative example1 that supports your answer for #1 above, but
do not use heating costs as one of the examples:
___________________________________________________________
__
___________________________________________________________
__
1
Your comparative example should list two potential employee benefits, one of which
is much more likely to be offered by companies due to the influence of the item you
listed as #1 for part a of this question. Indicate which benefit is the more commonly
offered one.
c.
How your answer for #2 above explain why unionized firms are likely to
have more extensive employee benefits than non unionized firms.
___________________________________________________________
__
___________________________________________________________
__
d.
How does your answer for #3 above explain the increasing popularity of
group long term care insurance?
___________________________________________________________
__
___________________________________________________________
__
2.
While interviewing for a job with a company, you mention to the recruiter that you
have taken a course on employee benefits. In order to learn if you paid attention
in this class, she asks you to briefly explain the meaning of each of the following
terms commonly used in employee benefits:
a.
Legally required benefits _____________________________________
___________________________________________________________
__
b.
Wellness programs __________________________________________
___________________________________________________________
__
c.
Survivorship benefits ________________________________________
___________________________________________________________
__
d.
Prospective experience rating _________________________________
___________________________________________________________
__
e.
Managed care _______________________________________________
___________________________________________________________
__
(The next question is worth 2 points.)
3.
How much of a tax credit would a totally and permanently disabled single person
be entitled to for 2001 if this person received a disability income benefit of $1000
a month for the entire year from a fully contributory disability income plan from
his employer and a social security disability benefit of $300 per month for the
entire year? Assume that this person had no other taxable income during the
year. (You have all the information you need to calculate the Adjusted Gross
Income.)
4.
Indicate the amount of taxable income for the employee generated by each of the
following non-contributory employee benefits based on tax regulations applicable
for 2001. The premiums shown are the cost for that employee. Assume each
plan is non-discriminatory based on applicable rules.
a.
The employer pays $800 to purchase $50,000 in group universal life
insurance coverage for a 25 year old male employee for the entire year.
b.
The employer pays $200 to purchase $250,000 in group term life
insurance coverage on a 36 year old employee.
c.
The employer pays $300 to purchase $20,000 in group term life insurance
coverage on the 65 year old spouse of a 69 year old retiree.
d.
The employer pays $800 to purchase a group short term disability income
plan on which the employee collects $2000 in benefits during the year.
e.
The employer pays $500 to purchase workers' compensation coverage
under which the employee collects $3000 in medical expenses, $2000 in
disability income and $1000 in rehabilitation expenses.
f.
The employer pays $500 to purchase a group dental insurance plan under
which an employee collects $300 in dental expenses.
g.
The employer pays $50 to purchase group legal expense insurance under
which an employee collects $200 to cover cost of preparing a will.
h.
The employer pays $600 to purchase a group auto insurance policy under
which an employee collects $10,000 to pay for the cost of an accident.
i.
A department store provides a 40% discount on merchandise to all
employees. One employee uses the discount to purchase a coat that was
originally priced at $500. The coat cost the store $380.
(The next question is worth 2 points.)
5.
What employee benefit, of the ones we have covered in class so far, do you think
would be most important to you when you get your next job? Explain.
(The next question is worth 2 points.)
6.
A 72 year old retiree has a post-retirement medical plan with a Medicare carveout provision. This plan pays 80% of all eligible expenses in excess of a $250
deductible. This retiree incurs $10,250 in covered medical expenses. Medicare
will pay $7,500 towards these expenses. How much will the company’s health
care plan pay in this case?
7.
As you remember from Assignment 2, Eddie Edwards, born 4/10/72, and his wife
Jenny Jenson, born 5/5/71, are each employed by companies that offer health
insurance to the entire family. Both plans include the 1991 Model Group
Coordination of Benefits Provisions (Traditional Approach) promulgated by the
NAIC. Eddie's plan pays 90 percent of medical expenses over a $500 per
occurrence deductible. Jenny's plan pays 80 percent of medical expenses over a
$200 per occurrence deductible. They have two children, Nellie, age 4 and Telly,
age 2. For each situation, indicate how much each of the plans will pay.
a.
Eddie is injured and goes to the emergency room for x-rays and stitches.
The bill is $1000.
b.
Telly is hospitalized for several days. The total bill is $15,000.
(The next question is worth 2 points.)
8.
What effect will passage of a Patients' Rights Bill into law have on health
insurance costs, if the final law is along the lines of the bill passed this summer in
the House of Representatives? Be specific and explain your answer.