risk hw

RMI 2101

Fall 2016

Homework Assignment 9

12 Points

Due on Wednesday, December 7, 2016 AT THE BEGINNING OF CLASS

Be careful to follow the Guidelines for Homework Document located in the Course Documents

Section of Blackboard. You will lose points for not following proper format.

1. Manaka Inc. provides health insurance on a non-contributory basis to their employees.

The monthly premium for this health insurance is $500. Michael, who is an employee of

Manaka Inc., has satisfied all of the eligibility conditions of this insurance. Suppose his

combined tax rate is 25%.

a. How much income tax would Michael pay on an annual basis for this employee

benefit? (1 point)

b. What is this employee benefit worth to Michael in terms of ‘salary equivalent’ on

an annual basis? (1 point)

2. Manaka Inc. also provides Michael disability income insurance on a non-contributory

basis. This contract would pay $1000 per month should he become disabled. The

monthly premium for this insurance is $50.

a. How much income tax would Michael pay on an annual basis for this employee

benefit? (1 point)

b. If Michael should become disabled and start to receive disability income

payments, how much income tax would Michael pay on an annual basis? (1

point)

c. Now suppose Manaka offers this insurance on a contributory basis. If Manaka

Inc. pays 60% of the premium and Michael pays 40% with after-tax salary, how

much income tax would Michael pay on an annual basis on the payments should

he become disabled? (2 points)

3. Consider the so-called ‘Cadillac Tax’ under the ACA. Explain what impact this will

likely have on collectively bargained unionized employee benefit plans. (3 points)

4. United Healthcare is one of the largest health insurers in the United States. Recently,

United announced that they will no longer participate on the state exchanges established

by the ACA. Provide an explanation for their decision. (3 points)