125 are met, cafeteria plan is excluded from doctrine of constructive receipt, - Employees may not have the expertise to select proper benefits, thus destroying the motivational/security aspects of cafeteria plans. Notice that to find the December 31, 2021, price, you must use the dividend expected in 2022, which is 5% greater than the 2021 dividend. A percentage that a patient is responsible for paying for each service after the deductible has been met. g. If you formed a portfolio that consisted of 50$\%$ Bartman and 50$\%$ Reynolds, what would the portfolios beta and required return be? Sometimes it is thought that providing the full cash value of the benefits will be too appealing to participants and result in employees being underinsured. (a) COBRA - The Consolidated Omnibus Budget Reconciliation Act. PART A- hospital coverage (free when you turn 65), Medicare physicians that sign a contract to accept what Medicare allows as a payment, What happens if a physicians decides to not sign up for "participating physicians? a phrase coined to indicate payment of services rendered by someone other than the patient. c. Calculate the coefficients of variation for Bartman, Reynolds, and the Winslow 5000. Also, funds from one account may not be used to reimburse expenses from another account. Assume that it is now January 1, 2017. It is intended to supply a basic level of protection so that employees cannot be underinsured. This results in different payment amounts, depending on the location of the provider's practice, and amounts can vary from state to state and even within the same state, depending on whether the location is considered urban or suburban. Discuss the advantages to employers in offering their employee benefits though a cafeteria plan. the cash value of an annuity may be withdrawn in a lump sum. There is no partial coverage for out of network care. Employees directly save money since they pay for their share of benefit expenses on a tax-favored basis. If both parents have the same birth date, the policy that has been in effect the longest is the primary carrier. One insurer becomes the primary payer, and no more than 100 percent of the costs are covered, pretax funds set aside for use in payment of medical services and supplies not covered by insurance; referred to as a cafeteria plan. h. Suppose an investor wants to include Bartman Industriess stock in his portfolio. The success of a cafeteria plan depends on participation. Most common forms are, federal & state agencies, insurance companies, and workers' compensation. If the statement is false, explain why. If employee input is solicited, the plan should be custom crafted to meet the needs of the employees and reflect their suggestions and input. In protecting the employee from extreme deprivation, the plan sponsor is also protecting its own interests as well. - Health expenses also includes dental expenses: - As with cafeteria plans, must meet complex tax requirements, - Participation in FSA reduces salary for federal income tax purposes and lowers wages paid on Social Security and Medicare taxes. In some instances, the plan may provide that outside, employee-owned policies can be paid for through the premium conversion feature provided that the insurance is not from another employer-sponsored plan. Compensation for damage done or loss caused. Discuss the following statement: If a firm has only independent projects, a constant WACC, and projects with normal cash flows, the NPV and IRR methods will always lead to identical capital budgeting decisions. In some instances, employees are not given any employer money to spend, but can enhance their overall benefit package by making tax-favored contributions to the cafeteria plan. An amount to be paid before insurance will pay.
Inclusive policies, procedures, and practices as standards for reliable laboratory results that includes documentation, calibration, and maintenance of all equipment, quality control, proficiency testing, and training. Agents who persuade insureds to cancel a policy in favor of another one when it might not be in the insured's best interest are guilty of. If the cost of capital declined, would that lead firms to invest more in longer-term projects or shorter-term projects? Within a 60-day episode of care, what home health care services are consolidated into a single payment to home health agencies? Calculate the new portfolios required return if it consists of 25$\%$ of Bartman, 15$\%$ of Stock $A$, 40$\%$ of Stock $B$, and 20$\%$ of Stock $C$. the maximum amount an insurer will pay for any given service. (1) associated with diseases inherited (Ch 9); (2) one who carries, transports; with insurance, it's the company that provides the policy (Ch 27, 28, 30). Discuss the characteristics of a premium conversion plan, and why it is perceived as a cafeteria plan in its simplest form. Its basic earning power (BEP) ratio is 10%, and its return on assets (ROA) is 5%. Explain. If FGC has an opportunity cost of 6%, how much is the lockbox system worth on an annual basis? a. Explain the tax treatment for employee benefits under IRC Section 125 and the scope of Section 125. Why is it important for an employer to develop a carefully crafted communication campaign when establishing a cafeteria plan? FSAs are permitted for medical reimbursements, dependent-care assistance, and adoption assistance. In the future, though, SSC plans to shift its emergency funds from Treasury bonds to common stocks. How to meet the needs of employees? Refers to the discovery of the maximum amount of money the carrier will pay for primary surgery, consultation service, postoperative care, and so on. Give up; forgo, a document outlining services that will not be covered by a patient's insurance carrier and the cost associated with those services. Absent a written cafeteria plan, the tax-free treatment of premium payments will be disallowed. The Dauten Toy Corporation currently uses an injection molding machine that was purchased 2 years ago. Stockholders require a return of 12% on WMEs stock. FSAs offer an employee the ability to fund certain qualified benefits on a pretax basis through a salary reduction agreement or a combination of salary reductions and employer contributions. person entitled to benefits of an insurance policy. Wayne-Martin Electric Inc. (WME) has developed a solar panel capable of generating 200% more electricity than any other solar panel currently on the market. c. Some dividend reinvestment plans increase the amount of equity capital available to the firm. Fisher-Gardner Corporation (FGC) began operations 5 years ago as a small firm serving customers in the Chicago area. Generally lower paid employees are not very interested in tax savings; rather, they prefer to maximize their weekly take-home pay. c. Calculate the expected dividend yield$\left($\mathrm{D}$_{1} / $\mathrm{P}$_{0}\right)$, capital gains yield, and total return (dividend yield plus capital gains yield) expected for 2017. Under such a plan, the employer determines the dollar value it wishes to earmark for the benefits portion of total compensation. No profits will be produced by the Chinese operation for 4 years, so earnings will be depressed during this period versus what they would have been had the decision been made not to expand in China.
What does this imply about the choice between IRR and NPV? Prior approval of insurance coverage and necessity of procedure; refers to obtaining plan approval for services prior to the patient receiving them. Calculate WMEs expected dividends for 2017, 2018, 2019, 2020, and 2021. b. This term is most widely used by Medicare. The dollar amount that converts the RVUs into a fee. For a cafeteria plan to be considered qualified with respect to its written form, what provisions must the written plan include? If an employer's demographics consist largely of lower paid workers, a full flex plan offering a generous cash option could result in employees not being adequately protected unless adequate core benefits were mandated or limits were placed on the cash option. (Assume that$$\hat{\mathrm{P}}$_{0}=$\mathrm{P}$_{0}$ and recognize that the capital gains yield is equal to the total return minus the dividend yield.) \begin{align*} Dollar maximums limiting contributions to reimbursement accounts would likely concern higher paid employees. a percentage that a patient is responsible for paying for each service after the deductible has been met, a specified amount the insured must pay toward the charge for professional services rendered at the time of service, an amount to be paid before insurance will pay, person covered under a subscriber's insurance policy; refers to spouses and dependent children, the dollar amount that converts the RVUs into a fee, occurring first in time, development, or sequence; earliest, an organization of physicians who network together to offer discounts to purchasers of health care insurance, one step removed from the first; not primary, compensation for damage done or loss caused, refers to an evaluation of health care services to determine the medical necessity, appropriateness, and cost-effectiveness of the treatment plans for a given patient, a joint funding program by federal and state governments (excluding Arizona) for the medical care of low-income patients on public assistance, the person who has been insured; an insurance policyholder, refers to obtaining plan approval for services prior to the patient receiving them; refers to seeking approval for a treatment (surgery, hospitalization, diagnostic test) under the patient's insurance contract, EPOs are like HMOs in that patients must use their EPO's provider network when receiving care. Both medical and dependent-care reimbursement accounts most often only involve employee contributions on a pretax basis. The firm now has 2,000,000 shares of common stock outstanding, and the shares sell at a price of$28 per share. Higher paid employees typically value opportunities to reduce personal taxes through flexible benefit plans. Person covered under a subscriber's insurance policy; refers to spouses and dependent children. IRC Section 125 and the regulations related thereto govern cafeteria plan arrangements while other IRC sections apply to the underlying benefits funded within the cafeteria plan. b. Some of these generically refer to all types of cafeteria plans, while some terms refer to cafeteria plan possessing certain special characteristics. Today FGC has customers all over the United States. Discuss the meaning of those statements. The replacement machine would permit an output expansion, so sales would rise by$1,000 per year; even so, the new machines much greater efficiency would cause operating expenses to decline by $1,500 per year. It is important to note that Section 125 has a clearly defined scope with some benefits permissible for cafeteria plan tax treatment, while other benefits may not be included in a cafeteria plan. The Winslow 5000 data are adjusted to include dividends. Locked-in plans, such as LIRAs and LIFs, typically cannot be accessed prior to retirement. Consequently, it is totally irrational for a firm to sell a new issue of stock and to pay cash dividends during the same year. An employer can contribute to an HRA, but an employee cannot. On the other hand, if cash is selected and paid to participants, the cash payment would be fully taxable as compensation. \text{} & \text{ Bartman Industries} & & \text{Raynolds Inc.} & & \text{Windslow 5000} \\\\ \hline Medicare pays what percent of allowed amount after the deductible is satisfied? Pearsons CFO estimates that the companys WACC is 10.50%. Describe the elements of cafeteria plans that appeal to various demographic cohorts within an employer's workforce. a. When an FSA is funded purely by salary deferrals, the participant is choosing between two or more benefits consisting of cash and qualified benefits. - Allows employees, within limits, to create their own benefits package, - Employees have diverse benefit needs not accommodated by traditional packages, - Help employees better understand and appreciate the value of benefits, - Costly implementation and administration, IRC Section 125 Requirements for Cafeteria Plans. Dauten is offered a replacement machine which has a cost of$8,000, an estimated useful life of 6 years, and an estimated salvage value of $800. Person entitled to benefits of an insurance policy. An organization of physicians who network together to offer discounts to purchasers of health care insurance. Provider agrees to accept the insurer's payment as payment in full for the service provided. Because there are no employer contributions or flexible credits, this type of plan is perceived as a cafeteria in its simplest form. The pricing matrix takes into account several factors: Why do employers develop credit values for use in flexible benefit plans rather than use the actual dollar values associated with the premium costs? pays for medical expenses. The health care provider is paid a fixed amount per member per month for each patient who is a member of a particular insurance organization regardless of whether services were provided. Contributions to a cafeteria plan are exempt from federal income tax and are not subject to FICA and FUTA taxes. Other firms will have developed comparable technology by the end of 5 years, and WMEs growth rate will slow to 5% per year indefinitely. \begin{array}{c|cc|cc|c} Low levels of participation will defeat the purpose of establishing the plan and perhaps cause the plan to fail required nondiscrimination testing. A primary care physician who coordinates the patient's referral to specialists and hospital admissions. Accordingly, such pricing makes the benefits more valuable than cash. Use the data to calculate annual rates of return for Bartman, Reynolds, and the Winslow 5000 Index. The most recent annual dividend $\left(\mathrm{D}_{0}\right)$, which was paid yesterday, was $1.75 per share. When both spouses have health care insurance, the policy provision that limits benefits to 100 percent of the cost; also known as dual coverage; procedures insurers use to avoid duplication of payment on claims when patient has more than one policy. The new machine would require that inventories be increased by$2,000, but accounts payable would simultaneously increase by $500. A list of predetermined payment amounts for professional services provided to patients. Private insurance to supplement Medicare benefits for payment of the deductible, co-payment, and coinsurance. b. Throughout the plan year, as expenses are incurred for the participant and dependents, a claim is submitted to the plan for reimbursement. Cafeteria plans often are referred to using a variety of terms. a. Again, assume that the long-run growth rate is 4%. Type of managed care operation that is typically set up as a for profit corporation with salaried employees; group insurance that entitles members to services provided by participating hospitals, clinics, and providers. Sometimes called a full choice plan.
", They can only charge 15% above the allowed fee. What involvement would nonfinancial people such as those in marketing, accounting, and production have in the analysis? Discuss how SSCs stockholders might view each of these actions and how the actions might affect the stock price. Would a decline (or an increase) in the WACC cause changes in the IRR ranking of mutually exclusive projects? (a) if a cafeteria plan is considered to have welfare benefit plans, a claims provision that satisfies ERISA must be included.
To meet this requirement, the plan must describe the maximum amount of elective contributions available to any participant either by stating the maximum dollar amount or maximum percentage of compensation that must be contributed as elective contributions or by stating the method for determining the maximum amount or percentage of elective contributions that a participant may make. Describe the concept of a cafeteria plan and how it operates in connection with other employee benefit plans sponsored by an employer. Over the years, Masterson Corporations stockholders have provided $34,000,000 of capital when they purchased new issues of stock and allowed management to retain some of the firms earnings. b. A federal program for providing health care coverage for individuals over the age of 65 or those who are disabled.
The cafeteria plan is merely the mechanism to pay for employee benefits. It can be paired with a standard or high deductible health plan. Calculate the standard deviations of the returns for Bartman, Reynolds, and the Winslow 5000. Without proper communication including adequate time for questions and answers, the employees could view the cafeteria plan as a way for their employer to pay them less. Such a plan gives participants an opportunity to select among a full range of benefits. - Some plans, employees can only allocate a predetermined employer contribution for benefits, - POP allows for before-tax salary reduction to pay for premiums on any employer-sponsored health or other welfare benefit plan, e.g., medical expense. Pays for medical expenses. What are the primary disadvantages to an employee in receiving benefits under the umbrella of a cafeteria plan? Should it replace the old machine? What is Pearsons cost of common equity? FGC would like to set up a lockbox collection system, which it estimates would reduce the time lag from customer mailing to deposit by 2 daysbringing it down to 5 days. This machine is being depreciated on a straight-line basis, and it has 6 years of remaining life. Then calculate these same three yields for 2022. d. How might an investors tax situation affect his or her decision to purchase stocks of companies in the early stages of their lives, when they are growing rapidly, versus stocks of older, more mature firms? If a firm repurchases its stock in the open market, the shareholders who tender the stock are subject to capital gains taxes. Pretax funds set aside for use in payment of medical services and supplies not covered by insurance; referred to as a cafeteria plan. The most notable advantage is the preferential tax treatment afforded to these benefits. As a general rule, which type of benefits typically provide a premium conversion feature under a flexible benefit plan? Records are maintained showing the activity in each participant's individual account. provide agrees to accept the insurer's payment as payment in full for the service provided. (e) The max amount of employer contributions available to any participant. Because such a system can smooth out benefit inequities. to provide health care with an emphasis on prevention, Has the least amount of structural guidelines, I get to chose, Well known consumer-driven health plans in earlier years. Each of the RSRVs components is then adjusted for geographical cost differences by multiplying each by a geographic practice cost index. Thomson Trucking has $16 billion in assets, and its tax rate is 40%. d. Construct a scatter diagram that shows Bartmans and Reynoldss returns on the vertical axis and the Winslow 5000 Indexs returns on the horizontal axis. Use the SML equation to calculate the two companies required returns. What is a core benefit within a flexible benefit plan and what purposes does the core benefit serve? An association of independent physicians, or other organization that contracts with independents physicians, and provides services to managed care organizations on a negotiated per-capita rate, flat retainer fee, or negotiated fee for service basis. It can be paired with a standard or high-deductible health plan. Indicate whether the following statements are true or false. The year end 2021 stock price can be found by using the constant growth equation. A claim that's automatically forwarded from Medicare to a secondary payer, such as Medicaid, all patients should have a personal physician, establish to aid dependents of active service personnel, retired service personnel and their dependents, and dependents of service personnel who died on duty, with a supplement for medical care in military or public health service facilities. This dollar value is in addition to any salary reductions employees choose to direct to reimbursement accounts or additional benefit purchases. Despite its broad customer base, FGC has maintained its headquarters in Chicago, and it keeps its central billing system there. Grace periods may apply to health care and dependent care FSA and adoption assistance plans, but not elective paid time-off. A cafeteria plan really is an umbrella plan under which tax-favored employee benefits are offered.
\text{Year} & \text{Stock Price} & \text{Dividend} & \text{Stock Price} & \text{Dividend} & \text{Includes Dividends} \\\\ If you own 100 shares in a companys stock and the companys stock splits two-for-one, you will own 200 shares in the company following the split. Section 125 provided favorable tax treatment to certain benefits funded through a cafeteria plan. Without doing any calculations, what general effect would these growth rate changes have on the price of WMEs stock? c. The company holds about half of its assets in the form of U.S. Treasury bonds, and it keeps these funds available for use in emergencies. $$ \text{2010} & \text{7.62} & \text{0.85} & \text{55.75} & \text{2.00} & \text{4.705.97}\\\\ This is a "use it or lose it" type plan, each of the RSRVS components is then adjusted for geographical cost differences by multiplying each by a geographic practice cost index. A cafeteria plan is the only means that can be used for employees to pay for insurance costs on a tax-favored basis. Used to notify a Medicare beneficiary that it is either unlikely that Medicare will pay or certain that Medicare will not pay for the service that they are going to be provided. b. Ongoing cost of administration and operation of such a plan. Given that cafeteria plans are not all the same, describe the different types of cafeteria plans allowable under IRC Section 125. Refers to the legal obligation of third parties to pay part or all of the expenditures for medical assistance furnished under a state plan. Required by Medicare when a service is provided to a beneficiary that is either not covered or the provider is unsure of coverage. refers to the legal obligation of third parties (e.g., certain individuals, entities, insurers, or programs) to pay part or all of the expenditures for medical assistance furnished under a state plan, to give up; forgo; waiving of a right or claim; a document outlining services that will not be covered by a patient's insurance carrier and the cost associated with those services.
