Sasparilla County is deciding between two health insurance policies. The county

Question

Sasparilla County is deciding between two health insurance policies. The county has 17 employees.

HealthSavers would require $125403 today, and would then charge $11266 per employee per year. HealthSavers requires a 3-year contract. Note that the charge per employee will begin at the end of year 1 and the final payment will occur at the end of year 3.

Wellness, Inc. requires a 4-year contract. Wellness, Inc. charges $33082 per employee per year, with the first payment occurring at the end of year 1 and the last payment occurring at the end of year 4. The charge will increase by 17% each subsequent year. If the county can enroll all of its employees in a healthy living course, Wellness, Inc. will provide a rebate of $9102 at the end of year 4. Assume that the county is able to enroll all of its employees in the course.

Assume an interest rate of 7%, compounded annually. Comparing the two policies, what is the equivalent uniform annual worth (EUAW) of the HealthSavers plan. (You do not need to calculate the annual worth of the Wellness, Inc. plan.)

Explanation / Answer

Pv of the health savers project calculation PV= $29,565.54 PV(7%,3,-11266) Total PV = $154,968.54 adding initial cost PV factor of annuity for 3 years at 7% = 2.62432 from tables Equivalent uniform annual worth = 154968.544556395/2.62432 = $59,050.93

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