"To calculate the debt-to-equity ratio, both liabilities and total equity need to be adjusted for the estimated impact of a 100-bp increase in health care costs. The proposed increase in health care costs will increase total liabilities and decrease equity by the same amount. Consequently, the debt-to-equity ratio changes as follows:
Sensitivity of benefit obligation to 100-bp increase = $93
Adjusted liabilities = $17,560 + $93 = $17,653
Adjusted equity = $6,570 − $93 = $6,477
Adjusted debt-to-equity ratio = $17,653/$6,477 = 2.7255 ≈ 2.73
Consequently, a 100-bp increase in health care costs increases the debt-to-equity ratio to approximately 2.73."
I wanna ask how does an increase in health cost will increase liabilities and decrease equity (what components of the 2 is affected)?
Thank you <3