NEW QUESTION 1

The Sanford Group, a provider group, entered into a risk contract with a health plan. Sanford has purchased aggregate stop-loss coverage with an attachment point of 115% of the group's predicted healthcare costs of $2,000,000 for the year. Sanford has a copayment of 10% for any costs above the attachment point. If Sanford's actual costs for the year are $2,800,000, then, according to the terms of the aggregate stop-loss agreement, the amount that Sanford is responsible for is

• A. $2,080,000
• B. $2,300,000
• C. $2,350,000
• D. $2,380,000

Answer: C

NEW QUESTION 2

The following statements are about a health plan's pricing of a preferred provider organization (PPO) plan. Three of the statements are true, and one statement is false. Select the answer choice containing the FALSE statement.

• A. Typically, the first step in pricing a PPO is to develop a base indemnity claims cost, which results from adjusting the indemnity plan as though the entire eligible group of employees is enrolled in the indemnity plan.
• B. To develop the expected claims costs for the in-network PPO plan, the health plan's actuaries adjust the base indemnity claims costs to reflect pertinent characteristics of the plan, including the specific network plan design and provider discount arrangements.
• C. One difficulty in pricing a PPO is that the health plan's actuaries have no method of estimating which employees would be likely to select which provider groups.
• D. After the health plan's actuaries use risk adjustment factors to adjust the existing claims costs for selection issues, the actuaries weight the in network and out-of-network costs to arrive at a composite claims cost for the PPO plan.

Answer: C

NEW QUESTION 3

One law prohibits Dr. Laura Cole from making a referral to another provider entity for designated health services if Dr. Cole or one of her immediate family members has a financial relationship with the entity. This law is known as the

• A. safe harbor law
• B. upper payment limit law
• C. anti-kickback law
• D. physician self-referral law

Answer: D

NEW QUESTION 4

The McGwire Health Plan is a for-profit health plan that issues stock. Events that will cause the owners' equity account of McGwire to change include

• A. McGwire's retention of net income
• B. McGwire's payment of cash dividends on the stock it issued
• C. McGwire's purchase of treasury stock
• D. All of the above

Answer: D

NEW QUESTION 5

This concept, which is an extension of the going-concern concept, holds that the value of an asset that a company reports in its accounting records should be the asset's historical cost, not its current market value. Although this concept offers objectivity and reliability, it may lack relevance, particularly for assets held for a long period of time.
From the following answer choices, choose the name of the accounting concept that matches the description.

• A. Measuring-unit concept
• B. Full-disclosure concept
• C. Cost concept
• D. Time-period concept

Answer: C

NEW QUESTION 6

The Lighthouse health plan operates in a state that allows the health plan to use an underwriting method of determining a group's premium in which underwriters treat several small groups as one large group for risk assessment purposes. This method, which helps Lighthouse more accurately estimate a small group's probable claims costs, is known as

• A. Case stripping
• B. The low-option rating method
• C. The rate spread method
• D. Pooling

Answer: D

NEW QUESTION 7

The Amethyst Health Plan uses a budgeting approach that requires each line of business within Amethyst’s operation to justify its continued operation. Amethyst begins with the premise that no resources will be allocated for the following period unless each dollar to be spent is justified and is shown to be within departmental plans and corporate goals and objectives. The budgeting approach used by Amethyst is known as:

• A. Bottom-up budgeting
• B. Top-down budgeting
• C. Zero-based budgeting
• D. Master budgeting

Answer: C

NEW QUESTION 8

Contingency risks, or C-risks, are general categories of risk that have a direct bearing on both the cash flow and solvency of a health plan. One of these C-risks, pricing risk (C-2 risk), is typically the most important risk a health plan faces. Pricing risk is crucial to a health plan’s solvency because:

• A. A sizable portion of any health plan’s assets are held in long-term investments and anyshift in interest rates can significantly impact a health plan’s ability to pay medical benefits
• B. A health plan relies heavily on the sound judgment of its management, and poor management decisions can result in financial losses for the health plan
• C. A situation in which actual expenses exceed the amounts budgeted for those expenses may result in the health plan failing to retain assets sufficient to cover current obligations
• D. A sizable portion of the total expenses and liabilities faced by a health plan come from contractual obligations to pay future medical costs, and the exact amounts of those costs are not known at the time a product’s premium is established

Answer: D

NEW QUESTION 9

In the following paragraph, a sentence contains two pairs of words enclosed in parentheses. Determine which word in each pair correctly completes the sentence. Then select the answer choice containing the two words that you have selected.
Budgeting approaches can be classified as static or flexible budgets, or as rolling or period budgets. A health plan most likely would use a (static / flexible) budget when a budget's objective is to reduce or limit expenses, and the health plan most likely would use a (rolling / period) budget if it would like to continually maintain projections for a certain time period into the future.

• A. static / rolling
• B. static / period
• C. flexible / rolling
• D. flexible / period

Answer: A

NEW QUESTION 10

The Norton Health Plan used blended rating to develop a premium rate for the Roswell Company, a large employer group. Norton assigned Roswell a credibility factor of 0.7 (or 70%). Norton calculated Roswell’s manual rate to be $200 and its experience claims cost as $180. Norton’s retention charge is $3. This information indicates that Roswell’s blended rate is:

• A. $186
• B. $189
• C. $194
• D. $197

Answer: B

NEW QUESTION 11

A cost for which a benefit is forfeited in choosing one decision alternative over another alternative is known as

• A. A marginal unit cost
• B. An opportunity cost
• C. An incremental cost
• D. A differential cost

Answer: B

NEW QUESTION 12

Because a health plan cannot decline coverage for individuals who are eligible for conversion of group health coverage to individual health coverage, the bulk of the health plan's underwriting for conversion policies is accomplished through health plan design.

• A. True
• B. False

Answer: A

NEW QUESTION 13

With regard to capitation arrangements for hospitals, it can correctly be Back to Top stated that

• A. The most common reimbursement method for hospitals is professional services capitation
• B. Most jurisdictions prohibit hospitals and physicians from joining together to receive global capitations that cover institutional services provided by the hospitals
• C. Ahealth plan typically can capitate a hospital for outpatient laboratory and X-ray services only if the health plan also capitates the hospital for inpatient care
• D. Many hospitals have formed physician hospital organizations (PHOs), hospital systems, or integrated delivery systems (IDSs) that can accept global capitation payments from health plans

Answer: D

NEW QUESTION 14

The Caribou health plan is a for-profit organization. The financial statements that Caribou prepares include balance sheets, income statements, and cash flow statements. To prepare its cash flow statement, Caribou begins with the net income figure as reported on its income statement and then reconciles this amount to operating cash flows through a series of adjustments. Changes in Caribou's cash flow occur as a result of the health plan's operating activities, investing activities, and financing activities.
Caribou is engaged in an operating activity when it

• A. Purchases or sells assets of the health plan
• B. Disposes of a subsidiary
• C. Repays funds loaned by its creditors
• D. Pays expenses associated with the healthcare services provided to its members

Answer: D

NEW QUESTION 15

The following paragraph contains two pair of terms enclosed in parentheses. Determine which term in each pair correctly completes the statements. Then select the answer choice containing the two terms you have chosen.
In a typical health plan, an (actuary / underwriter) is ultimately responsible for the determination of the appropriate rate to charge for a given level of healthcare benefits and administrative services in a particular market. The (actuary / underwriter) assesses and classifies the degree of risk represented by a proposed group or individual.

• A. actuary / actuary
• B. actuary / underwriter
• C. underwriter / actuary
• D. underwriter / underwriter

Answer: B

NEW QUESTION 16

The provider contract that Dr. Timothy Meyer, a pediatrician, has with the Cardigan health plan states that Cardigan will compensate him under a capitation arrangement. However, the contract also includes a typical low enrollment guarantee provision. Statements that can correctly be made about this arrangement include that the low enrollment guarantee provision most likely:

• A. Causes D
• B. Meyer's capitation contract with Cardigan to transfer more risk to him than the contract otherwise would transfer
• C. Specifies that Cardigan will pay D
• D. Meyer under an arrangement other than capitation until a specified number of children covered by the plan use him as their PCP
• E. Both A and B
• F. A only
• G. B only
• H. Neither A nor B

Answer: C

NEW QUESTION 17

Experience rating methods can be either prospective or retrospective. With regard to these types of experience rating methods, it can correctly be stated that

• A. A health plan typically can expect much higher profit levels from using retrospective experience rating rather than prospective experience rating a health plan using prospective experience rating is more likely than a
• B. Health plan using retrospective experience rating to have to pay an experience rating dividend if a group's experience has been better than expected during the rating period
• C. The premium determined under retrospective experience rating is usually higher than the premium under prospective experience rating
• D. Most states require HMOs to use retrospective experience rating rather than prospective experience rating

Answer: C

NEW QUESTION 18

Dr. Jacob Winburne is compensated by the Honor Health Plan under an arrangement in which Honor establishes at the beginning of a financial period a fund from which claims approved for payment are paid. At the end of the given period, any funds remaining are paid out to providers. This information indicates that the arrangement between Dr. Winburne and Honor includes a provider incentive known as a:

• A. Risk pool, and any deficit in the fund at the end of the period would be the sole responsibility of Honor
• B. Risk pool, and any deficit in the fund at the end of the period would be paid by both D
• C. Winburne and Honor according to percentages agreed upon at the beginning of the contract period
• D. Withhold, and any deficit in the fund at the end of the period would be the sole responsibility of Honor
• E. Withhold, and any deficit in the fund at the end of the period would be paid by both D
• F. Winburne and Honor according to percentages agreed upon at the beginning of the contract period

Answer: A

NEW QUESTION 19

The following statements illustrate the use of different rating methods by health plans:
✑ The Dover health plan established rates for small groups by using a rating method which requires that the average premium in each group cannot be more than 120% of the average premium for any other group. Under this method, all members of each group pay the same premium, which is based on the experience of the group.
✑ Under the rating method used by the Rolling Hills health plan, the health plan
calculates the ratio of a group's experience to the group's historical manual rate. Rolling Hills then multiplies this ratio by the group's future manual rate. Rolling Hills cannot consider the group's experience in determining premium rates.
From the following answer choices, select the response that correctly indicates the rating methods used by Dover and Rolling Hills.

• A. Dover = modified community rating Rolling Hills = factored rating
• B. Dover = modified community rating Rolling Hills = adjusted community rating (ACR)
• C. Dover = community rating by class (CRC) Rolling Hills = factored rating
• D. Dover = community rating by class (CRC) Rolling Hills = adjusted community rating (ACR)

Answer: D

NEW QUESTION 20

With regard to a health plan's underwriting of groups, it can correctly be stated that, generally, a

• A. Health plan will require that contributory healthcare plans have a participation level of between 50% and 70%
• B. Health plan will decline to cover a group that has been formed for the sole purpose of obtaining healthcare coverage
• C. Health plan's underwriters will not examine the age spread of the entire group being underwritten
• D. Health plan would expect a group with a large proportion of young females to have lower healthcare costs than does a similar group with a large proportion of young males

Answer: B

NEW QUESTION 21
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