Question 1

The following statement(s) can correctly be made about a health plan's underwriting of small groups:

Accepted Answer

The answer of The following statement(s) can correctly be made...

Question 2

The Cardinal health plan complies with all of the provisions of HIPAA. Cardinal has received requests for healthcare coverage from the following companies that meet the statutory definition of a small group: The Xavier Company has excellent claims experience The Youngblood Company has not previously offered group healthcare coverage to its employees The Zebulon Company has poor claims experience According to HIPAA's provisions, Cardinal must issue a healthcare contract to

Accepted Answer

HIPAA requires that health plans provide coverage to any small group that applies, regardless of their claims experience or previous coverage history.

Question 3

One true statement about the rate ratios used by a health plan is that the

Accepted Answer

The end result of a typical family rate ratio is that the health plan's family rate is subsidized by its single premium rate.

Question 4

A product is often described as having a thin margin or a wide margin. With regard to the factors that help determine the size of the margin of a health plan's product, it can correctly be stated that the

Accepted Answer

Longer premium rate guarantees increase risk for the health plan, so a wider margin is needed to cover potential cost fluctuations over time.

Question 5

The ability of a health plan to effectively perform the rating and underwriting functions has become critical to the plan's success. In developing its pricing strategy, a health plan has to address the marketplace's ongoing trends and factors, which include

Accepted Answer

The consolidation of key players in the health plan industry is a factor that a health plan must address in developing its pricing strategy.

Question 6

With regard to the major risk factors associated with group underwriting, it can correctly be stated that, typically,

Accepted Answer

A large group is more likely to exhibit a consistent claims pattern, level of healthcare cost, or utilization of services than is a small group. This is because larger sample sizes tend to be more representative of the population and therefore have less variation. It is important for a health plan to track demographic factors of groups and adjust for them to ensure fairness and accuracy in underwriting. The product design and delivery system of a health plan can also have an impact on member selection, even in a multiple option environment. The age and gender of group plan members can be predictors of utilization of health services by group members, so they are important risk factors to consider.

Question 7

The following statements indicate the pricing policies of two health plans that operate in a particular market: The Accent Health Plan consistently underprices its product The Bolton Health Plan uses extremely strict underwriting practices for the small groups to which it markets its plan From the following answer choices, select the response that correctly indicates the most likely market effects of the pricing policies used by Accent and Bolton.

Accepted Answer

The answer of The following statements indicate the pricing policies...

Question 8

Kevin Olin applied for individual healthcare coverage from the Mercury health plan. Before issuing the policy, Mercury's underwriters attached a rider that excludes from coverage any loss that results from Mr. Olin's chronic knee problem. This information indicates that Mr. Olin's policy includes

Accepted Answer

An impairment rider is a type of policy exclusion that excludes coverage for pre-existing medical conditions that the policyholder is already aware of or has received treatment for in the past. Mr. Olin's chronic knee problem would fall under this category, as it is a pre-existing condition that he is already aware of. The other options, such as a moral hazard rider, essential plan rider, or insurable interest rider, do not apply to this situation.

Question 9

State A, which requires guaranteed issue of at least two mandated healthcare plans, has established a typical health coverage reinsurance program for small employer groups. One true statement about this reinsurance program is that it most likely

Accepted Answer

Reinsurance programs for small employer groups typically allow carriers to reinsure either entire groups or specific individuals within those groups, providing flexibility in managing risk.

Question 10

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

Accepted Answer

The answer of With regard to a health plan's underwriting...

Question 11

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.

Accepted Answer

Because conversion policies cannot be declined, the health plan must use health plan design to underwrite the policies based on factors such as benefit levels, deductibles, and copayments.

Question 12

An actuary for the Noble Health Plan observed that the plan's actual morbidity was lower than its assumed morbidity and that the plan's actual administrative expenses were higher than its assumed administrative expenses. In this situation, Noble's actual underwriting margin was

Accepted Answer

Lower morbidity leads to a larger underwriting margin, while higher administrative expenses result in a lower expense margin.

Question 13

When pricing its product, the Panda Health Plan assumes a 4% interest rate on its investments. Panda also assumes a crediting interest rate of 4%. The actual interest rate earned by Panda on the assets supporting its product is 6%. The following statements can correctly be made about the investment margin and interest margin for Panda's products.

Accepted Answer

The investment margin is the difference between the actual interest earned on investments and the interest rate assumed in pricing the product. Therefore, Panda's investment margin is (6% - 4%) = 2%. Statement A is incorrect because the crediting interest rate is already factored into the product's pricing, and is not included in the investment margin. Statement B is incorrect because the investment margin does not relate to benefit costs.

Question 14

For each of its products, the Wisteria Health Plan monitors the provider reimbursement trend and the residual trend. One true statement about these trends is that

Accepted Answer

The provider reimbursement trend tracks changes in the amount paid to providers for services, which should be relatively straightforward for Wisteria to quantify. The residual trend is the portion of the overall trend not caused by changes in provider reimbursement levels, and is calculated by subtracting the provider reimbursement trend from the total trend. Therefore, answer B is correct. The residual trend could have more or less impact than the provider reimbursement trend, depending on the situation. Answer D is incorrect because an increase in the capitation rate paid to a PCP would be an example of a provider reimbursement trend, not a residual trend.

Question 15

Over time, health plans and their underwriters have gathered increasingly reliable information about the morbidity experience of small groups. Generally, in comparison to large groups, small groups tend to

Accepted Answer

Small groups tend to have more frequent and larger claims fluctuations compared to large groups.

Question 16

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

Accepted Answer

This method is called pooling, in which several small groups are combined and treated as one larger group for risk assessment purposes. This allows for more accurate estimation of probable claims costs and can help ensure that premiums are more stable and affordable for small businesses.

Question 17

One true statement about a health plan's underwriting margin is that

Accepted Answer

The level of underwriting risk that a health plan assumes as well as the level of market competition it encounters will both have an influence on the size of its assumed underwriting margin. As risk and competition increase, the health plan may need to increase its assumed underwriting margin to ensure sufficient profits.

Question 18

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.

Accepted Answer

This statement is false as health plan actuaries do have methods, such as past utilization data and surveying employees, to estimate which provider groups employees are likely to select.

Question 19

Most organizations that obtain group healthcare coverage can be classified as one of three types of groups: employer-employee groups, multiple employer groups, and professional associations. One true statement about these types of groups is that

Accepted Answer

Anti-selection risk is higher for both multiple-employer groups and professional associations because these groups often have less control over the selection of members compared to employer-employee groups, where the employer typically selects the coverage for all employees.

Question 20

The following statements are about a health plan's underwriting of small groups. Select the answer choice containing the correct statement.

Accepted Answer

In underwriting small groups, a health plan's underwriters typically consider both the characteristics of the group members and of the employer. This is the only statement that is true. A is incorrect because while some states prohibit health plans from rejecting a small group based on the nature of the business, not all states do. B is incorrect because while some states do prohibit health plans from setting participation levels as a requirement for coverage, not all do. D is incorrect because there is no set percentage that a health plan requires small employers to contribute toward the cost of healthcare coverage.

Exam 3: Health Plan Finance and Risk Management