Deck 3: Health Plan Finance and Risk Management

Question 1

The Eclipse Health Plan is a not-for-profit health plan that qualifies under the Internal Revenue Code for tax-exempt status. This information indicates that Eclipse

A) Has only one potential source of funding: borrowing money
B) Does not pay federal, state, or local taxes on its earnings
C) Must distribute its earnings to its owners-investors for their personal gain
D) Is a privately held corporation

Answer 1

B

Question 2

The Atoll Health Plan must comply with a number of laws that directly affect the plan's contracts. One of these laws allows Atoll's plan members to receive medical services from certain specialists without first being referred to those specialists by a primary care provider (PCP). This law, which reduces the PCP's ability to manage utilization of these specialists, is known as _________.

A) A due process law
B) An any willing provider law
C) A direct access law
D) A fair procedure law

Answer 2

C

Question 3

The NAIC has developed a risk-based capital (RBC) formula for all health plans that accept risk. One true statement about the RBC formula for health plans is that it

A) is a set of calculations, based on information in a health plan's annual financial report, that yields a target capital requirement for the organization
B) fails to take into account a health plan's underwriting risk, which is the risk that the premiums the health plan receives will be insufficient to pay for the healthcare services it provides to its plan members
C) applies to all health plans in the United States
D) fails to assess the specific level of risk faced by each health plan

Answer 3

A

Question 4

Several federal agencies establish rules and requirements that affect health plans. One of these agencies is the Department of Labor (DOL), which is primarily responsible for

A) Issuing regulations pertaining to the Health Insurance Portability and Accountability Act (HIPAA) of 1996
B) Administering the Medicare and Medicaid programs
C) Administering ERISA, which imposes various documentation, appeals, reporting, and disclosure requirements on employer group health plans
D) Administering the Federal Employees Health BenefitsProgram (FEHBP), which providesvoluntary health insurance coverage to federal employees, retirees, and dependents

Question 5

The Health Maintenance Organization (HMO) Model Act, developed by the National Association of Insurance Commissioners (NAIC), represents one approach to developing solvency standards. One drawback to this type of solvency regulation is that it

A) Uses estimates of future expenditures and premium income to estimate future risk
B) Fails to adjust the solvency requirement to account for the size of an HMO's premiums and expenditures
C) Assumes that the amount of premiums an HMO charges always directly corresponds to the level of the risk that the HMO faces
D) Fails to mandate a minimum level of capital and surplus that an HMO must maintain

Question 6

Mandated benefit laws are state or federal laws that require health plans to arrange for the financing and delivery of particular benefits. Within a market, the implementation of mandated benefit laws is likely to cause __________.

A) A reduction in the number of self-funded healthcare plans
B) An increase in the cost to the health plans
C) A reduction in the size of the provider panels of health plans
D) A reduction in the uniformity among the healthcare plans of competing health plans

Question 7

Under the doctrine of corporate negligence, a health plan and its physician administrators may be held directly liable to patients or providers for failing to investigate adequately the competence of healthcare providers whom it employs or with whom it contracts, particularly where the health plan actually provides healthcare services or restricts the patient's/enrollee's choice of physician.

Question 8

The following paragraph contains an incomplete statement. Select the answer choice containing the term that correctly completes the statement. Health plans face four contingency risks (C-risks): asset risk (C-1), pricing risk (C-2), interest-rate risk (C-3), and general management risk (C-4). Of these risks, ________________ is typically the most important risk that health plans face. This is true because a sizable portion of the total expenses and liabilities faced by a health plan come from contractual obligations to pay for future medical costs, and the exact amount of these costs is not known when the healthcare coverage is priced.

A) Asset risk (C-1)
B) Pricing risk (C-2)
C) Interest-rate risk (C-3)
D) General management risk (C-4)

Question 9

Rasheed Azari, the risk manager for the Tower health plan, is attempting to work with providers in the organization in order to reduce the providers' exposure related to utilization review. Mr. Azari is considering advising the providers to take the following actions: 1-Allow Tower's utilization management decisions to override a physician's independent medical judgment 2-Support the development of a system that can quickly render a second opinion in case of disagreement surrounding clinical judgment 3-Inform a patient of any issues that are being disputed relative to a physician's recommended treatment plan and Tower's coverage decision Of these possible actions, the ones that are likely to reduce physicians' exposures related to utilization review include actions

A) 1, 2, and 3
B) 1 and 2 only
C) 1 and 3 only
D) 2 and 3 only

Question 10

A key factor that distinguishes the various types of health plans is the type and amount of risk that a health plan assumes with respect to the delivery and financing of healthcare benefits. An example of a type of health plan that typically assumes the financial risk of delivering and financing healthcare benefits is a

A) Third party administrator (TPA)
B) Utilization review organization (URO)
C) Preferred provider organization (PPO)
D) Pharmacy benefit management (PBM) plan

Question 11

The following statements are about risk management in health plans. Select the answer choice containing the correct response.

A) Risk management is especially important to health plans because the Employee Retirement Income Security Act of 1974 (ERISA) allows plan members to recover punitive damages from healthcare plans.
B) With regard to the relative risk for health plan structures based upon the degree of influence and relationships that health plans maintain with their providers, preferred provider organizations (PPOs) typically have a higher risk than do group HMOs and staff HMOs.
C) Although there are clear risks associated with the provision of healthcare services and coverage decisions surrounding that care, the bulk of risk in health plans is associated with a health plan's benefit administration and contracting activities.
D) A health plan generally structures its risk management process around loss reduction techniques and loss transfer techniques.

Question 12

Provider reimbursement methods that transfer some utilization risk from a health plan to providers affect the health plan's RBC formula. A health plan's use of these reimbursement methods is likely to result in

A) An increase the health plan's underwriting risk
B) A decrease the health plan's credit risk
C) A decrease the health plan's net worth requirement
D) All of the above

Question 13

Three general strategies that health plans use for controlling types of risk are risk avoidance, risk transfer, and risk acceptance. The following statements are about these strategies. Three of these statements are true, and one statement is false. Select the answer choice containing the FALSE statement.

A) Generally, the smaller the likely benefits of accepting a risk, and the lower the costs of avoiding that risk, the greater the likelihood that a health plan will elect to avoid the risk.
B) A health plan is seldom able to transfer any of the risk that utilization rates will be higher than expected and that its cost of providing healthcare will exceed the revenues it receives.
C) If a risk is a pure risk from the point of view of a health plan, then the health plan most likely will attempt to avoid the risk.
D) A health plan would most likely transfer some or all of its utilization risk if it pays a provider a rate that is based on the number of plan enrollees that choose the provider as their primary care provider (PCP).

Question 14

The Challenger Group is a type of management services organization (MSO) that purchases the assets of physician practices, provides practice management and administrative support services to participating providers, and offers physicians a long-term contract and an equity position in Challenger. This information indicates that Challenger is a type of health plan

A) Known as
B) An integrated delivery system (IDS)
C) Amedical foundation
D) Aprovider-sponsored organization (PSO)
E) Aphysician practice management (PPM) company

Question 15

The following statements are about pure risk and speculative risk-two kinds of risk that both businesses and individuals experience. Select the answer choice containing the correct statement.

A) Healthcare coverage is designed to help plan members avoid pure risk, not speculative risk.
B) Only pure risk involves the possibility of gain.
C) An example of speculative risk is the possibility that an individual will contract a serious illness.
D) Only speculative risk contains an element of uncertainty.

Question 16

Users of the Fulcrum Health Plan financial information include: The independent auditors who review Fulcrum's financial statements Fulcrum's controller (comptroller) Fulcrum's plan members The providers that deliver healthcare services to Fulcrum plan members Fulcrum's competitors Of these users, the ones that most likely can correctly be classified as external users with a direct financial interest in Fulcrum are the

A) Independent auditors, the plan members, the providers, and the
B) Competitors only
C) Independent auditors, the controller, and the providers only
D) Controller and the competitors only
E) Plan members and the providers only

Question 17

The Acorn Health Plan uses a resource-based relative value scale (RBRVS) to help determine the reimbursement amounts that Acorn should make to providers who are compensated under an FFS system. With regard to the advantages and disadvantages to Acorn of using RBRVS, it can correctly be stated that

A) An advantage of using RBRVS is that it can assist Acorn in developing reimbursement schedules for various types of providers in a comprehensive healthcare plan
B) An advantage of using RBRVS is that it puts providers who render more medical services than necessary at financial risk for this overutilization
C) A disadvantage of using RBRVS is that it will be difficult for Acorn to track treatment rates for the health plan's quality and cost management functions
D) A disadvantage of using RBRVS is that it rewards procedural healthcare services more than cognitive healthcare services

Question 18

The physicians who work for the Sunrise Health Plan, a staff model HMO, are paid a salary that is not augmented with another type of incentive plan. Compared to the use of a traditional reimbursement method, Sunrise's use of a salary reimbursement method is more likely to

A) Encourage Sunrise's physicians to perform services that are not medically necessary
B) Completely eliminate service risk for Sunrise's physicians
C) Decrease Sunrise's liability for any negligent acts of the physicians in the plan's network of providers
D) Help stabilize expenses for Sunrise

Question 19

The Eagle health plan wants to limit the possibility that it will be held vicariously liable for the negligent acts of providers. Dr. Michael Chan is a member of an independent practice association (IPA) that has contracted with Eagle. One step that Eagle could take in order to limit its exposure under the theory of vicarious liability is to

A) Supply Dr. Chan with office space
B) Employ nurses, laboratory technicians, and therapists to support Dr.Chan
C) Be responsible for keeping Dr. Chan's medical records updated
D) Ensure that documents provided to Dr. Chan's patients describe him as an independent practitioner

Question 20

Health plans sometimes use global fees to reimburse providers. Health plans would use this method of provider reimbursement for all of the following reasons EXCEPT that global fees

A) Eliminate any motivation the providermay have to engage in churning
B) Transfer some of the risk of overutilization of care from the health plan to the providers
C) Eliminate the practice of upcoding within specific treatments
D) Reward providers who deliver cost-effective care

Question 21

The reimbursement arrangement that Dr. Caroline Monroe has with the Exmoor Health Plan includes a typical withhold arrangement. One true statement about this withhold arrangement is that, for a given financial period,

A) Dr. Monroe and Exmoor are equally responsible for making up the difference if cost overruns exceed the amount of money withheld
B) Exmoor most likely distributes to Dr. Monroe the entire amount withheld from her if her costs are below the amount budgeted for the period
C) Exmoor pays Dr. Monroe at the end of the period an amount over and above her usual reimbursement, and this amount is based on the performance of the plan as a whole
D) Exmoor most likely withholds between 3% and 5% of Dr. Monroe's total reimbursement

Question 22

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

Question 23

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

Question 24

Health plans seeking to provide comprehensive healthcare plans must contract with a variety of providers for ancillary services. One characteristic of ancillary services is that

A) Physician behavior typically does not impact the utilization rates for these services
B) Package pricing is the preferred reimbursement method for ancillary service providers
C) These services include physical therapy, behavior therapy, and home healthcare, but not diagnostic services such as laboratory tests
D) Few plan members seek these services without first being referred to the ancillary provider by a physician

Question 25

The Newfeld Hospital has contracted with the Azalea Health Plan to provide inpatient services to Azalea's enrolled members. The contract calls for Azalea to provide specific stop-loss coverage to Newfeld once Newfeld's treatment costs reach $20,000 per case and for Newfeld to pay 20% of the next $50,000 of expenses for this case. After Newfeld's treatment costs on a case reach $70,000, Azalea reimburses the hospital for all subsequent treatment costs. One true statement about this specific stop-loss coverage is that

A) The carrier is Newfeld
B) The attachment point is $20,000
C) The shared-risk corridor is between $0 and $70,000
D) This coverage can also be activated when the total covered medical expenses generated by the hospitalizations of Azalea plan members reach a specified level

Question 26

The sentence below contains two pairs of words enclosed in parentheses. Determine which word in each pair correctly completes the statement. Then select the answer choice containing the two words that you have chosen. Purchasing stop-loss coverage most likely (increases / reduces) a health plan's underwriting risk and (increases / reduces) the health plan's affiliate risk.

A) increases / increases
B) increases / reduces
C) reduces / increases
D) reduces / reduces 17

Question 27

The following statements are about carve-out programs. Three of these statements are true, and one statement is false. Select the answer choice containing the FALSE statement.

A) In the type of carve-out in which entire categories of care are administered by independent organizations, a health plan typically reimburses these organizations under an FFS contract.
B) Typically, a health plan will offer carved-out services to its enrollees, but will manage these services separately.
C) Carve-outs are services that are excluded from a capitation payment, a risk pool, or a health benefit plan.
D) The most rapidly growing area related to carve-outs is disease management (DM).

Question 28

A health plan that capitates a provider group typically provides or offers to provide stop-loss coverage to that provider group.

Question 29

The Newfeld Hospital has contracted with the Azalea Health Plan to provide inpatient services to Azalea's enrolled members. The contract calls for Azalea to provide specific stop-loss coverage to Newfeld once Newfeld's treatment costs reach $20,000 per case and for Newfeld to pay 20% of the next $50,000 of expenses for this case. After Newfeld's treatment costs on a case reach $70,000, Azalea reimburses the hospital for all subsequent treatment costs. The maximum amount for which Newfeld is at risk for any one Azalea plan member's treatment costs is

A) $10,000
B) $14,000
C) $30,000
D) $34,000

Question 30

The provider contract that Dr. Zachery Cogan, an internist, has with the Neptune Health Plan calls for Neptune to reimburse him under a typical PCP capitation arrangement. Dr. Cogan serves as the PCP for Evelyn Pfeiffer, a Neptune plan member. After hospitalizing Ms. Pfeiffer and ordering several expensive diagnostic tests to determine her condition, Dr. Cogan referred her to a specialist for further treatment. In this situation, the compensation that Dr. Cogan receives under the PCP capitation arrangement most likely includes Neptune's payment for

A) All of the diagnostic tests that he ordered on Ms. Pfeiffer 12
B) His visits to Ms. Pfeiffer while she was hospitalized
C) The cost of the services that the specialist performed for Ms. Pfeiffer
D) All of the above

Question 31

The Poplar Company and a Blue Cross/Blue Shield organization have contracted to provide a typical fully funded health plan for Poplar's employees. One true statement about this health plan for Poplar's employees is that

A) Poplar bears the entire financial risk if, during a given period, the dollar amount of services rendered to Poplar plan members exceeds the dollar amount of premiums collected for this health plan
B) Poplar and the Blue Cross/Blue Shield organization share the financial risk of paying for claims under Poplar's health plan
C) The Blue Cross/Blue Shield organization, upon acceptance of a premium, becomes the group plan sponsor for Poplar's health plan
D) The Blue Cross/Blue Shield organization, upon acceptance of a premium, bears the entire financial risk of paying for the administrative expenses associated with health plan operations

Question 32

The Kayak Company self funds the health plan for its employees. This plan is an example of a type of self-funded plan known as a general asset plan. Because Kayak's plan is a general asset plan, the funds that Kayak sets aside for the health plan are

A) subject to the claims of Kayak's creditors
B) available to Kayak solely for the purpose of paying for the healthcare expenses of Kayak's covered employees
C) placed in a trust fund established by Kayak to pay for the health plan
D) considered separate from Kayak's current operating funds

Question 33

The Kayak Company self funds the health plan for its employees. This plan is an example of a type of self-funded plan known as a general asset plan. The fact that this is a completely selffunded plan indicates that

A) The plan has no funding vehicle
B) Kayak passes to its employees the financial risk of providing healthcare coverage
C) The plan most likely is exempt from ERISA requirements concerning the limits on benefit discrimination for classes of employees
D) The plan is exempt from the state laws and regulations that apply to health insurance policies

Question 34

The following statements are about various reimbursement arrangements that health plans have with hospitals. Select the answer choice containing the correct statement.

A) A sliding scale per-diem charges arrangement differs from a sliding scale discount on charges arrangement in that only a sliding scale per-diem charges arrangement is based on total volume of admissions and outpatient procedures.
B) Under a typical reimbursement arrangement that is based on diagnosisrelated groups (DRGs), if the payment amount is fixed on the basis of diagnosis, then any reduction in costs resulting from a reduction in days will go to the health plan rather than to the hospital.
C) A negotiated straight per-diem charge requires payment of a single charge for a day in the hospital, regardless of any actual charges or costs incurred during the hospital stay.
D) A straight discount on charges arrangement is the most common reimbursement method in markets with high levels of health plans.

Question 35

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

Question 36

In order to calculate a simple monthly capitation payment, the Argyle Health Plan used the following information: The average number of office visits each member makes in a year is two The FFS rate per office visit is $55 The member copayment is $5 per office visit The reimbursement period is one month Given this information, Argyle would correctly calculate that the per member per month (PMPM) capitation rate should be

A) $4.17
B) $8.33
C) $9.17
D) $10.00

Question 37

Reconciliation is the process by which a health plan assesses providers' performance relative to contractual terms and reimbursement. With regard to this process, it can correctly be stated that

A) Areconciliation typically includes payment to the providers of any withholds or bonuses due to them
B) Ahealth plan typically should conduct a reconciliation immediately after the evaluation period 14 has ended
C) Most agreements between health plans and providers require reconciliations to be performed quarterly
D) Ahealth plan typically should not conduct reconciliation for a provider until the plan has received all claims or other documentation of services that the physician provided during the evaluation period

Question 38

The Marble Health Plan sets aside a PMPM amount for each specialty. When a PCP in Marble's provider network refers a Marble plan member to a specialist and the specialist provides medical services to the member, the specialist begins to receive a share of those funds on a monthly basis. Marble determines the monthly payment for each specialist by dividing the number of active patients for that specialty by the total specialty pool for that month. This form of payment, which is similar to a case rate, is known as

A) Referral circle capitation
B) Risk pod capitation
C) Contact capitation
D) Retrospective reimbursement capitation

Question 39

A stop-loss contract may provide that claims are settled using a paid claims method or an incurred claims method. The Concord Company provides health coverage to its employees through a selffunded health plan. On March 17, a Concord employee who is enrolled in this plan underwent surgery, and the surgery was sufficiently expensive to trigger Concord's specific stop-loss coverage. On April 10, Concord paid the medical expenses associated with the surgery. The term of the stop-loss contract ended on April 1. This information indicates that the stop-loss carrier is responsible for paying a portion of the cost of the surgery under

A) both the paid claims method and the incurred claims method
B) the paid claims method but not the incurred claims method
C) the incurred claims method but not the paid claims method
D) neither the paid claims method nor the incurred claims method

Question 40

One true statement about a type of capitation known as a percent-of-premium arrangement is that this arrangement

A) Is the most common type of capitation
B) Is less attractive to providers when the arrangement sets provisions to limit risk
C) Sets provider reimbursement at a specific dollar amount per plan member
D) Transfers some of the risk associated with underwriting and rating from a health plan to a provider

Question 41

Under the alternative funding method used by the Flair Company, Flair assumes financial responsibility for paying claims up to a specified level and deposits the funds necessary to pay these claims into a bank account that belongs to Flair. However, an insurer, which acts as an agent of Flair, makes the actual payment of claims from this account. When claims exceed the specified level, the insurer pays the balance from its own funds. No state premium tax is levied on the amounts that Flair deposits into this bank account. From the following answer choices, choose the name of the alternative funding method described.

A) Retrospective-rating arrangement
B) Premium-delay arrangement
C) Reserve-reduction arrangement
D) Minimum-premium plan

Question 42

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

Question 43

With regard to the Medicaid program in the United States, it can correctly be stated that

A) The federal government provides none of the funding for state Medicaid programs
B) Federal Medicaid law is different from Medicare law in that the federal government explicitly sets forth the methodology for payment of Medicaid-contracting plans but not Medicare-contracting plans
C) A state's payment to health plans for providing Medicaid services cannot be more than it would have cost the state to provide the services under Medicaid fee-for-service (FFS)
D) States are prohibited from carving out specific services from the capitation rate that health plans receive for providing Medicaid services

Question 44

Experience rating and manual rating are two rating methods that the Cheshire health plan uses to determine its premium rates. One difference between these two methods is that, under experience rating, Cheshire

A) Uses a purchaser's actual experience to estimate the group's expected experience, whereas, under manual rating, Cheshire uses its own average experience-and sometimes the experience of other plans-to estimate the group's expected experience
B) can establish rates for groups that have no previous plan experience, whereas, under manual rating, Cheshire cannot establish rates for groups with no previous plan experience
C) charges each group in the same class the same premium whereas, under manual rating, Cheshire charges lower premiums to groups that have experienced lower utilization rates
D) can use group demographics to help determine the rate for a block of business, whereas, under manual rating, Cheshire cannot use group demographics when determining the rate for a block of business

Question 45

If Grace Wilson is eligible for benefits under both the Medicare and Medicaid programs, then

A) Medicare is Ms. Wilson's primary insurer
B) A Medicare- or Medicaid-contracting health plan is allowed to lock-in Ms. Wilson's enrollment for a maximum period of 24 months
C) The BBA requires the state to guarantee Ms. Wilson's eligibility for a minimum of 18 months once she enrolls in a health plan network
D) Ms. Wilson can only receive Medicare- or Medicaid-covered services from a provider who participates in a health plan network

Question 46

Under the alternative funding method used by the Trilogy Company, the insurer charges Trilogy an initial premium that is based on the assumption that claims will be 93% of the expected claims for the year. If claims exceed 93% of expected claims, then Trilogy must reimburse the insurer for any additional claims paid, up to 112% of expected claims. The insurer bears the responsibility for paying claims in excess of 112% of expected claims. From the following answer choices, choose the name of the alternative funding method described.

A) Retrospective-rating arrangement
B) Premium-delay arrangement
C) Reserve-reduction arrangement
D) Minimum-premium plan

Question 47

Providing services under Medicare or Medicaid can impose on health plans financial risks and costs that are greater than those related to providing services to the commercial population. Reasons that an health plan's financial risks and costs for providing services to Medicare and Medicaid enrollees tend to be higher include

A) Most Medicare and Medicaid enrollees can disenroll from a health plan on a monthly basis
B) The high incidences of chronic illness in both the Medicare and Medicaid populations results in higher costs related to coordinating care and case management
C) Medicare and Medicaid enrollees tend to have a high level of costs in the first few months of enrollment as the health plan educates them about the health plan system and performs initial health screening to evaluate their health
D) all of the above

Question 48

The Fiesta Health Plan prices its products in such a way that the rates for its products are reasonable, adequate, equitable, and competitive. Fiesta is using blended rating to calculate a premium rate for the Murdock Company, a large employer. Fiesta has assigned a credibility factor of 0.6 to Murdock. Fiesta has also determined that Murdock's manual rate is $200 PMPM and that Murdock's experience rate is $180 PMPM. According to regulations, Fiesta's premium rates are reasonable if they

A) vary only on the factors that affect Fiesta's costs
B) are at a level that balances Fiesta's need to generate a profit against its need to obtain or retain a specified share of the market in which it conducts business
C) are high enough to ensure that Fiesta has enough money on hand to pay operating expenses as they come due
D) do not exceed what Fiesta needs to cover its costs and provide the plan with a fair profit

Question 49

The following statements are about the financial risks for health plans in Medicare and Medicaid markets. Three of these statements are true, and one statement is false. Select the answer choice containing the FALSE statement.

A) One reason that health plans in the Medicare and Medicaid markets experience financial risk is that government regulations determine which services must be provided to Medicare and Medicaid enrollees.
B) Effective use of hospital utilization is the single most likely factor to contribute to the success of a Medicare-contracting health plan.
C) If a Medicare-contracting health plan is a provider-sponsored organization (PSO), it is prohibited from sharing financial risk with its providers.
D) Typically, providers are more reluctant to accept financial risk in connection with providing services to the Medicaid population than with providing services to the Medicare population.

Question 50

Federal law addresses the relationship between Medicare- or Medicaid contracting health plans and providers who are at "substantial financial risk." Under federal law, Medicare- or Medicaid-contracting health plans

A) Place a provider at "substantial risk" whenever incentive arrangements put the provider at risk for amounts in excess of 10% of his or her total potential reimbursement for providing services to Medicare and Medicaid enrollees 23
B) Must provide stop-loss coverage to a provider who is placed at "substantial financial risk" for services that the provider does not directly provide to Medicare or Medicaid enrollees
C) Both A and B
D) A only
E) B only
F) Neither A nor B

Question 51

The Fiesta Health Plan prices its products in such a way that the rates for its products are reasonable, adequate, equitable, and competitive. Fiesta is using blended rating to calculate a premium rate for the Murdock Company, a large employer. Fiesta has assigned a credibility factor to Murdock. Fiesta has also determined that Murdock's manual rate is $200 PMPM and that Murdock's experience rate is $180 PMPM. Fiesta would correctly calculate that its blended rate PMPM for Murdock should be Fiesta's retention charge plus

A) $152
B) $188
C) $192
D) $228

Question 52

One true statement about mandated benefit laws is that they

A) Apply equally to self-funded and fully funded groups
B) Require a health plan to cover certain conditions or treatments or to pay a specified level of benefits for certain conditions or treatments
C) Have no impact on a health plan's underwriting and rating decisions
D) Typically decrease a health plan's risk because the health plan may need to delay premium rate decreases or may be prevented from increasing premium rates

Question 53

The Harp Company self-funds the health plan for its employees. The plan is administered under a typical administrative-services-only (ASO) arrangement. One true statement about this ASO arrangement is that

A) This arrangement prevents Harp from purchasing stop-loss coverage for its health plan
B) The amount that Harp pays the administrator to provide the ASO services is not subject to state premium taxes
C) The administrator is responsible for paying claims from its own assets if Harp's account is insufficient
D) The charges for the ASO services must be stated as a percentage of the amount of claims paid for medical expenses incurred by Harp's covered employees and their dependents

Question 54

The Jasmine Company, which self funds the health plan for its 200 employees, has established a 501(c)(9) trust as a means of addressing possible claims fluctuations under the health plan. This plan is not a part of a collective bargaining process. A potential disadvantage to Jasmine of using a 501(c)(9) trust is that

A) The cost of maintaining the trust may be prohibitive to Jasmine
B) The trust must always maintain enough assets to pay the health plan's claims that have been incurred but not yet paid
C) Jasmine is prohibited from earning any return on the trust assets
D) The contributions to this trust are not deductible for federal income tax purposes

Question 55

The methods of alternative funding for health coverage can be divided into the following general categories: Category A-Those methods that primarily modify traditional fully insured group insurance contracts Category B-Those methods that have either partial or total self funding Typically, small employers are able to use some of the alternative funding methods in

A) Both Category A and Category B
B) Category A only
C) Category B only
D) Neither Category A nor Category B

Question 56

The following statements are about federal laws and regulations which affect health plans that offer products and services to the employer group market. Select the answer choice containing the correct statement.

A) Amendments to the HMO Act of 1973 require federally qualified HMOs to adjust a group's prior premiums on the basis of the group's experience during the prior rating period.
B) The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1986 requires that, if a plan sponsor elects to terminate its group coverage with a health plan, then the health plan must continue its coverage for the COBRA-qualified beneficiaries in the group.
C) The Health Insurance Portability and Accountability Act (HIPAA) of 1996 generally requires the guaranteed renewal of healthcare coverage for certain individuals and for both small and large groups, regardless of the health status of any member.
D) The Mental Health Parity Act (MHPA) of 1996 mandates that all health plans must offer benefits for mental healthcare.

Question 57

The Violin Company offers its employees a triple option of health plans: an HMO, an HMO with a point of service (POS) option, and an indemnity plan. Premiums are lowest for the HMO option and highest for the indemnity plan. Violin employees who anticipate that they will be individual low utilizes of healthcare services are most likely to enroll in the

A) HMO and are least likely to enroll in the HMO with the POS option
B) HMO and are least likely to enroll in the indemnity plan
C) Indemnity plan and are least likely to enroll in the HMO
D) Indemnity plan and are least likely to enroll in the HMO with the POS option

Question 58

The purest form of a self-funded benefit plan is one in which the employer pays benefits from current revenue, administers all aspects of the plan, and bears the risk that actual benefit payments will exceed the expected amount of payments. A decision to use this kind of self-funding is generally considered most desirable when certain conditions are present. These conditions most likely include that the benefit plan

A) Is a contributory plan
B) Is subject to collective bargaining 20
C) Is unable to secure discounts from the physicians who provide medical services to the plan members
D) Has a relatively high frequency of low severity claims

Question 59

The following statements are about the new methodology authorized under the Balanced Budget Act of 1997 (BBA) for payments by the Centers for Medicaid & Medicare Services (CMS) to Medicare-contracting health plans.Select the answer choice containing the correct statement.

A) Under this new methodology, Medicare-contracting health plans are paid the lower of (a) a floor payment amount per enrollee covered or (b) the health plan's payment rate increased by 2% from the previous year.
B) The new methodology has decreased the rate of growth in payments from CMS to Medicarecontracting health plans.
C) Under this new methodology, Medicare-contracting health plans are paid 90% of the adjusted average per capita cost (AAPCC) of providing a service to a beneficiary.
D) Under the principal inpatient diagnostic cost group (PIP-DCG), a new risk adjustment methodology, Medicare-contracting health plans will no longer be required to calculate and submit to CMS a Medicare adjusted community rate (ACR).

Question 60

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

Question 61

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

A) Typically, a health plan medically underwrites both the employees of a small group and their dependents, even though small group reform laws prohibit health plans from singling out individuals for rejection or substandard rate-ups.
B) In the absence of laws mandating otherwise, a health plan's underwriting standards grow stricter as group size gets smaller.
C) Both A and B
D) A only
E) B only
F) Neither A nor B

Question 62

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

A) Xavier, Youngblood, and Zebulon
B) Xavier and Youngblood only
C) Xavier only
D) None of these companies

Question 63

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

A) End result of a typical family rate ratio is that the health plan's family rate is subsidized by its single premium rate
B) health plan cannot arbitrarily increase or decrease its rate ratio for a rate category
C) rate ratios used by the health plan most likely have been established by government regulations
D) health plan should determine its rate ratios by considering family size alone rather than competitive factors such as the ratios that competitors are using

Question 64

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

A) greater the risk a health plan assumes in a health plan, the thinner the product margin should be
B) more that competition acts to force prices down, the wider the product margins tend to become 34
C) greater the demand for the product, the thinner the margin for this product tends to become
D) longer the premium rates are guaranteed to a group, the wider the health plan's margin should

Question 65

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

A) a decreased focus on small to mid-size employer groups
B) an improvement in the financial performance of health plans
C) a consolidation of the key players in the health plan industry
D) a decreased complexity of the products being offered.

Question 66

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

A) The age and gender of group plan members are not predictors of utilization of health services by group members
B) A health plan's product design or delivery system has an impact on member selection of the health plan, unless the members are in an environment in which employees have at least two benefit options or health plans from which to choose
C) A health plan should track demographic factors of groups only if the plan specifically adjusts for demographic factors on a group basis
D) 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

Question 67

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.

A) Accent = unprofitable business Bolton = high acquisition rate
B) Bolton = low acquisition rate
C) Accent = high profits

Question 68

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

A) a moral hazard rider
B) an essential plan rider
C) an impairment rider
D) an insurable interest rider

Question 69

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

A) is administered by a commercial reinsurance company that operates in State A
B) allows a small employer carrier operating in State A to reinsure either an entire small group or specific individuals within the group
C) has, for the coverage on a plan, a base premium, which is multiplied by a factor of 2 in the case of reinsurance on entire groups or a factor of 3 for reinsurance on individuals
D) prohibits a small employer carrier operating in State A from placing individuals enrolled in small groups in a reinsurance pool 32

Question 70

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

Question 71

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.

Question 72

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

A) larger than its assumed underwriting margin, and the plan's actual expense margin was higher than its assumed expense margin
B) larger than its assumed underwriting margin, but the plan's actual expense margin was lower
C) smaller than its assumed underwriting margin, but the plan's actual expense margin was higher
D) smaller than its assumed underwriting margin, and the plan's actual expense margin was lower

Question 73

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.

A) Panda most likely built the crediting interest rate of 4% into the investment margin of its product.
B) Panda's investment margin is the difference between its actual benefit costs and the benefit costs that it assumes in its pricing.
C) The interest margin for this product is 2%.
D) All of these statements are correct.

Question 74

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

A) The provider reimbursement trend probably is more difficult for Wisteria to quantify than is the residual trend
B) Wisteria's residual trend is the difference between the total trend and the portion of the total trend caused by changes in Wisteria's provider reimbursement levels
C) The residual trend most likely has more impact on Wisteria's total trend than does the provider reimbursement trend
D) An example of a residual trend would be a 5% increase in the capitation rate paid to a PCP by Wisteria

Question 75

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

A) Have more frequent and larger claims fluctuations
B) Generate lower administrative expenses as a percentage of the total premium amount the group pays
C) More closely follow actuarial predictions regarding morbidity rates
D) All of the above

Question 76

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

Question 77

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

A) the only way that the health plan can effectively reduce its exposure to underwriting risk, and therefore adjust its underwriting margin, is to control anti selection
B) a larger assumed underwriting margin will reduce the price of the health plan's product and will make the plan more competitive
C) the health plan's purchase of stop-loss insurance has no effect on its underwriting margin because stop-loss insurance can help the health plan control its expenses but not its underwriting risk
D) both the level of underwriting risk that the health plan assumes in providing benefits and the market competition it encounters most likely directly affect the size of its assumed underwriting margin

Question 78

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.

Question 79

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

A) Anti selection risk is higher for both multiple-employer groups and professional associations than it is for an employer-employee group
B) Private employers typically present a higher underwriting risk to health plans than do public employers
C) Individual members of a multiple-employer group or a professional association typically are required to obtain healthcare coverage through the group or association 29 -
D) I health plan is prohibited, when evaluating the risks represented by a professional association, from considering the industry experience of the agent or broker that sells a group plan to the association

Question 80

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

A) Almost all states prohibit health plan s from rejecting a small group because of the nature of the business in which the small business is engaged. 31
B) Most states prohibit health plans from setting participation levels as a requirement for coverage, even when coverage is otherwise guaranteed issue.
C) In underwriting small groups, a health plan's underwriters typically consider both the characteristics of the group members and of the employer.
D) Generally, a health plan's underwriters require small employers to contribute at least 80% of the cost of the healthcare coverage.