Question 1

Employee premium contributions are tax deductible, except if they are allowed to be used in a cafeteria program under a premium conversion plan or flexible spending account (FSA).

Accepted Answer

Employee premium contributions made through a cafeteria plan or premium conversion plan are made with pre-tax dollars, reducing taxable income, and therefore, are not tax-deductible since they are made before taxes are applied.

Question 2

When small employers come together through a multiple-employee trust to purchase insurance, they have access to group underwriting treatment, products, and services that are significantly different to those available to large employers.

Accepted Answer

Small employers in a multiple-employer trust can access group underwriting similar to large employers, but the products and services are not significantly different; they are designed to provide similar benefits and cost efficiencies.

Question 3

Health Insurance Portability and Accountability Act provides portability of coverage.Portability means carrying the actual coverage of the old employer to the new one, not carrying forward the qualification for preexisting conditions.

Accepted Answer

Portability, in the context of the Health Insurance Portability and Accountability Act (HIPAA), refers to the ability to maintain coverage for preexisting conditions when changing jobs, not the ability to carry the exact same insurance policy from one employer to another.

Question 4

The Financial Accounting Standards Board (FASB 106) in 1993 phased in a requirement that employers recognize the pay-as-you-go system on the balance sheet during the employees' active working years rather than the present value of future retiree medical expense benefits.

Accepted Answer

FASB 106 required employers to recognize the present value of future retiree medical expense benefits on the balance sheet during the employees' active working years, moving away from the pay-as-you-go system where costs were recognized as retirees received benefits.

Question 5

The catch with a flexibility spending account plan is that the employee can carry forward any balance in the account at year-end to the next year.

Accepted Answer

Most Flexible Spending Account (FSA) plans operate on a "use it or lose it" basis, meaning any unused funds at the end of the plan year are forfeited, although some plans may offer a grace period or allow a small amount to be carried over into the next year.

Question 6

Employee benefits are affected by the Age Discrimination in Employment Act because the law was amended to require that benefits must be continued for older workers.

Accepted Answer

The Age Discrimination in Employment Act (ADEA) was indeed amended to address issues related to employee benefits for older workers, ensuring that benefits cannot be reduced based on age. This includes provisions that prevent employers from denying benefits to older employees, although there are some exceptions where employers can reduce benefits based on age if the cost of providing the reduced benefits to older workers is the same as the cost of providing benefits to younger workers.

Question 7

Employee benefits are regulated by the Department of Labor and the Internal Revenue Service (IRS).

Accepted Answer

The Department of Labor regulates aspects of employee benefits related to labor standards and protections, while the Internal Revenue Service (IRS) oversees the tax-related aspects of employee benefits, ensuring compliance with tax laws and regulations.

Question 8

Purchase of an administrative services only (ASO) contract and stop-loss insurance gives the employer the potential cash flow and expense advantage of self-funding, while reducing the employer's administrative burden and potential for catastrophic risk.

Accepted Answer

An ASO contract allows the employer to outsource administrative tasks such as claims processing, while stop-loss insurance protects against high claims, combining the benefits of self-funding with risk management and reduced administrative burden.

Question 9

Group life and disability insurance plans are noncontributory, but they require the employees to contribute if other family members are covered.

Accepted Answer

Group life and disability insurance plans are typically noncontributory for the employee, meaning the employer pays the full premium. However, if coverage is extended to family members, the employee is usually required to contribute towards the cost of their premiums.

Question 10

The potential for adverse selection can be greater with supplemental benefits than with nonsupplemental benefits.

Accepted Answer

Supplemental benefits are optional and often chosen by individuals who anticipate a higher likelihood of using them, leading to a greater risk of adverse selection compared to mandatory or nonsupplemental benefits, where the risk is spread across a broader population.

Question 11

The employee has a valuable right with the Consolidated Omnibus Budget Reconciliation Act because continuation of insurance is provided without evidence of insurability.

Accepted Answer

The Consolidated Omnibus Budget Reconciliation Act (COBRA) allows employees to continue their group health insurance coverage for a limited period of time under certain circumstances, such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events, without requiring evidence of insurability.

Question 12

Although experience rating allows employer groups to benefit directly from their own good claims experience, it does not provide economic incentive for risk managers to control claims.

Accepted Answer

Experience rating does provide an economic incentive for risk managers to control claims because lower claims result in lower premiums for the employer.

Question 13

If an employee receives disability benefits, the portion paid for by the employer is taxable to the employee.

Accepted Answer

If an employer pays for disability benefits, the portion of the benefits that corresponds to the employer's payments is considered taxable income to the employee.

Question 14

Higher administrative costs and adverse selection discourage employers from implementing cafeteria plans.

Accepted Answer

Cafeteria plans can lead to higher administrative costs due to the complexity of managing multiple benefit options, and adverse selection can occur if employees with higher healthcare needs disproportionately choose more comprehensive benefits, increasing costs for employers.

Question 15

The Americans with Disabilities Act is concerned with a person's ability to perform a specific job and not his or her ability to perform regular daily living activities.

Accepted Answer

The Americans with Disabilities Act (ADA) is concerned with both a person's ability to perform the essential functions of a job and the individual's ability to perform major life activities. The ADA's definition of disability includes impairments that substantially limit one or more major life activities, not just job-related activities.

Question 16

A modular cafeteria is more flexible than the core plus cafeteria plan, but requires more administrative cost.

Accepted Answer

The answer of A modular cafeteria is more flexible than...

Question 17

During group underwriting, large groups have to be rated based on the insurer's experience with groups of similar type and size, while small groups can be rated on their own experience.

Accepted Answer

In group underwriting, large groups are often rated based on their own experience, while small groups are more likely to be rated based on the insurer's experience with groups of similar type and size, due to the lack of sufficient individual group data.

Question 18

Cafeteria plans are included under Section 125 of the Internal Revenue Code.

Accepted Answer

Cafeteria plans, also known as Section 125 plans, allow employees to choose from a variety of pre-tax benefit options, as outlined under Section 125 of the Internal Revenue Code.

Question 19

Under the Health Insurance Portability and Accountability Act, an employer can impose only up to twelve months preexisting conditions exclusions for regular enrollment and up to eighteen months for late enrollment.

Accepted Answer

The Health Insurance Portability and Accountability Act (HIPAA) allows group health plans to impose a preexisting condition exclusion period of up to 12 months for individuals who enroll when first eligible and up to 18 months for late enrollees, provided they had a break in coverage exceeding 63 days.

Question 20

Employee benefits do not offer tax incentives.

Accepted Answer

Employee benefits often provide tax incentives for both employers and employees, such as reducing taxable income through pre-tax contributions to retirement plans or health insurance premiums.

Quiz 20: Employment-Based Risk Management General