Question 1

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.

Accepted Answer

The described method is a Minimum-premium plan, where the company assumes responsibility for claims up to a certain level, and the insurer covers excess claims, with no state premium tax on the company's deposits.

Question 2

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

Accepted Answer

The law that prohibits a physician from making referrals to another provider entity for designated health services if the physician or one of their immediate family members has a financial relationship with the entity is known as the physician self-referral law or the Stark Law. This law is named after its sponsor, former Congressman Pete Stark. The purpose of this law is to prevent conflicts of interest that may influence medical decision-making and increase healthcare costs. Violations of the Stark Law can result in severe penalties, including fines and exclusion from participating in Medicare and Medicaid programs.

Question 3

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

Accepted Answer

This statement is correct according to Medicaid law. It is known as the "equal access requirement" and is intended to ensure that Medicaid managed care plans do not have an incentive to deny or limit services to enrollees in order to save money. States must set capitation rates for managed care plans that are actuarially sound and cannot pay plans more than it would have paid for services under fee-for-service Medicaid.

Question 4

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

Accepted Answer

The main difference between experience rating and manual rating is that experience rating uses a purchaser's actual experience to estimate the group's expected experience, while manual rating uses the plan's own average experience (and sometimes the experience of other plans) to estimate the group's expected experience.

Question 5

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

Accepted Answer

When an individual is eligible for both Medicare and Medicaid, Medicare is the primary insurer and Medicaid is the secondary insurer. Therefore, Medicare would be Ms. Wilson's primary insurer.

Question 6

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.

Accepted Answer

The description matches that of a retrospective-rating arrangement, where the final premium is determined based on the actual claims incurred during the policy period, with the initial premium serving as a deposit. The reimbursement and cutoff provisions specified in the description are also characteristic of retrospective-rating arrangements.

Question 7

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

Accepted Answer

All of the above reasons contribute to higher financial risks and costs for health plans when providing services to Medicare and Medicaid enrollees. The ability for enrollees to disenroll on a monthly basis means that health plans must continuously strive to provide high-quality care and customer service in order to retain members. Additionally, the high prevalence of chronic illness in these populations requires more careful care coordination and case management, which can be costly. Finally, the initial costs associated with enrolling new members and providing them with education and screening services can also be significant.

Question 8

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

Accepted Answer

According to the given information, Fiesta is using blended rating to calculate premium rates for Murdock Company. Fiesta has assigned a credibility factor of 0.6 to Murdock. Fiesta has also determined Murdock's manual rate is $200 PMPM and the experience rate is $180 PMPM. Therefore, the premium rates should not exceed what Fiesta needs to cover its costs and provide the plan with a fair profit, which is the definition of reasonable premium rates. Thus, option D is the correct choice. Options A, B, and C are either incomplete or do not apply to the given information.

Question 9

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.

Accepted Answer

This statement is false. PSOs are allowed to share financial risks with their providers in Medicare Advantage programs under certain conditions.

Question 10

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

Accepted Answer

Federal law requires that health plans place a provider at "substantial risk" when incentive arrangements exceed 10% of potential reimbursement (A), and they must provide stop-loss coverage for providers at substantial financial risk for services not directly provided (B).

Question 11

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

Accepted Answer

The answer of The Fiesta Health Plan prices its products...

Question 12

One true statement about mandated benefit laws is that they

Accepted Answer

Mandated benefit laws require a health plan to cover certain conditions or treatments or to pay a specified level of benefits for certain conditions or treatments. They do not apply equally to self-funded and fully funded groups and may impact a health plan's underwriting and rating decisions. Mandated benefit laws may increase a health plan's risk because they impose additional costs on the plan.

Question 13

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

Accepted Answer

Under an ASO arrangement, the employer funds the health plan and contracts with an administrator to provide services such as claims processing and network management. The amount paid to the administrator is not considered insurance premiums and is therefore not subject to state premium taxes. Choice A is incorrect because ASO arrangements do not prevent an employer from purchasing stop-loss coverage. Choice C is incorrect because the administrator does not pay claims from its own assets, but instead uses the employer's funds to pay claims. Choice D is incorrect because the charges for ASO services may be stated in various ways and are not required to be a percentage of claims paid.

Question 14

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

Accepted Answer

The cost of maintaining the trust may be prohibitive to Jasmine. Establishing and maintaining a 501(c)(9) trust can involve significant administrative and compliance costs, which can be a disadvantage for the company.

Question 15

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

Accepted Answer

The answer of The methods of alternative funding for health...

Question 16

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.

Accepted Answer

HIPAA requires guaranteed renewal of healthcare coverage for certain individuals and groups, regardless of health status.

Question 17

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

Accepted Answer

The answer of The Violin Company offers its employees a...

Question 18

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

Accepted Answer

A self-funded benefit plan is most desirable when there is a high frequency of low severity claims, as it allows the employer to manage costs effectively and reduce the risk of large, unexpected expenses.

Question 19

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.

Accepted Answer

The statement "The new methodology has decreased the rate of growth in payments from CMS to Medicare-contracting health plans" is correct. Statement A is incorrect as it does not include the fact that the payment rate is also subject to adjustment based on the health plan's quality performance. Statement C is incorrect as it describes a different payment methodology - the AAPCC formula - which is used for Medicare Advantage payments in certain counties. Statement D is incorrect as it misrepresents the purpose of the PIP-DCG methodology, which is to adjust payments based on the medical complexity of beneficiaries rather than community rates.

Question 20

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

Accepted Answer

The answer of Experience rating methods can be either prospective...

Exam 3: Health Plan Finance and Risk Management