NEW QUESTION 1

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.

Answer: C

NEW QUESTION 2

If the operational budget prepared by the Satilla health plan is typical of most operational budgets, then

• A. Its purpose is to track Satilla's operations and short-term profitability
• B. The key information source for this operational budget is Satilla's external environment
• C. The time frame for this operational budget is three to five years
• D. Its focus is on the threats that Satilla faces from its external environment

Answer: A

NEW QUESTION 3

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

Answer: D

NEW QUESTION 4

In order to print all of its forms in-house, the Prism health plan is considering the purchase of 10 new printers at a total cost of $30,000. Prism estimates that the proposed printers have a useful life of 5 years. Under its current system, Prism spends $10,000 a year to have forms printed by a local printing company. Assume that Prism selects a 15% discount rate based on its weighted-average costs of capital. The cash inflows for each year, discounted to their present value, are shown in the following chart:

Prism will use both the payback method and the discounted payback methodto analyze the worthiness of this potential capital investment. Prism's decisionrule is to accept all proposed capital projects that have payback periods offour years or less.
After analyzing this information, Prism would accept this proposed capitalproject under

• A. Both the payback method and the discounted payback method
• B. The payback method but not the discounted payback method
• C. The discounted payback method but not the payback method
• D. Neither the payback method nor the discounted payback method

Answer: B

NEW QUESTION 5

Geena Falk is eligible for both Medicare and Medicaid coverage. If Ms. Falk incurs a covered expense, then:

• A. Medicaid will be M
• B. Falk’s primary insurer
• C. Medicare will be M
• D. Falk’s primary insurer
• E. Either Medicare or Medicaid will be M
• F. Falk’s primary insurer depending on her election
• G. Medicare and Medicaid will each be responsible for one-half of M
• H. Falk’s covered expense

Answer: B

NEW QUESTION 6

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. Accent = unprofitable business Bolton = low acquisition rate
• C. Accent = high profits Bolton = high acquisition rate
• D. Accent = high profits Bolton = low acquisition rate

Answer: B

NEW QUESTION 7

Cascade Hospital has negotiated with the McBee Health Plan a straight per-diem rate of $1,000 per day for medical admissions. One of McBee’s plan members was admitted to Cascade for 10 days. Total billed charges equaled $10,000, of which $2,000 were for noncovered items. This information indicates that, for this admission, the amount that McBee was obligated to reimburse Cascade was:

• A. $0
• B. $8,000
• C. $10,000
• D. $12,000

Answer: C

NEW QUESTION 8

An investor deposited $1,000 in an interest-bearing account today. That sum will accumulate to $1,200 two years from now. One true statement about this transaction is that:

• A. The process by which the original $1,000 deposit grows to $1,200 is known as compounding
• B. $1,200 is the present value of the $1,000 deposit
• C. The $200 increase in the deposit’s value is its incremental cash flow
• D. The $200 difference between the original deposit and the accumulated value of the deposit is known as the deposit’s discount

Answer: A

NEW QUESTION 9

One true statement about variance analysis is that

• A. A price variance is the difference between the budgeted quantities to be sold and theactual quantities sold, multiplied by the budgeted amount
• B. Variance analysis suggests solutions to a particular problem
• C. Positive variances generally are favorable, from a health plan's point of view, for the plan's expenses but unfavorable for the plan's revenues
• D. An effective variance system typically focuses on matters that require management's attention

Answer: D

NEW QUESTION 10

If the total asset turnover ratio for the Fjord health plan is 1.08 and the total asset turnover ratio for the Grove health plan is 1.35, then a financial analyst could correctly infer that Fjord has used its assets more effectively than has Grove.

• A. True
• B. False

Answer: B

NEW QUESTION 11

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

Answer: C

NEW QUESTION 12

The Proform Health Plan uses agents to market its small group business. Proform capitalizes the commission expense relating to this line of business by spreading the commissions over thepremium-paying period of the healthcare coverage. This approach to expense recognition is known as:

• A. Systematic and rational allocation
• B. Matching principle
• C. Immediate recognition
• D. Associating cause and effect

Answer: D

NEW QUESTION 13

The traditional financial ratios that analysts use to study a health plan's GAAP-based financial statements include liquidity ratios, activity ratios, leverage ratios, and profitability ratios. Of these categories of ratios, analysts are most likely to use

• A. Liquidity ratios to measure a health plan's ability to meet its current liabilities
• B. Activity ratios relate the returns of a health plan to its sales, total revenues, assets, stockholders' equity, capital, surplus, or stock share price
• C. Leverage ratios to measure how quickly a health plan converts specified financial statement items into premium income or cash
• D. Profitability ratios to measure the effect that fixed costs have on magnifying a health plan's risk and return

Answer: A

NEW 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

• 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

Answer: B

NEW QUESTION 15

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
• 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

Answer: A

NEW QUESTION 16

Advantages to a company that elects to self-fund and to administer all aspects of its healthcare benefit plan include:

• A. Eliminating state premium taxes
• B. Avoiding state-mandated benefit requirements
• C. Improving its cash flow position
• D. All of the above

Answer: D

NEW QUESTION 17

The Savanna health plan used a risk analysis technique which defines the key assumptions of Savanna's strategic financial plan in terms of mathematical formulas that can be correlated to each other or analyzed independently. This technique allowed Savanna to simulate probable future events on a computer and produce a distribution of possible outcomes. This risk analysis technique, which can be used to predict Savanna's distribution of expected claims, is known as

• A. A hurdle rate simulation
• B. Optimistic, most likely, pessimistic scenario modeling
• C. A Monte Carlo simulation
• D. Debt covenant modeling

Answer: C

NEW QUESTION 18

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.
The main purpose of Caribou's balance sheet is to

• A. Reveal how Caribou obtained particular assets or liabilities
• B. Show how much money Caribou has realized from its operations during an accounting period
• C. Measure the owners' wealth
• D. Reconcile the cash that Caribou has on hand at the beginning and at the end of an accounting period

Answer: C

NEW QUESTION 19
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