NEW QUESTION 1

In evaluating the claims experience during a given rating period of the Lucky Company, the Calaway Health Plan determined that the claims incurred by Lucky were lower than Calaway anticipated when it established Lucky’s premium rate for the rating period. Calaway, therefore,refunded a portion of Lucky’s premium to reflect the better-than- anticipated claims experience. This rating method is known as:

• A. durational rating
• B. retrospective experience rating
• C. blended rating
• D. prospective experience rating

Answer: B

NEW QUESTION 2

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.

Answer: C

NEW QUESTION 3

A cost for which a benefit is forfeited in choosing one decision alternative over another alternative is known as

• A. A marginal unit cost
• B. An opportunity cost
• C. An incremental cost
• D. A differential cost

Answer: B

NEW QUESTION 4

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

Answer: D

NEW QUESTION 5

The following statements are about a health plan's evaluation of its responsibility centers. Select the answer choice containing the correct statement.

• A. When analyzing budget variances, a health plan's management should pay attention to unfavorable variances only.
• B. A health plan can reduce the problem of unattainable goals by involving responsibility managers in the preparation of their centers' budgets.
• C. One reason that a health plan would use cost-based transfer prices to evaluate the performance of its profit centers and investment centers is because, under this method of setting transfer prices, the selling center has maximum incentive to operate effectively and control costs.
• D. In responsibility accounting, all employees who have any influence over a health plan's department are held equally accountable for the operations and financial outcomes of that department.

Answer: B

NEW QUESTION 6

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

Answer: C

NEW QUESTION 7

The Jade Health Plan used a profitability index (PI) to rank the following capital proposals:
ProposalPI
A0.45
B1.05
This information indicates that, of these two projects, Jade would most likely select:

• A. Proposal A, and the PI indicates that the net present value (NPV) for this project is less than zero
• B. Proposal A, and the PI indicates that the net present value (NPV) for this project is greater than zero
• C. Proposal B, and the PI indicates that the net present value (NPV) for this project is less than zero
• D. Proposal B, and the PI indicates that the net present value (NPV) for this project is greater than zero

Answer: C

NEW QUESTION 8

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

Answer: A

NEW QUESTION 9

In order to analyze costs for internal management purposes, the Banner health plan uses functional cost analysis. One characteristic of this method of cost analysis is that it

• A. Enables Banner's top management to analyze costs as they apply to workflow rather than to organizational structures
• B. Assumes that activities, not products, generate costs
• C. Cannot be used when Banner makes pricing and staffing decisions
• D. Identifies units of activity, calculates the costs of performing each unit of activity, and then assigns the cost of each unit of activity to Banner's products or lines of business

Answer: A

NEW QUESTION 10

If the Ascot health plan's accountants follow the going-concern concept under GAAP, then these accountants most likely

• A. Assume that Ascot will pay its liabilities immediately or in full during the current accounting period
• B. Defer certain costs that Ascot has incurred, unless these costs contribute to the healthplan's future earnings
• C. Assume that Ascot is not about to be liquidated, unless there is evidence to the contrary
• D. Value Ascot's assets more conservatively than they would under SAP

Answer: C

NEW QUESTION 11

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 than its assumed expense margin
• C. smaller than its assumed underwriting margin, but the plan's actual expense margin was higher than its assumed expense margin
• D. smaller than its assumed underwriting margin, and the plan's actual expense margin was lower than its assumed expense margin

Answer: B

NEW QUESTION 12

The Puma health plan uses return on investment (ROI) and residual income (RI) to measure the performance of its investment centers. Two of these investment centers are identified as X and Y. Investment Center X earns $10,000,000 in operating income on controllable investments of $50,000,000, and it has total revenues of $60,000,000. Investment Center Y earns $2,000,000 in operating income on controllable investments of $8,000,000, and it has total revenues of $10,000,000. Both centers have a minimum required rate of return of 15%.
One difference between the RI method and the ROI method is that

• A. The RI method demands greater goal congruence from Puma's managers than does the ROI method
• B. The RI method favors Puma's small investment centers more than does the ROI method
• C. Only RI can lead to decisions that improve Puma's short-term profits at the expense of its long-term objectives
• D. Only RI is useful to Puma for comparing investment centers of different sizes

Answer: A

NEW QUESTION 13

This concept, which is an extension of the going-concern concept, holds that the value of an asset that a company reports in its accounting records should be the asset's historical cost, not its current market value. Although this concept offers objectivity and reliability, it may lack relevance, particularly for assets held for a long period of time.
From the following answer choices, choose the name of the accounting concept that matches the description.

• A. Measuring-unit concept
• B. Full-disclosure concept
• C. Cost concept
• D. Time-period concept

Answer: C

NEW QUESTION 14

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. D
• B. Monroe and Exmoor are equally responsible for making up the difference if cost overruns exceed the amount of money withheld
• C. Exmoor most likely distributes to D
• D. Monroe the entire amount withheld from her if her costs are below the amount budgeted for the period
• E. Exmoor pays D
• F. 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
• G. Exmoor most likely withholds between 3% and 5% of D
• H. Monroe's total reimbursement

Answer: B

NEW QUESTION 15

Companies typically produce three types of budgets: operational budgets, cash budgets, and capital budgets. The following statements are about operational budgets. Select the answer choice containing the correct statement.

• A. Expense budgets, a type of operational budget, typically describe fixed expenses rather than variable expenses.
• B. Operational budgets can only show information by department or by line of business.
• C. Operational budgets begin with a forecast of sales revenue and investment income.
• D. Revenue budgets, a type of operational budget, indicate the amount of income from operations that a company received from the previous budget period

Answer: C

NEW QUESTION 16

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

Answer: B

NEW QUESTION 17

The Fairway health plan is a for-profit health plan that issues stock. The following data was taken from Fairway's financial statements:
Current assets.....$5,000,000
Total assets.....6,000,000
Current liabilities.....2,500,000
Total liabilities.....3,600,000
Stockholders' equity.....2,400,000
Fairway's total revenues for the previous financial period were $7,200,000, and its net income for that period was $180,000.
From this data, Fairway can determine both its current ratio and its net working capital. Fairway would correctly determine that its

• A. Current ratio is 1.39
• B. Current ratio is 2.00
• C. Net working capital equals $1,000,000
• D. Net working capital equals $3,000,000

Answer: B

NEW QUESTION 18

Dr. Jacob Winburne is compensated by the Honor Health Plan under an arrangement in which Honor establishes at the beginning of a financial period a fund from which claims approved for payment are paid. At the end of the given period, any funds remaining are paid out to providers. This information indicates that the arrangement between Dr. Winburne and Honor includes a provider incentive known as a:

• A. Risk pool, and any deficit in the fund at the end of the period would be the sole responsibility of Honor
• B. Risk pool, and any deficit in the fund at the end of the period would be paid by both D
• C. Winburne and Honor according to percentages agreed upon at the beginning of the contract period
• D. Withhold, and any deficit in the fund at the end of the period would be the sole responsibility of Honor
• E. Withhold, and any deficit in the fund at the end of the period would be paid by both D
• F. Winburne and Honor according to percentages agreed upon at the beginning of the contract period

Answer: A

NEW QUESTION 19
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