NEW QUESTION 1

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. Thisplan 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

Answer: A

NEW QUESTION 2

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

Answer: A

NEW QUESTION 3

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

Answer: D

NEW QUESTION 4

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 5

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: C

NEW QUESTION 6

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 7

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

Answer: C

NEW QUESTION 8

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

Answer: B

NEW QUESTION 9

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

Answer: D

NEW QUESTION 10

Two sets of financial accounting standards are generally accepted accounting principles (GAAP) and statutory accounting practices (SAP). One true statement about these financial accounting standards is that

• A. State laws and regulations in the United States govern the implementation of GAAP, but not the implementation of SAP
• B. Health plans must prepare their financial statements for their external users according to applicable laws, regulations, and accounting principles, particularly GAAP
• C. GAAP specifically focuses on the requirements of insurance regulators and policyholderinterests
• D. The Financial Accounting Standards Board (FASB) is a private organization whose purpose is to establish and promote SAP in the United States

Answer: B

NEW QUESTION 11

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.
For the previous financial period, Fairway's net profit margin was

• A. 2.50%
• B. 3.00%
• C. 3.60%
• D. 7.50%

Answer: A

NEW QUESTION 12

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 13

The Northwest Company offers its employees the option of choosing to receive their
healthcare benefits from an HMO or from a traditional indemnity plan. The premiums for the HMO are lower than for the traditional indemnity plan. In this situation, it is correct to assume that:
* 1.Individual low utilizers are more likely to enroll in the traditional indemnity plan 2.Individual high utilizers are more likely to enroll in the HMO

• A. Both 1 and 2
• B. 1 only
• C. 2 only
• D. Neither 1 nor 2

Answer: D

NEW QUESTION 14

Dr. Martin Cassini is an obstetrician who is under contract with the Bellerby Health Plan. Bellerby compensates Dr. Cassini for each obstetrical patient he sees in the form of a single amount that covers the costs of prenatal visits, the delivery itself, and post-delivery care . This information indicates that Dr. Cassini is compensated under the provider reimbursement method known as a:

• A. global fee
• B. relative value scale
• C. unbundling
• D. discounted fee-for-service

Answer: A

NEW QUESTION 15

This concept, which holds that a company should record the amounts associated with its business transactions in monetary terms, assumes that the value of money is stable over time. This concept provides objectivity and reliability, although its relevance may fluctuate.
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: A

NEW QUESTION 16

Analysts will use the capital asset pricing model (CAPM) to determine the cost of equity for the Maxim health plan, a for-profit plan. According to the CAPM, Maxim's cost of equity is equal to

• A. The average interest rate that Maxim is paying to debt holders, adjusted for a tax shield
• B. Maxim's risk-free rate minus its beta
• C. Maxim's risk-free rate plus an adjustment that considers the market rate, at a given level of systematic (non diversifiable) risk
• D. Maxim's risk-free rate plus an adjustment that considers the market rate, at a given level of nonsystematic (diversifiable) risk

Answer: C

NEW QUESTION 17

Contingency risks, or C-risks, are general categories of risk that have a direct bearing on both the cash flow and solvency of a health plan. One of these C-risks, pricing risk (C-2 risk), is typically the most important risk a health plan faces. Pricing risk is crucial to a health plan’s solvency because:

• A. A sizable portion of any health plan’s assets are held in long-term investments and anyshift in interest rates can significantly impact a health plan’s ability to pay medical benefits
• B. A health plan relies heavily on the sound judgment of its management, and poor management decisions can result in financial losses for the health plan
• C. A situation in which actual expenses exceed the amounts budgeted for those expenses may result in the health plan failing to retain assets sufficient to cover current obligations
• D. A sizable portion of the total expenses and liabilities faced by a health plan come from contractual obligations to pay future medical costs, and the exact amounts of those costs are not known at the time a product’s premium is established

Answer: D

NEW QUESTION 18

The Brookhaven Company is the parent company of two subsidiaries: an HMO and an insurance company. The headings on Brookhaven's financial statements read "Consolidated Financial Statements of Brookhaven Company." From the following answer choices, select the response that correctly indicates, under the entity concept, whether the HMO and the insurance company are accounted for as separate entities and whether the subsidiaries' financial results would be included in Brookhaven's consolidated financial statements.

• A. Accounted for as Separate Entities? = yes Results Included in Brookhaven's Statements? = yes
• B. Accounted for as Separate Entities? = yes Results Included in Brookhaven's Statements? = no
• C. Accounted for as Separate Entities? = noResults Included in Brookhaven's Statements? = yes
• D. Accounted for as Separate Entities? = no Results Included in Brookhaven's Statements? = no

Answer: A

NEW QUESTION 19
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