AHM-520 Exam - Health Plan Finance and Risk Management

NEW QUESTION 1

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 2

All publicly traded health plans in the United States are required to prepare financial statements for use by their external users in accordance with generally accepted accounting principles (GAAP). In addition, health insurers and health plans that fall under the jurisdiction of state insurance departments are required by law to prepare certain financial statements in accordance with statutory accounting practices (SAP). In a comparison of GAAP to SAP, it is correct to say that:

• A. GAAP is established and promoted by the National Association of Insurance Commissioners (NAIC), whereas SAP is established and promoted by the Financial Accounting Standards Board (FASB)
• B. The going-concern concept is an underlying premise of GAAP, whereas SAP tends to focus on the liquidation value of the MCO or the insurer
• C. GAAP provides for a single method of valuing all of a health plan’s assets, whereas SAP offers the health plan more than one method for valuing its assets
• D. The principle of conservatism is fundamental to GAAP, whereas SAP generally is not conservative in nature

Answer: B

NEW QUESTION 3

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

• A. Uses a purchaser's actual experience to estimate the group's expected experience, whereas, under manual rating, Cheshire uses its own average experience—and sometimes the experience of other plans—to estimate the group's expected experience
• B. can establish rates for groups that have no previous plan experience, whereas, under manual rating, Cheshire cannot establish rates for groups with no previous plan experience
• C. charges each group in the same class the same premium whereas, under manual rating, Cheshire charges lower premiums to groups that have experienced lower utilization rates
• D. can use group demographics to help determine the rate for a block of business, whereas, under manual rating, Cheshire cannot use group demographics when determining the rate for a block of business

Answer: A

NEW QUESTION 4

The risk-based capital formula for health plans defines a number of risks that can impact a health plan’s solvency. These categories reflect the fact that the level of risk faced by health plans is significantly impacted by provider reimbursement methods that shift utilization risk to providers. The following statements are about the effect of a health plan transferring utilization risk to providers. Select the answer choice containing the correct statement:

• A. The net effect of using provider reimbursement contracts to transfer risk is that the health plan’s net worth requirement increases.
• B. Once the health plan has transferred utilization risk to its providers, it is relieved of the legal obligation to provide medical services to plan members in the event of the provider’s insolvency.
• C. The greater the amount of risk the health plan transfers to providers, the larger the credit-risk factor becomes in the health plan’s RBC formula.
• D. By decreasing its utilization risk, the health plan increases its underwriting risk.

Answer: C

NEW QUESTION 5

Three general strategies that health plans use for controlling types of risk are risk avoidance, risk transfer, and risk acceptance. The following statements are about these strategies. Three of these statements are true, and one statement is false. Select the answer choice containing the FALSE statement.

• A. Generally, the smaller the likely benefits of accepting a risk, and the lower the costs of avoiding that risk, the greater the likelihood that a health plan will elect to avoid the risk.
• B. A health plan is seldom able to transfer any of the risk that utilization rates will be higher than expected and that its cost of providing healthcare will exceed the revenues it receives.
• C. If a risk is a pure risk from the point of view of a health plan, then the health plan most likely will attempt to avoid the risk.
• D. A health plan would most likely transfer some or all of its utilization risk if it pays a provider a rate that is based on the number of plan enrollees that choose the provider as their primary care provider (PCP).

Answer: B

NEW QUESTION 6

Under the doctrine of corporate negligence, a health plan and its physician administrators may be held directly liable to patients or providers for failing to investigate adequately the competence of healthcare providers whom it employs or with whom it contracts, particularly where the health plan actually provides healthcare services or restricts the patient's/enrollee's choice of physician.

• A. True
• B. False

Answer: A

NEW QUESTION 7

One true statement about capital and surplus ratios for health plans is that

• A. This ratio is calculated by dividing a health plan's total liabilities by its capital and surplus
• B. A health plan's capital and surplus position would be likely to weaken because of reserve valuation changes that reduce the health plan's reserves
• C. The primary purpose of these ratios is to compare a health plan's obligations to its ability to meet those obligations
• D. An increase in the value of a health plan's capital and surplus ratio most likely indicates that the health plan's financial position has strengthened

Answer: D

NEW QUESTION 8

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 9

Health plans with risk-based Medicare contracts are required to calculate and submit to CMS a Medicare adjusted community rate (Medicare ACR). Medicare ACR can be defined as the:

• A. Estimated cost of providing services to a beneficiary under Medicare FFS, adjusted for factors such as age and gender
• B. Health plan’s estimate of the premium it would charge Medicare enrollees in the absence of Medicare payments to the health plan
• C. Average amount the health plan expects to receive from CMS per beneficiary covered
• D. Health plan’s actual costs of providing benefits to Medicare enrollees in a given year

Answer: B

NEW QUESTION 10

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 11

With regard to capitation arrangements for hospitals, it can correctly be Back to Top stated that

• A. The most common reimbursement method for hospitals is professional services capitation
• B. Most jurisdictions prohibit hospitals and physicians from joining together to receive global capitations that cover institutional services provided by the hospitals
• C. Ahealth plan typically can capitate a hospital for outpatient laboratory and X-ray services only if the health plan also capitates the hospital for inpatient care
• D. Many hospitals have formed physician hospital organizations (PHOs), hospital systems, or integrated delivery systems (IDSs) that can accept global capitation payments from health plans

Answer: D

NEW QUESTION 12

For this question, select the answer choice containing the terms that correctly complete blanks A and B in the paragraph below. The FASB mandates that accounting information must exhibit certain qualitative characteristics. One of these characteristics is ______ A _______, which means that a company's financial statements use the same accounting policies and procedures from one accounting period to the next, unless there is a sound reason for changing a policy or procedure. Another characteristic is ______ B _______, which requires a company to disclose in its financial statements all significant financial information about the company.

• A. A = reliability B = comparability
• B. A = reliability B = materiality
• C. A = consistency B = comparability
• D. A = consistency B = materiality

Answer: D

NEW QUESTION 13

Costs that can be defined by behavior are most commonly classified as fixed costs, variable costs and semi-variable costs. Examples of fixed costs include:

• A. Rent, insurance expense, and depreciation on computer equipment
• B. Rent, claims processing costs, and selling expenses
• C. Claims processing costs, telephone expense, and depreciation on computer equipment
• D. Premium processing, rent, and selling expenses

Answer: A

NEW QUESTION 14

The Column health plan is in the process of developing a strategic plan.
The following statements are about this strategic plan. Three of the statements are true, and one statement is false. Select the answer choice containing the FALSE statement.

• A. Human resources most likely will be a critical component of Column's strategic plan because, in health plan markets, the size and the quality of a health plan's provider network is often more important to customers than are the details of a product's benefit design.
• B. Column's strategic plan should only address how the health plan will differentiate its products, rather than where and how it will sell these products.
• C. Column most likely will need to develop contingency plans to address the need to make adjustments to its original strategic plan.
• D. Column's information technology (IT) strategy most likely will be a critical element in successfully implementing the health plan's strategic plan.

Answer: B

NEW QUESTION 15

A health plan that capitates a provider group typically provides or offers to provide stop-loss coverage to that provider group.

• A. True
• B. False

Answer: A

NEW QUESTION 16

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 17

Julio Benini is eligible to receive healthcare coverage through a health plan that is under contract to his employer. Mr. Benini is seeking coverage for the following individuals:
✑ Elena Benini, his wife
✑ Maria Benini, his 18-year-old unmarried daughter
✑ Johann Benini, his 80-year-old father who relies on Julio for support and maintenance
The health plan most likely would consider that the definition of a dependent, for purposes of healthcare coverage, applies to:

• A. Elena, Maria, and Johann
• B. Elena and Maria only
• C. Elena only
• D. Maria only

Answer: B

NEW QUESTION 18

The Lighthouse health plan operates in a state that allows the health plan to use an underwriting method of determining a group's premium in which underwriters treat several small groups as one large group for risk assessment purposes. This method, which helps Lighthouse more accurately estimate a small group's probable claims costs, is known as

• A. Case stripping
• B. The low-option rating method
• C. The rate spread method
• D. Pooling

Answer: D

NEW QUESTION 19

In a comparison of small employer-employee groups to large employer-employee groups, it is correct to say that small employer-employee groups tend to:

• A. More closely follow actuarial predictions with respect to morbidity rates
• B. Generate more administrative expenses as a percentage of the total premium amount the group pays
• C. Have less frequent and smaller claims fluctuations
• D. Expose an health plan to a lower risk of anti selection

Answer: B

NEW QUESTION 20
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