NEW QUESTION 1

The Acorn Health Plan uses a resource-based relative value scale (RBRVS) to help determine the reimbursement amounts that Acorn should make to providers who are compensated under an FFS system. With regard to the advantages and disadvantages to Acorn of using RBRVS, it can correctly be stated that

• A. An advantage of using RBRVS is that it can assist Acorn in developing reimbursement schedules for various types of providers in a comprehensive healthcare plan
• B. An advantage of using RBRVS is that it puts providers who render more medical services than necessary at financial risk for this overutilization
• C. A disadvantage of using RBRVS is that it will be difficult for Acorn to track treatment rates for the health plan's quality and cost management functions
• D. A disadvantage of using RBRVS is that it rewards procedural healthcare services more than cognitive healthcare services

Answer: A

NEW QUESTION 2

In a fee-for-service (FFS) reimbursement method, providers are paid per treatment or per service that they provide. One typical benefit of FFS reimbursement is that it:

• A. Is highly effective in preventing excessive services that take the form of churning, unbundling, and upcoding
• B. Provides physicians who attempt to control costs with a higher rate of compensation than is provided to physicians who make the effort to control costs
• C. Is relatively easy to initiate, especially in markets where managed care penetration is low
• D. Guards against the practice of defensive medicine

Answer: B

NEW QUESTION 3

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 ofadjustments. Changes in Caribou's cash flow occur as a result of the health plan's operating activities, investing activities, and financing activities.
The basic formula for Caribou's income statement is

• A. Cash Inflows – Cash Outflows = Net Cash Inflow (Outflow)
• B. Revenues – Expenses = Net Income (Net Loss)
• C. Sources of Funds – Uses of Funds = Net Change in Cash
• D. Assets = Liabilities + Owners' Equity

Answer: B

NEW 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

• 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 5

The McGwire Health Plan is a for-profit health plan that issues stock. Events that will cause the owners' equity account of McGwire to change include

• A. McGwire's retention of net income
• B. McGwire's payment of cash dividends on the stock it issued
• C. McGwire's purchase of treasury stock
• D. All of the above

Answer: D

NEW QUESTION 6

The following statements are about the option for health plan funding known as a self- funded plan. Select the answer choice containing the correct response:

• A. In a self-funded plan, an employer is relieved of all risk associated with paying for the healthcare costs of its employees.
• B. Self-funded plans are subject to the same state laws and regulations that apply to health insurance policies.
• C. Employers electing to self-fund a health plan are required to pay claims from a separate trust established for that purpose.
• D. An employer electing to self-fund a health plan has the option of purchasing stop-loss insurance to transfer part of the financial risk to an insurer.

Answer: D

NEW QUESTION 7

One way that a health plan can protect itself against case stripping is by requiring:

• A. Employees covered by a small group plan to contribute 100% of the cost of the healthcare coverage
• B. The small group to have no more than 10 members
• C. A minimum level of participation in order for a small group to be eligible for healthcare coverage
• D. Its underwriters to consider the characteristics of the employer, but not of the group members, when underwriting the group

Answer: C

NEW QUESTION 8

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 9

The Lindberg Company has decided to terminate its group healthcare coverage with the Benson Health Plan. Lindberg has several former employees who previously experienced qualifying events that caused them to lose their group coverage. One federal law allows these former employees to continue their group healthcare coverage. From the answer choices below, select the response that correctly identifies the federal law that grants these individuals with the right to continue group healthcare coverage, as well as the entity which is responsible for continuing this coverage:

• A. Federal law: Consolidated Omnibus Budget Reconciliation Act (COBRA) Entity: Lindberg
• B. Federal law: Consolidated Omnibus Budget Reconciliation Act (COBRA) Entity: Benson
• C. Federal law: Employee Retirement Income Security Act (ERISA) Entity: Lindberg
• D. Federal law: Employee Retirement Income Security Act (ERISA) Entity: Benson

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

The following transactions occurred at the Lane Health Plan:
✑ Transaction 1 — Lane recorded a $25,000 premium prior to receiving the payment
✑ Transaction 2 — Lane purchased $500 in office expenses on account, but did not record the expense until it received the bill a month later
✑ Transaction 3 — Fire destroyed one of Lane’s facilities; Lane waited until the facility was rebuilt before assessing and recording the amount of loss
✑ Transaction 4 — Lane sold an investment on which it realized a $14,000 gain; Lane recorded the gain only after the sale was completed.
Of these transactions, the one that is consistent with the accounting principle of conservatism is:

• A. Transaction 1
• B. Transaction 2
• C. Transaction 3
• D. Transaction 4

Answer: D

NEW QUESTION 12

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 13

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 14

A health plan most likely would use benchmarking in order to

• A. Measure its performance and practices against those of other companies to help identify those practices that will lead to superior performance in a variety of financial and non- financial areas
• B. Calculate the percentage changes in its financial statement items over several consecutive accounting periods
• C. Determine both the direction and velocity of trends in its financial statements
• D. Display only percentage relationships in its financial statements

Answer: A

NEW QUESTION 15

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 16

A product is often described as having a thin margin or a wide margin. With regard to the factors that help determine the size of the margin of a health plan's product, it can correctly be stated that the

• A. greater the risk a health plan assumes in a health plan, the thinner the product margin should be
• B. more that competition acts to force prices down, the wider the product margins tend to become
• C. greater the demand for the product, the thinner the margin for this product tends to become
• D. longer the premium rates are guaranteed to a group, the wider the health plan's margin should be

Answer: D

NEW QUESTION 17
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