AHM-520 Health Plan Finance and Risk Management

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Question 1

Federal law addresses the relationship between Medicare- or Medicaidcontracting health
plans and providers who are at "substantial financial risk."
Under federal law, Medicare- or Medicaid-contracting health plans

  • A. Place a provider at "substantial risk" whenever incentive arrangements put the provider at risk for amounts in excess of 10% of his or her total potential reimbursement for providing services to Medicare and Medicaid enrollees
  • B. Must provide stop-loss coverage to a provider who is placed at "substantial financial risk" for services that the provider does not directly provide to Medicare or Medicaid enrollees
  • C. Both A and B
  • D. A only
  • E. B only
  • F. Neither A nor B

Answer : C

Question 2

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

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 experienceand sometimes the experience of other plansto 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

Question 4

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

Answer : C

Question 5

The following paragraph contains an incomplete statement. Select the answer choice
containing the term that correctly completes the statement. Health plans face four
contingency risks (C-risks): asset risk (C-1), pricing risk (C-2), interest-rate risk (C-3), and
general management risk (C-4). Of these risks, ________________ is typically the most
important risk that health plans face. This is true because a sizable portion of the total
expenses and liabilities faced by a health plan come from contractual obligations to pay for
future medical costs, and the exact amount of these costs is not known when the
healthcare coverage is priced.

  • A. Asset risk (C-1)
  • B. Pricing risk (C-2)
  • C. Interest-rate risk (C-3)
  • D. General management risk (C-4)

Answer : B

Question 6

The following statements are about pure risk and speculative risktwo kinds of risk that
both businesses and individuals experience. Select the answer choice containing the
correct statement.

  • A. Healthcare coverage is designed to help plan members avoid pure risk, not speculative risk.
  • B. Only pure risk involves the possibility of gain.
  • C. An example of speculative risk is the possibility that an individual will contract a serious illness.
  • D. Only speculative risk contains an element of uncertainty.

Answer : A

Question 7

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 policyholder interests
  • 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

Question 8

With regard to a health plan's underwriting of groups, it can correctly be stated that,
generally, a

  • A. Health plan will require that contributory healthcare plans have a participation level of between 50% and 70%
  • B. Health plan will decline to cover a group that has been formed for the sole purpose of obtaining healthcare coverage
  • C. Health plan's underwriters will not examine the age spread of the entire group being underwritten
  • D. Health plan would expect a group with a large proportion of young females to have lower healthcare costs than does a similar group with a large proportion of young males

Answer : B

Question 9

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

Question 10

The following statements are about risk management in health plans. Select the answer
choice containing the correct response.

  • A. Risk management is especially important to health plans because the Employee Retirement Income Security Act of 1974 (ERISA) allows plan members to recover punitive damages from healthcare plans.
  • B. With regard to the relative risk for health plan structures based upon the degree of influence and relationships that health plans maintain with their providers, preferred provider organizations (PPOs) typically have a higher risk than do group HMOs and staff HMOs.
  • C. Although there are clear risks associated with the provision of healthcare services and coverage decisions surrounding that care, the bulk of risk in health plans is associated with a health plan's benefit administration and contracting activities.
  • D. A health plan generally structures its risk management process around loss reduction techniques and loss transfer techniques.

Answer : D

Question 11

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

Question 12

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

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

Answer : A

Question 13

Because a health plan cannot decline coverage for individuals who are eligible for
conversion of group health coverage to individual health coverage, the bulk of the health
plan's underwriting for conversion policies is accomplished through health plan design.

  • A. True
  • B. False

Answer : A

Question 14

The following statements are about the new methodology authorized under the Balanced
Budget Act of 1997 (BBA) for payments by the Centers for Medicaid & Medicare Services
(CMS) to Medicare-contracting health plans.
Select the answer choice containing the correct statement.

  • A. Under this new methodology, Medicare-contracting health plans are paid the lower of (a) a floor payment amount per enrollee covered or (b) the health plan's payment rate increased by 2% from the previous year.
  • B. The new methodology has decreased the rate of growth in payments from CMS to Medicare-contracting health plans.
  • C. Under this new methodology, Medicare-contracting health plans are paid 90% of the adjusted average per capita cost (AAPCC) of providing a service to a beneficiary.
  • D. Under the principal inpatient diagnostic cost group (PIP-DCG), a new risk adjustment methodology, Medicare-contracting health plans will no longer be required to calculate and submit to CMS a Medicare adjusted community rate (ACR).

Answer : B

Question 15

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

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