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The accounting department of the Enterprise health plan adheres to the following policies:
✑ Policy A—Report gains only after they actually occur
✑ Policy B—Report losses immediately
✑ Policy C—Record expenses only when they are certain
✑ Policy D—Record revenues only when they are certain
Of these Enterprise policies, the ones that are consistent with the accounting principle of conservatism are Policies

  • A. A, B, C, and D
  • B. A, B, and D only
  • C. A and B only
  • D. C and D only

Answer: B


The Savanna health plan used a risk analysis technique which defines the key assumptions of Savanna's strategic financial plan in terms of mathematical formulas that can be correlated to each other or analyzed independently. This technique allowed Savanna to simulate probable future events on a computer and produce a distribution of possible outcomes. This risk analysis technique, which can be used to predict Savanna's distribution of expected claims, is known as

  • A. A hurdle rate simulation
  • B. Optimistic, most likely, pessimistic scenario modeling
  • C. A Monte Carlo simulation
  • D. Debt covenant modeling

Answer: C


The following information was presented on one of the financial statements prepared by the Rouge Health Plan as of December 31, 1998:
AHM-520 dumps exhibit
Rouge’s current ratio at the end of 1998 was approximately equal to:

  • A. 0.84
  • B. 1.06
  • C. 1.19
  • D. 1.31

Answer: C


With regard to the financial statements prepared by health plans, it can correctly be stated that

  • A. both for-profit, publicly owned health plans and not-for-profit health plans are required by law to provide all interested parties with an annual report
  • B. a health plan's annual report typically includes an independent auditor's report and notes to the financial statements
  • C. any health plan that owns more than 20% of the stock of a subsidiary company must compile the financial statements for the health plan's annual report on a consolidated basis
  • D. a health plan typically must prepare the financial statements included in its annual report according to SAP

Answer: B


With regard to alternative funding arrangements, the part of a health plan premium that is intended to contribute to the claims reserve that a health plan maintains to pay for unusually high utilization is known as the:

  • A. Interest charge
  • B. Retention charge
  • C. Risk charge
  • D. Surplus

Answer: C


The following statements are about state health coverage reinsurance programs.

  • A. The reinsurance offered through these programs is administered on a for-profit basis by the federal government.
  • B. The purpose of these programs is to reinsure MCOs and other carriers who offer guaranteed healthcare plans to small employers.
  • C. These programs must reinsure only an entire small group, not specific individuals within a group.
  • D. Any shortfalls in the pool established by these programs are funded by the state government.

Answer: B


The Norton Health Plan used blended rating to develop a premium rate for the Roswell Company, a large employer group. Norton assigned Roswell a credibility factor of 0.7 (or 70%). Norton calculated Roswell’s manual rate to be $200 and its experience claims cost as $180. Norton’s retention charge is $3. This information indicates that Roswell’s blended rate is:

  • A. $186
  • B. $189
  • C. $194
  • D. $197

Answer: B


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


The following statements are about 501(c)(9) trusts. Select the answer choice containing the correct statement:

  • A. In the event a 501(c)(9) trust is terminated, any funds remaining in the trust revert backto the employer.
  • B. In order to satisfy Internal Revenue Code (IRC) requirements, membership in a 501(c)(9) trust is mandatory for all employees.
  • C. Contributions made by an employer to a 501(c)(9) trust are deductible for federal income tax purposes.
  • D. Typically, a 501(c)(9) trust is controlled solely by the employer that established the trust.

Answer: C


The methods of alternative funding for health coverage can be divided into the following general categories:
✑ Category A—Those methods that primarily modify traditional fully insured group insurance contracts
✑ Category B—Those methods that have either partial or total self funding
Typically, small employers are able to use some of the alternative funding methods in

  • A. Both Category A and Category B
  • B. Category A only
  • C. Category B only
  • D. Neither Category A nor Category B

Answer: C


The Longview Hospital contracted with the Carlyle Health Plan to provide inpatient services to Carlyle’s enrolled members. Carlyle provides Longview with a type of stop-loss coverage that protects, on a claims incurred and paid basis, against losses arising from significantly higher than anticipated utilization rates among Carlyle’s covered population. The stop-loss coverage specifies an attachment point of 130% of Longview’s projected $2,000,000 costs of treating Carlyle plan members and requires Longview to pay 15% of any costs above the attachment point. In a given plan year, Longview incurred covered costs totaling $3,000,000.
With regard to the type of stop-loss coverage provided to Longview by Carlyle and to whether this coverage is classified as insurance or reinsurance, the risk transfer approach used in this situation can be described as:

  • A. aggregate stop-loss reinsurance
  • B. aggregate stop-loss insurance
  • C. specific stop-loss reinsurance
  • D. specific stop-loss insurance

Answer: C


The Violin Company offers its employees a triple option of health plans: an HMO, an HMO with a point of service (POS) option, and an indemnity plan.
Premiums are lowest for the HMO option and highest for the indemnity plan. Violin employees who anticipate that they will be individual low utilizes of healthcare services are most likely to enroll in the

  • A. HMO and are least likely to enroll in the HMO with the POS option
  • B. HMO and are least likely to enroll in the indemnity plan
  • C. Indemnity plan and are least likely to enroll in the HMO
  • D. Indemnity plan and are least likely to enroll in the HMO with the POS option

Answer: B


Ways in which a company can increase its return on investment (ROI) include: 1.Reducing expenses to increase operating income 2.Increasing controllable investment

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

Answer: B


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


A primary reason that a financial analyst would measure the Tapestry health plan's return on assets (ROA) is to determine the

  • A. Amount of net income per share of Tapestry's common stock
  • B. Rate of return on the book value of the stockholders' investment in Tapestry
  • C. Proportion of earnings paid out to Tapestry stockholders in the form of cash dividends
  • D. Efficiency of Tapestry's management

Answer: D


The Essential Health Plan markets a product for which it assumed total expenses to equal 92% of premiums. Actual data relating to this product indicate that expenses equal 89% of premiums. This information indicates that the expense margin for this product has:

  • A. a 3% favorable deviation
  • B. a 3% adverse deviation
  • C. an 11% favorable deviation
  • D. an 11% adverse deviation

Answer: A


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