For each of its products, the Wisteria Health Plan monitors the provider reimbursement trend and the residual trend. One true statement about these trends is that
Provider reimbursement methods that transfer some utilization risk from a health plan to providers affect the health plan's RBC formula. A health plan's use of these reimbursement methods is likely to result in
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.
The following statements illustrate common forms of capitation:
1. The Antler Health Plan pays the Epsilon Group, an integrated delivery system (IDS), a capitated amount to provide substantially all of the inpatient and outpatient services that Antler offers. Under this arrangement, Epsilon accepts much of the risk that utilization rates will be higher than expected. Antler retains responsibility for the plan's marketing, enrollment, premium billing, actuarial, underwriting, and member services functions.
2. The Bengal Health Plan pays an independent physician association (IPA) a capitated amount to provide both primary and specialty care to Bengal's plan members. The payments cover all physician services and associated diagnostic tests and laboratory work. The physicians in the IPA determine as a group how the individual physicians will be paid for their services.
From the following answer choices, select the response that best indicates the form of capitation used by Antler and Bengal.
The Eclipse Health Plan is a not-for-profit health plan that qualifies under the Internal Revenue Code for tax-exempt status. This information indicates that Eclipse
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.
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 of adjustments. Changes in Caribou's cash flow occur as a result of the health plan's operating activities, investing activities, and financing activities.
The main purpose of Caribou's balance sheet is to
The NAIC has developed a risk-based capital (RBC) formula for all health plans that accept risk. One true statement about the RBC formula for health plans is that it
The following statements are about a health plan's underwriting of small groups. Select the answer choice containing the correct statement.
The physicians who work for the Sunrise Health Plan, a staff model HMO, are paid a salary that is not augmented with another type of incentive plan. Compared to the use of a traditional reimbursement method, Sunrise's use of a salary reimbursement method is more likely to
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 of adjustments. Changes in Caribou's cash flow occur as a result of the health plan's operating activities, investing activities, and financing activities.
To prepare its cash flow statement, Caribou uses the direct method rather than the indirect method.
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:
Of these possible actions, the ones that are likely to reduce physicians' exposures related to utilization review include actions
The following statements are about carve-out programs. Three of these statements are true, and one statement is false. Select the answer choice containing the FALSE statement.
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 _________.
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.
Experience rating methods can be either prospective or retrospective. With regard to these types of experience rating methods, it can correctly be stated that
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:
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.
Residual trend is the difference between total trend and the portion of the total trend caused by changes in provider reimbursement levels.
Consider the following events that could affect an health plan’s provider reimbursement levels:
Event 1 — The disenrollment of a large group with unusually high utilization rates
Event 2 — The introduction of a new treatment for infertility
Event 3 — A serious flu epidemic
Event 4 — A shift in inpatient medical services from obstetrical care to neonatal intensive care
One cause of residual trend is change in intensity, which would be represented by:
The following paragraph contains two pair of terms enclosed in parentheses. Determine which term in each pair correctly completes the statements. Then select the answer choice containing the two terms you have chosen.
In a typical health plan, an (actuary / underwriter) is ultimately responsible for the determination of the appropriate rate to charge for a given level of healthcare benefits and administrative services in a particular market. The (actuary / underwriter) assesses and classifies the degree of risk represented by a proposed group or individual.
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:
The Rathbone Company has contracted with the Jarvin Insurance Company to provide healthcare benefits to its employees. Under this contract, Rathbone assumes financial responsibility for paying 80% of its estimated annual claims and for depositing the funds necessary to pay these claims into a bank account. Although Rathbone owns the bank account, Jarvin, acting as Rathbone’s agent, makes the actual claims payments from this account. Claims in excess of Rathbone’s contracted percentage are paid by Jarvin. Rathbone pays to Jarvin a premium for administering the entire plan and bearing the costs of claims in excess of Rathbone’s obligation. This premium is substantially lower than would be charged if Jarvin were providing healthcare coverage under a traditional fully insured group plan. Jarvin is required to pay premium taxes only on the premiums it receives from Rathbone. This information indicates that the type of alternative funding method used by Rathbone is known as a:
The medical loss ratio (MLR) for the Peacock health plan is 80%. Peacock's expense ratio is 16%.
One characteristic of Peacock's MLR is that it
In order to show the efficiency of a health plan's managers in using the health plan's investments to earn a return for stockholders, a financial analyst most likely would use a type of profitability ratio known as
The goals of Diane Tsai, the manager of the Oval Health Plan's accounting department, and the goals of Oval are mutually supportive. Oval's accounting department is able to establish and achieve the appropriate objectives, but the department's costs of operation are too high. The following statement(s) can correctly be made about this situation:
In order to achieve its goal of improved customer service, the Evergreen Health Plan will add three new customer service representatives to its existing staff, install a new switching station, and install additional phone lines. In this situation, the cost that would be classified as a sunk cost, rather than a differential cost, is the expense associated with:
One true statement about variance analysis is that
The following transactions occurred at the Lane Health Plan:
Of these transactions, the one that is consistent with the accounting principle of conservatism is:
The Arista Health Plan is evaluating the following four groups that have applied for group healthcare coverage:
With respect to the relative degree of risk to Arista represented by these four companies, the company that would most likely expose Arista to the lowest risk is the:
The Coral Health Plan, a for-profit health plan, has two sources of capital:
Debt and equity. With regard to these sources of capital, it can correctly be stated that
The following information was presented on one of the financial statements prepared by the Rouge health plan as of December 31, 1998:
When calculating its cash-to-claims payable ratio, Rouge would correctly divide its:
The Amethyst Health Plan uses a budgeting approach that requires each line of business within Amethyst’s operation to justify its continued operation. Amethyst begins with the premise that no resources will be allocated for the following period unless each dollar to be spent is justified and is shown to be within departmental plans and corporate goals and objectives. The budgeting approach used by Amethyst is known as: