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AHIP AHM-520 Health Plan Finance and Risk Management Exam Practice Test

Demo: 32 questions
Total 215 questions

Health Plan Finance and Risk Management Questions and Answers

Question 1

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.

Options:

A.

True

B.

False

Question 2

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 statements.

Options:

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

Question 3

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

Options:

A.

Both Category A and Category B

B.

Category A only

C.

Category B only

D.

Neither Category A nor Category B

Question 4

Users of the Fulcrum Health Plan financial information include:

  • The independent auditors who review Fulcrum's financial statements
  • Fulcrum's controller (comptroller)
  • Fulcrum's plan members
  • The providers that deliver healthcare services to Fulcrum plan members
  • Fulcrum's competitors

Of these users, the ones that most likely can correctly be classified as external users with a direct financial interest in Fulcrum are the

Options:

A.

Independent auditors, the plan members, the providers, and the

B.

Competitors only

C.

Independent auditors, the controller, and the providers only

D.

Controller and the competitors only

E.

Plan members and the providers only

Question 5

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.

Caribou is engaged in an operating activity when it

Options:

A.

Purchases or sells assets of the health plan

B.

Disposes of a subsidiary

C.

Repays funds loaned by its creditors

D.

Pays expenses associated with the healthcare services provided to its members

Question 6

One true statement about the rate ratios used by a health plan is that the

Options:

A.

End result of a typical family rate ratio is that the health plan's family rate is subsidized by its single premium rate

B.

health plan cannot arbitrarily increase or decrease its rate ratio for a rate category

C.

rate ratios used by the health plan most likely have been established by government regulations

D.

health plan should determine its rate ratios by considering family size alone rather than competitive factors such as the ratios that competitors are using

Question 7

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

Options:

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

Question 8

The following statements indicate the pricing policies of two health plans that operate in a particular market:

  • The Accent Health Plan consistently underprices its product
  • The Bolton Health Plan uses extremely strict underwriting practices for the small groups to which it markets its plan

From the following answer choices, select the response that correctly indicates the most likely market effects of the pricing policies used by Accent and Bolton.

Options:

A.

Accent = unprofitable business

Bolton = high acquisition rate

B.

Accent = unprofitable business

Bolton = low acquisition rate

C.

Accent = high profits

Bolton = high acquisition rate

D.

Accent = high profits

Bolton = low acquisition rate

Question 9

The Newfeld Hospital has contracted with the Azalea Health Plan to provide inpatient services to Azalea's enrolled members. The contract calls for Azalea to provide specific stop-loss coverage to Newfeld once Newfeld's treatment costs reach $20,000 per case and for Newfeld to pay 20% of the next $50,000 of expenses for this case. After Newfeld's treatment costs on a case reach $70,000, Azalea reimburses the hospital for all subsequent treatment costs.

One true statement about this specific stop-loss coverage is that

Options:

A.

The carrier is Newfeld

B.

The attachment point is $20,000

C.

The shared-risk corridor is between $0 and $70,000

D.

This coverage can also be activated when the total covered medical expenses generated by the hospitalizations of Azalea plan members reach a specified level

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. This plan is not a part of a collective bargaining process. A potential disadvantage to Jasmine of using a 501(c)(9) trust is that

Options:

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

Question 11

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

Options:

A.

A, B, C, and D

B.

A, B, and D only

C.

A and B only

D.

C and D only

Question 12

One true statement about mandated benefit laws is that they

Options:

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

Question 13

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

Options:

A.

Reveal how Caribou obtained particular assets or liabilities

B.

Show how much money Caribou has realized from its operations during an accounting period

C.

Measure the owners' wealth

D.

Reconcile the cash that Caribou has on hand at the beginning and at the end of an accounting period

Question 14

The Cardinal health plan complies with all of the provisions of HIPAA.

Cardinal has received requests for healthcare coverage from the following companies that meet the statutory definition of a small group:

  • The Xavier Company has excellent claims experience
  • The Youngblood Company has not previously offered group healthcare coverage to its employees
  • The Zebulon Company has poor claims experience

According to HIPAA's provisions, Cardinal must issue a healthcare contract to

Options:

A.

Xavier, Youngblood, and Zebulon

B.

Xavier and Youngblood only

C.

Xavier only

D.

None of these companies

Question 15

The Marble Health Plan sets aside a PMPM amount for each specialty.

When a PCP in Marble's provider network refers a Marble plan member to a specialist and the specialist provides medical services to the member, the specialist begins to receive a share of those funds on a monthly basis. Marble determines the monthly payment for each specialist by dividing the number of active patients for that specialty by the total specialty pool for that month.

This form of payment, which is similar to a case rate, is known as

Options:

A.

Referral circle capitation

B.

Risk pod capitation

C.

Contact capitation

D.

Retrospective reimbursement capitation

Question 16

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

Options:

A.

True

B.

False

Question 17

For a given healthcare product, the Magnolia Health Plan has a premium of $80 PMPM and a unit variable cost of $30 PMPM. Fixed costs for this product are $30,000 per month. Magnolia can correctly calculate the break-even point for this product to be:

Options:

A.

274 members

B.

375 members

C.

600 members

D.

1,000 members

Question 18

The following information was presented on one of the financial statements prepared by the Rouge Health Plan as of December 31, 1998:

Rouge’s current ratio at the end of 1998 was approximately equal to:

Options:

A.

0.84

B.

1.06

C.

1.19

D.

1.31

Question 19

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:

Options:

A.

Transaction 1

B.

Transaction 2

C.

Transaction 3

D.

Transaction 4

Question 20

The following information relates to the Hardcastle Health Plan for the month of June:

  • Incurred claims (paid and IBNR) equal $100,000
  • Earned premiums equal $120,000
  • Paid claims, excluding IBNR, equal $80,000
  • Total health plan expenses equal $300,000

This information indicates that Hardcastle’s medical loss ratio (MLR) for the month of June was approximately equal to:

Options:

A.

40%

B.

67%

C.

83%

D.

120%

Question 21

The Swann Health Plan excludes mental health coverage from its basic health benefit plan. Coverage for mental health is provided by a specialty health plan called a managed behavioral health organization (MBHO). This arrangement recognizes the fact that distinct administrative and clinical expertise is required to effectively manage mental health services. This information indicates that Swann manages mental health services through the use of a:

Options:

A.

Formulary

B.

Risk pod

C.

Carve-out

D.

Case rate

Question 22

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:

Options:

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

Question 23

The HMO Model Act sets certain requirements that an entity that wishes to operate as an HMO must meet. These requirements include:

Options:

A.

Having an initial net worth of at least $5 million

B.

Maintaining a net worth equal to at least 5% of premium revenues for the first $150 million in premium revenue

C.

Using a prospective method to estimate future risk

D.

Obtaining a certificate of authority (COA) before beginning operations

Question 24

The Fairway health plan is a for-profit health plan that issues stock. The following data was taken from Fairway's financial statements:

Current assets.....$5,000,000

Total assets.....6,000,000

Current liabilities.....2,500,000

Total liabilities.....3,600,000

Stockholders' equity.....2,400,000

Fairway's total revenues for the previous financial period were $7,200,000, and its net income for that period was $180,000.

From this data, Fairway can determine both its current ratio and its net working capital. Fairway would correctly determine that its

Options:

A.

Current ratio is 1.39

B.

Current ratio is 2.00

C.

Net working capital equals $1,000,000

D.

Net working capital equals $3,000,000

Question 25

One true statement about variance analysis is that

Options:

A.

A price variance is the difference between the budgeted quantities to be sold and the actual quantities sold, multiplied by the budgeted amount

B.

Variance analysis suggests solutions to a particular problem

C.

Positive variances generally are favorable, from a health plan's point of view, for the plan's expenses but unfavorable for the plan's revenues

D.

An effective variance system typically focuses on matters that require management's attention

Question 26

The following statements are about state health coverage reinsurance programs.

Options:

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.

Question 27

Dr. Martin Cassini is an obstetrician who is under contract with the Bellerby Health Plan. Bellerby compensates Dr. Cassini for each obstetrical patient he sees in the form of a single amount that covers the costs of prenatal visits, the delivery itself, and post-delivery care . This information indicates that Dr. Cassini is compensated under the provider reimbursement method known as a:

Options:

A.

global fee

B.

relative value scale

C.

unbundling

D.

discounted fee-for-service

Question 28

Dr. Jacob Winburne is compensated by the Honor Health Plan under an arrangement in which Honor establishes at the beginning of a financial period a fund from which claims approved for payment are paid. At the end of the given period, any funds remaining are paid out to providers. This information indicates that the arrangement between Dr. Winburne and Honor includes a provider incentive known as a:

Options:

A.

Risk pool, and any deficit in the fund at the end of the period would be the sole responsibility of Honor

B.

Risk pool, and any deficit in the fund at the end of the period would be paid by both Dr. Winburne and Honor according to percentages agreed upon at the beginning of the contract period

C.

Withhold, and any deficit in the fund at the end of the period would be the sole responsibility of Honor

D.

Withhold, and any deficit in the fund at the end of the period would be paid by both Dr. Winburne and Honor according to percentages agreed upon at the beginning of the contract period

Question 29

The Proform Health Plan uses agents to market its small group business. Proform capitalizes the commission expense relating to this line of business by spreading the commissions over the premium-paying period of the healthcare coverage. This approach to expense recognition is known as:

Options:

A.

Systematic and rational allocation

B.

Matching principle

C.

Immediate recognition

D.

Associating cause and effect

Question 30

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

Options:

A.

Coral's equity holders have an ownership interest in the health plan

B.

The interest that Coral pays on its debt most likely is not tax deductible to Coral

C.

Coral's debt holders have no legal claim to Coral's assets

D.

Equity is a more risky source of capital, from Coral's perspective, than is debt

Question 31

The Danube Health Plan's planning activities include tactical planning, which is primarily concerned with

Options:

A.

Establishing standards of performance for Danube's cost centers

B.

Forecasting Danube's premium income

C.

Planning for the short-term, day-to-day activities of Danube

D.

Identifying the markets in which Danube should concentrate its marketing efforts

Question 32

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:

Options:

A.

Ms. Tsai most likely is the manager of a profit center.

B.

The business goals of Oval are congruent with Ms. Tsai's goals.

C.

Oval's accounting department is efficient but not effective.

D.

All of these statements are correct.

Demo: 32 questions
Total 215 questions