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NEW QUESTION 1
In order to print all of its forms in-house, the Prism health plan isconsidering the purchase
of 10 new printers at a total cost of $30,000. Prismestimates that the proposed printers have a useful life of 5 years. Under itscurrent system, Prism spends $10,000 a year to have forms printed by a localprinting company. Assume that Prism selects a 15% discount rate based onits weighted-average costs of capital. The cash inflows for each year,discounted to their present value, are shown in the following chart:
Prism will use both the payback method and the discounted payback methodto analyze the worthiness of this potential capital investment. Prism's decisionrule is to accept all proposed capital projects that have payback periods offour years or less.
Now assume that Prism decides to use the net present value (NPV) method toevaluate this potential investment's worthiness and that Prism will accept theproject if the project's NPV is greater than $4,000. Using the NPV method,Prism would correctly conclude that this project should be
- A. Rejected because its NPV is $3,520
- B. Accepted because its NPV is $5,028
- C. Accepted because its NPV is $16,480
- D. Accepted because its NPV is $23,520
Answer: A
NEW QUESTION 2
The Raven Health Plan is domiciled in a state that requires the health plan to offer small employers and their employees a comprehensive healthcare benefit plan that approximates the healthcare benefits available to large employer-employee groups. This type of uniform benefit plan is known as:
- A. A basic plan
- B. A low-option plan
- C. A standard plan
- D. An essential plan
Answer: C
NEW QUESTION 3
The medical loss ratio (MLR) for the Peacock health plan is 80%. Peacock's expense ratio is 16%.
Peacock's MLR and its expense ratio indicate that Peacock
- A. Has a 4% potential profit margin
- B. Has a combined ratio of 64%
- C. Must increase its premium income in order to remain in business
- D. Must rely on investment income in order to avoid financial losses
Answer: A
NEW QUESTION 4
The Eagle health plan wants to limit the possibility that it will be held vicariously liable for the negligent acts of providers. Dr. Michael Chan is a member of an independent practice association (IPA) that has contracted with Eagle. One step that Eagle could take in order to limit its exposure under the theory of vicarious liability is to
- A. Supply D
- B. Chan with office space
- C. Employ nurses, laboratory technicians, and therapists to support Dr.Chan
- D. Be responsible for keeping D
- E. Chan's medical records updated
- F. Ensure that documents provided to D
- G. Chan's patients describe him as an independent practitioner
Answer: D
NEW QUESTION 5
The following statements are about the financial risks for health plans in Medicare and Medicaid markets. Three of these statements are true, and one statement is false. Select the answer choice containing the FALSE statement.
- A. One reason that health plans in the Medicare and Medicaid markets experience financial risk is that government regulations determine which services must be provided to Medicare and Medicaid enrollees.
- B. Effective use of hospital utilization is the single most likely factor to contribute to the success of a Medicare-contracting health plan.
- C. If a Medicare-contracting health plan is a provider-sponsored organization (PSO), it is prohibited from sharing financial risk with its providers.
- D. Typically, providers are more reluctant to accept financial risk in connection with providing services to the Medicaid population than with providing services to the Medicare population.
Answer: C
NEW QUESTION 6
One true statement about the rate ratios used by a health plan is that the
- 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
Answer: A
NEW QUESTION 7
With regard to the Medicaid program in the United States, it can correctly be stated that
- A. The federal government provides none of the funding for state Medicaid programs
- B. Federal Medicaid law is different from Medicare law in that the federal government explicitly sets forth the methodology for payment of Medicaid-contracting plans but not Medicare-contracting plans
- C. A state's payment to health plans for providing Medicaid services cannot be more than it would have cost the state to provide the services under Medicaid fee-for-service (FFS)
- D. States are prohibited from carving out specific services from the capitation rate that health plans receive for providing Medicaid services
Answer: C
NEW QUESTION 8
Advantages to a company that elects to self-fund and to administer all aspects of its healthcare benefit plan include:
- A. Eliminating state premium taxes
- B. Avoiding state-mandated benefit requirements
- C. Improving its cash flow position
- D. All of the above
Answer: D
NEW QUESTION 9
The ability of a health plan to effectively perform the rating and underwriting functions has become critical to the plan's success. In developing its pricing strategy, a health plan has to address the marketplace's ongoing trends and factors, which include
- A. a decreased focus on small to mid-size employer groups
- B. an improvement in the financial performance of health plans
- C. a consolidation of the key players in the health plan industry
- D. a decreased complexity of the products being offered.
Answer: C
NEW QUESTION 10
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
NEW QUESTION 11
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 12
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
- A. Includes claims that have been paid but excludes claims that have not yet been reported
- B. Cannot adjust for growth in the health plan's business
- C. Is the percentage of Peacock's end-of-period surplus to its earned premiums
- D. Measures Peacock's overall claims levels
Answer: D
NEW QUESTION 13
Variance analysis is the study of the difference between expected results and actual results. Variances can be positive or negative. A positive variance is typically considered:
- A. favorable for both expenses and revenues
- B. favorable for expenses, but unfavorable for revenues
- C. favorable for revenues, but unfavorable for expenses
- D. unfavorable for both expenses and revenues
Answer: C
NEW QUESTION 14
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 15
One true statement about a health plan's underwriting margin is that
- A. the only way that the health plan can effectively reduce its exposure to underwriting risk, and therefore adjust its underwriting margin, is to control anti selection
- B. a larger assumed underwriting margin will reduce the price of the health plan's product and will make the plan more competitive
- C. the health plan's purchase of stop-loss insurance has no effect on its underwriting margin because stop-loss insurance can help the health plan control its expenses but not its underwriting risk
- D. both the level of underwriting risk that the health plan assumes in providing benefits and the market competition it encounters most likely directly affect the size of its assumed underwriting margin
Answer: D
NEW QUESTION 16
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