Renew Health Plan Finance And Risk Management AHM-520 Training

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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


With regard to the major risk factors associated with group underwriting, it can correctly be stated that, typically,

  • A. The age and gender of group plan members are not predictors of utilization of health services by group members
  • B. A health plan's product design or delivery system has an impact on member selection of the health plan, unless the members are in an environment in which employees have at least two benefit options or health plans from which to choose
  • C. A health plan should track demographic factors of groups only if the plan specifically adjusts for demographic factors on a group basis
  • D. A large group is more likely to exhibit a consistent claims pattern, level of healthcare cost, or utilization of services than is a small group

Answer: D


Three general strategies that health plans use for controlling types of risk are risk avoidance, risk transfer, and risk acceptance. The following statements are about these strategies. Three of these statements are true, and one statement is false. Select the answer choice containing the FALSE statement.

  • A. Generally, the smaller the likely benefits of accepting a risk, and the lower the costs of avoiding that risk, the greater the likelihood that a health plan will elect to avoid the risk.
  • B. A health plan is seldom able to transfer any of the risk that utilization rates will be higher than expected and that its cost of providing healthcare will exceed the revenues it receives.
  • C. If a risk is a pure risk from the point of view of a health plan, then the health plan most likely will attempt to avoid the risk.
  • D. A health plan would most likely transfer some or all of its utilization risk if it pays a provider a rate that is based on the number of plan enrollees that choose the provider as their primary care provider (PCP).

Answer: B


One true statement about a type of capitation known as a percent-of-premium arrangement is that this arrangement

  • A. Is the most common type of capitation
  • B. Is less attractive to providers when the arrangement sets provisions to limit risk
  • C. Sets provider reimbursement at a specific dollar amount per plan member
  • D. Transfers some of the risk associated with underwriting and rating from a health plan to a provider

Answer: D


The Zane health plan uses a base of accounting known as accrual-basis accounting. With regard to this base of accounting, it can correctly be stated that accrual-basis accounting

  • A. Enables an interested party to view the consequences of obligations incurred by Zane, but only if the health plan ultimately completes the business transaction
  • B. Is not suitable for measuring Zane's profitability
  • C. Requires Zane to record revenues when they are earned and expenses when they are incurred, even if cash has not actually changed hands
  • D. Prohibits Zane from making adjusting entries to its accounting records at the end of each accounting year

Answer: C


Analysts will use the capital asset pricing model (CAPM) to determine the cost of equity for the Maxim health plan, a for-profit plan. According to the CAPM, Maxim's cost of equity is equal to

  • A. The average interest rate that Maxim is paying to debt holders, adjusted for a tax shield
  • B. Maxim's risk-free rate minus its beta
  • C. Maxim's risk-free rate plus an adjustment that considers the market rate, at a given level of systematic (non diversifiable) risk
  • D. Maxim's risk-free rate plus an adjustment that considers the market rate, at a given level of nonsystematic (diversifiable) risk

Answer: C


One law prohibits Dr. Laura Cole from making a referral to another provider entity for designated health services if Dr. Cole or one of her immediate family members has a financial relationship with the entity. This law is known as the

  • A. safe harbor law
  • B. upper payment limit law
  • C. anti-kickback law
  • D. physician self-referral law

Answer: D


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:

  • A. global fee
  • B. relative value scale
  • C. unbundling
  • D. discounted fee-for-service

Answer: A


The traditional financial ratios that analysts use to study a health plan's GAAP-based financial statements include liquidity ratios, activity ratios, leverage ratios, and profitability ratios. Of these categories of ratios, analysts are most likely to use

  • A. Liquidity ratios to measure a health plan's ability to meet its current liabilities
  • B. Activity ratios relate the returns of a health plan to its sales, total revenues, assets, stockholders' equity, capital, surplus, or stock share price
  • C. Leverage ratios to measure how quickly a health plan converts specified financial statement items into premium income or cash
  • D. Profitability ratios to measure the effect that fixed costs have on magnifying a health plan's risk and return

Answer: A


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
This type of financial statement is called:

  • A. A balance sheet
  • B. An income statement
  • C. A statement of owners’ equity
  • D. A cash flow statement

Answer: C


This concept, which holds that a company should record the amounts associated with its business transactions in monetary terms, assumes that the value of money is stable over time. This concept provides objectivity and reliability, although its relevance may fluctuate.
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: A


When pricing its product, the Panda Health Plan assumes a 4% interest rate on its investments. Panda also assumes a crediting interest rate of 4%.
The actual interest rate earned by Panda on the assets supporting its product is 6%. The following statements can correctly be made about the investment margin and interest margin for Panda's products.

  • A. Panda most likely built the crediting interest rate of 4% into the investment margin of its product.
  • B. Panda's investment margin is the difference between its actual benefit costs and the benefit costs that it assumes in its pricing.
  • C. The interest margin for this product is 2%.
  • D. All of these statements are correct.

Answer: C


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


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.
Assume that the healthcare industry average for the debt-to-equity ratio is 0.90. The following statement(s) can correctly be made about Fairway's debt to equity ratio:

  • A. Fairway's debt-to-equity ratio is 1.50
  • B. Fairway relies less than most other healthcare organizations on borrowed funds to cover future and current benefit payments, to pay for ongoing business operations, and to finance growth
  • C. Both A and B
  • D. A only
  • E. B only
  • F. Neither A nor B

Answer: B


The sentence below contains two pairs of words enclosed in parentheses. Determine which word in each pair correctly completes the statement. Then select the answer choice containing the two words that you have chosen. Purchasing stop-loss coverage most likely (increases / reduces) a health plan's underwriting risk and (increases / reduces) the health plan’s affiliate risk.

  • A. increases / increases
  • B. increases / reduces
  • C. reduces / increases
  • D. reduces / reduces

Answer: C


The following statements are about the option for health plan funding known as a self- funded plan. Select the answer choice containing the correct response:

  • A. In a self-funded plan, an employer is relieved of all risk associated with paying for the healthcare costs of its employees.
  • B. Self-funded plans are subject to the same state laws and regulations that apply to health insurance policies.
  • C. Employers electing to self-fund a health plan are required to pay claims from a separate trust established for that purpose.
  • D. An employer electing to self-fund a health plan has the option of purchasing stop-loss insurance to transfer part of the financial risk to an insurer.

Answer: D


A health plan can use segment margins to evaluate the profitability of its profit centers. One characteristic of a segment margin is that this margin

  • A. Is the portion of the contribution margin that remains after a segment has covered its direct fixed costs
  • B. Incorporates only the costs attributable to a segment, but it does not incorporate revenues
  • C. Considers only a segment's costs that fluctuate in direct proportion to changes in thesegment's level of operating activity
  • D. Evaluates the profit center's effective use of assets employed to earn a profit

Answer: A


An investor deposited $1,000 in an interest-bearing account today. That sum will accumulate to $1,200 two years from now. One true statement about this transaction is that:

  • A. The process by which the original $1,000 deposit grows to $1,200 is known as compounding
  • B. $1,200 is the present value of the $1,000 deposit
  • C. The $200 increase in the deposit’s value is its incremental cash flow
  • D. The $200 difference between the original deposit and the accumulated value of the deposit is known as the deposit’s discount

Answer: A


Many clinicians are concerned about the development of practice guidelines that seek to define appropriate healthcare services that should be provided to a patient who has been diagnosed with a specific condition. To avoid the risk associated with using such guidelines, health plans should advise clinicians that the existence of such a guideline:
* 1. Establishes standards of care to be routinely utilized with all patients presenting a specific condition
* 2. Preempts a physician’s judgment when assessing the specific factors related to a patient’s condition

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

Answer: D


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