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Companies typically produce three types of budgets: operational budgets, cash budgets, and capital budgets. The following statements are about operational budgets. Select the answer choice containing the correct statement.

  • A. Expense budgets, a type of operational budget, typically describe fixed expenses rather than variable expenses.
  • B. Operational budgets can only show information by department or by line of business.
  • C. Operational budgets begin with a forecast of sales revenue and investment income.
  • D. Revenue budgets, a type of operational budget, indicate the amount of income from operations that a company received from the previous budget period

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
When calculating its cash-to-claims payable ratio, Rouge would correctly divide its:

  • A. Cash by its reported claims only
  • B. Cash by its reported claims and its incurred but not reported claims (IBNR)
  • C. Reported claims by its cash
  • D. Reported claims and its incurred but not reported claims (IBNR) by its cash

Answer: B


The Kayak Company self funds the health plan for its employees. This plan is an example of a type of self-funded plan known as a general asset plan. The fact that this is a completely self-funded plan indicates that

  • A. The plan has no funding vehicle
  • B. Kayak passes to its employees the financial risk of providing healthcare coverage
  • C. The plan most likely is exempt from ERISA requirements concerning the limits on benefit discrimination for classes of employees
  • D. The plan is exempt from the state laws and regulations that apply to health insurance policies

Answer: D


The Wallaby Health Plan purchased an asset two years ago for $50,000. At the time of purchase, the asset had an appraised value of $52,000. The asset carries a value on Wallaby’s general ledger of $47,000, and its current market value is $80,000. According to the cost concept, Wallaby would report on its financial statements a value for this asset equal to:

  • A. $47,000
  • B. $50,000
  • C. $52,000
  • D. $80,000

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


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

  • A. An increase the health plan's underwriting risk
  • B. A decrease the health plan's credit risk
  • C. A decrease the health plan's net worth requirement
  • D. All of the above

Answer: C


Experience rating methods can be either prospective or retrospective. With regard to these types of experience rating methods, it can correctly be stated that

  • A. A health plan typically can expect much higher profit levels from using retrospective experience rating rather than prospective experience rating a health plan using prospective experience rating is more likely than a
  • B. Health plan using retrospective experience rating to have to pay an experience rating dividend if a group's experience has been better than expected during the rating period
  • C. The premium determined under retrospective experience rating is usually higher than the premium under prospective experience rating
  • D. Most states require HMOs to use retrospective experience rating rather than prospective experience rating

Answer: C


Most organizations that obtain group healthcare coverage can be classified as one of three types of groups: employer-employee groups, multiple employer groups, and professional associations. One true statement about these types of groups is that

  • A. Anti selection risk is higher for both multiple-employer groups and professional associations than it is for an employer-employee group
  • B. Private employers typically present a higher underwriting risk to health plans than do public employers
  • C. Individual members of a multiple-employer group or a professional association typically are required to obtain healthcare coverage through the group or association
  • D. I health plan is prohibited, when evaluating the risks represented by a professional association, from considering the industry experience of the agent or broker that sells a group plan to the association

Answer: A


Correct statements about the financial risks associated with benefits that health plans provide to the Medicare and Medicaid markets include:

  • A. That, because the government sets the payments received by health plans, the health plans cannot easily obtain an increase in those payments even in the face of rising costs
  • B. That regulators determine which services must be provided under Medicare and Medicaid and which persons are eligible to enroll in a plan
  • C. That there is typically more provider reluctance to accept risk in connection withproviding services to the Medicaid population than with providing services to the Medicare population
  • D. All of the above

Answer: D


Under GAAP, three approaches to expense recognition are generally allowed: associating cause and effect, systematic and rational allocation, and immediate recognition. A health plan most likely would use the approach of systematic and rational allocation in order to

  • A. Report the payment of the health plan's utility bills
  • B. Spread the payment of sales force commissions over the premium paying period of healthcare coverage
  • C. Report the fees paid by the health plan to attorneys and consultants
  • D. Depreciate the cost of a new computer system over the useful life of the system

Answer: D


Several federal agencies establish rules and requirements that affect health plans. One of these agencies is the Department of Labor (DOL), which is primarily responsible for ______.

  • A. Issuing regulations pertaining to the Health Insurance Portability and Accountability Act (HIPAA) of 1996
  • B. Administering the Medicare and Medicaid programs
  • C. Administering ERISA, which imposes various documentation, appeals, reporting, and disclosure requirements on employer group health plans
  • D. Administering the Federal Employees Health BenefitsProgram (FEHBP), which providesvoluntary health insurance coverage to federal employees, retirees, and dependents

Answer: C


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 Harp Company self-funds the health plan for its employees. The plan is administered under a typical administrative-services-only (ASO) arrangement. One true statement about this ASO arrangement is that

  • A. This arrangement prevents Harp from purchasing stop-loss coverage for its health plan
  • B. The amount that Harp pays the administrator to provide the ASO services is not subject to state premium taxes
  • C. The administrator is responsible for paying claims from its own assets if Harp's account is insufficient
  • D. The charges for the ASO services must be stated as a percentage of the amount of claims paid for medical expenses incurred by Harp's covered employees and their dependents

Answer: B


The Danner Bank loaned money to the CareWell Health Plan to fund an expansion of a healthcare facility. With respect to the type of financial information user Danner represents to CareWell, it is correct to say that Danner is an:

  • A. Internal user with a direct financial interest
  • B. Internal user with an indirect financial interest
  • C. External user with a direct financial interest
  • D. Case-mix adjustment

Answer: C


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


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

  • 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

Answer: A


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


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 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:

  • A. Transaction 1
  • B. Transaction 2
  • C. Transaction 3
  • D. Transaction 4

Answer: D


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