ahm 520 question bank
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AHM 520 Question BankTRANSCRIPT
Question 1 of 50
The type of profitability ratio that helps financial analysts to determine an MCO's overall success in generating returns to the MCO's stockholders is the
insurance leverage ratio
return on capital ratio
medical loss ratio
investment yield ratio
Question 2 of 50
The sentence below contains two pairs of terms enclosed in parentheses. Determine which term in each pair correctly completes the statement. Then select the answer choice containing the two terms that you have selected.In analyzing its financial data, an MCO would use (horizontal / common-size financial statement) analysis to measure the numerical amount that corresponding items change from one financial statement to another over consecutive accounting periods, and the MCO would use (trend / vertical) analysis to show the relationship of each financial statement item to another financial statement item.
horizontal / vertical
common-size financial statement / vertical
horizontal / trend
common-size financial statement / trend
Question 3 of 50
Variance analysis directs a manager's attention to the differences between expected results and actual results. With regard to the significance of variances, it is correct to say that negative variances are typically considered
favorable for both revenue items and expense items
unfavorable for both revenue items and expense items
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favorable for revenue items, but unfavorable for expense items
favorable for expense items, but unfavorable for revenue items
Question 4 of 50
The Kingfisher MCO has negotiated a straight per-diem charge of $800 per day with the Tangerine Hospital. When Jeremy Cohen, a Kingfisher plan member, was admitted to Tangerine, he incurred billed charges of $4,800 and total allowable charges of $4,500 for the five days he was hospitalized. This information indicates that the amount Kingfisher was obligated to pay Tangerine was
$3,700
$4,500
$4,800
$4,000
Question 5 of 50
The physician self-referral law prohibits physicians from making a referral to another provider entity for designated health services if the physician, or an immediate family member of the physician, has a financial relationship with the entity. In order to bill for a service that falls under the physician self-referral law, a physician's financial relationships with an entity must meet one of the exceptions provided in the law. One general exception for prepaid plans exempts from the physician self-referral law services provided by A. Medicare-contracting health maintenance organizations (HMOs)B. Organizations with prepaid Medicare demonstrations
Neither A nor B
A only
Both A and B
B only
Question 6 of 50
Mainline uses the following ratio to measure how efficiently it has used its total assets to generate revenues: Total Revenues / Total Assets In this situation, Mainline is calculating a type of ratio called the
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return on assets (ROA) ratio, which is a profitability ratio
return on assets (ROA) ratio, which is an activity ratio
total asset turnover ratio, which is a profitability ratio
total asset turnover ratio, which is an activity ratio
Question 7 of 50
Over time, MCOs and their underwriters have gathered increasingly reliable information about the morbidity experience of small groups. Generally, in comparison to large groups, small groups tend to
generate lower administrative expenses as a percentage of the total premium amount the group pays
have less frequent and smaller claims fluctuations
follow actuarial predictions regarding morbidity rates less closely
expose an MCO to a smaller risk of antiselection
Question 8 of 50
Management at the Lanier MCO is examining the MCO's exposure to contingency risks, usually referred to as C-risks, which are general categories of risk that have direct bearing on both cash flow and solvency. One example of a C-1 risk, or asset risk, that Lanier faces is the risk that
Lanier's experience with morbidity or expenses will differ from the assumptions that were used in pricing its products
Lanier will lose money on its investments in stocks, bonds, mortgages, or real estate
Lanier's actual expenses will exceed amounts budgeted for those expenses
financial losses will result from ineffective business management decisions made by Lanier
Question 9 of 50
One type of financial ratio compares an MCO's cash and other readily marketable assets to its contractual reserves. This ratio is known as the
statutory return on assets ratio
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financial leverage ratio
quick liquidity ratio
gross profit ratio
Question 10 of 50
Two years ago, the Boswell Managed Care Organization (MCO) paid $1,000,000 for an office building. The building's current market value is estimated at $1,150,000. The accounting principle that requires the value of the building to remain at $1,000,000 in Boswell's accounting records is called the
relevance principle
cost concept
measuring-unit concept
full-disclosure concept
Question 11 of 50
An MCO that establishes an activity-based costing (ABC) system must identify the activities and the activity drivers within the MCO. For example, if the activity is claim processing, the activity driver would be the
costs associated with claim processing
processed claims
unprocessed claims
employees who process the claims
Question 12 of 50
Health insurers and MCOs may use either accrual-basis accounting or cash-basis accounting. The characteristics of accrual-basis accounting are such that a company records revenues when
the company receives payment and records expenses when they are incurred, even if cash has not actually changed hands
they are earned and records expenses when they are incurred, even if cash has not actually changed hands
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the company receives payment and records expenses only when the company remits payment
they are earned, even if cash has not actually changed hands, and records expenses only when the company remits payment
Question 13 of 50
The theory of vicarious liability or ostensible agency can expose an MCO to the risk that it could be held liable for the negligent acts of providers. One step an MCO can take in order to limit its exposure under the theory of vicarious liability is to
imply that an agency relationship exists between the MCO and its providers
require providers to supply their own office space
employ nurses and other healthcare professionals to support providers
be solely responsible for maintaining providers' medical records
Question 14 of 50
Several federal agencies establish rules and requirements that affect health plans. One of these agencies is the Office of Personnel Management (OPM), which is primarily responsible for
issuing regulations pertaining to the Health Insurance Portability and Accountability Act (HIPAA) of 1996
administering the Federal Employees Health Benefits Program (FEHBP), which provides voluntary health insurance coverage to federal employees, retirees, and dependents
administering the Medicare and Medicaid programs
administering the Employee Retirement Income Security Act (ERISA), which imposes various documentation, appeals, reporting, and disclosure requirements on employer group health plans
Question 15 of 50
The financial arrangement between the Lombard MCO and some of its providers allows Lombard to delay payment of 20 percent of the providers' reimbursement until the end of a financial period. At that time, Lombard evaluates the budgeted costs and the actual claims for care during the period. If the providers held costs below the amount budgeted, then Lombard will distribute that 20 percent of reimbursement to the providers. If claims exceeded budgeted costs, then Lombard will pay the excess claims from that 20 percent of provider reimbursement, and any remaining funds are distributed to the providers. This information indicates that Lombard uses the provider incentive
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method known as a
no balance billing arrangement
sliding scale arrangement
withhold arrangement
retention arrangement
Question 16 of 50
In financial records developed according to GAAP, the matching principle holds that an MCO should recognize
expenses only when the MCO receives cash for the revenues related to those expenses
expenses when the MCO earns the revenues related to those expenses
expenses when they are budgeted
revenue when it is received
Question 17 of 50
Sometimes MCOs use a policy attachment that excludes from healthcare coverage any loss that arises from a specified medical condition, a disease or disorder of a specified body part, or both. This policy attachment is known as
an essential plan rider
a moral hazard rider
an insurable interest rider
an impairment rider
Question 18 of 50
When filing an Annual Statement with the state insurance department, an MCO applies a capital and surplus ratio to its financial data in order to
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determine the factors that cause significant changes to the MCO's capital position
measure how effectively the MCO earns adequate or higher returns on its investment portfolio
measure how efficiently the MCO is employing capital and surplus to earn a return for its owners
measure the MCO's financial strength
Question 19 of 50
The following statement(s) can correctly be made about the underwriting of small groups: A. The majority of states no longer allow MCOs to set participation levels as a requirement for coverage of small groups. B. Except in states that require guaranteed issue, MCOs generally retain the right to reject small groups because of the nature of the business in which the small groups are engaged.
Both A and B
B only
Neither A nor B
A only
Question 20 of 50
External users of a health plan's financial information typically have either a direct financial interest or an indirect financial interest in the health plan. One example of an external user with a direct financial interest in a health plan is
an external auditor
a regulatory authority
the health plan's providers
a rating agency
Question 21 of 50The following statements are about fully funded health plans. Three of the statements are true, and one statement is
false. Select the answer choice that contains the FALSE statement.
The premium rates for fully funded health plans typically are not guaranteed and may increase each month.
Typically, fully funded health plans require group plan sponsors to prepay monthly premiums for healthcare
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services.
An insurer or a specific type of MCO assumes the financial responsibility for healthcare services rendered to or
for health plan members in fully funded health plans
In fully funded health plans, if the dollar amount of services rendered to plan members exceeds the dollar
amount of premiums collected, then the insurer must make up the difference.
Question 22 of 50
The National Association of Insurance Commissioners (NAIC) has developed a risk-based capital (RBC) formula for all MCOs that accept risk. One true statement about the RBC formula for MCOs (MCO-RBC) is that it
is a set of calculations, based on information in an MCO's annual financial report, that yields a target capital requirement for the organization
fails to assess the specific level of risk faced by an MCO
fails to take into account an MCO's underwriting risk or its business risk
applies to all MCOs in the United States
Question 23 of 50
One component of an MCO's annual report is the cash flow statement, which provides information about an MCO's cash inflows and outflows during a given accounting period. An MCO's cash inflows increase when the MCO
makes payments on a loan
issues shares of common stock
repurchases shares of its own common stock
purchases an asset with cash
Question 24 of 50
An MCO's financial planning activities include tactical planning, which is primarily concerned with the MCO's
long-term objectives and the broad, overall courses of action that the MCO will take to achieve those objectives
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short-term, day-to-day activities
overall investment strategy and its allocation of capital
product development over the long-term, such as five or ten years
Question 25 of 50
Where state laws allow, managed care organizations (MCOs) sometimes use an underwriting method called pooling when underwriting small groups. By definition, pooling is a method of
placing limits on the spread, or difference, between the highest and lowest premium rates that MCOs charge to small groups
determining a group's premium by which underwriters treat several small groups as one large group for risk assessment purposes
setting participation levels in order to prohibit a significant number of employees from declining the coverage
determining the employer's contribution towards the cost of the employee's healthcare coverage
Question 26 of 50
The Montrose MCO has three subsidiaries. Montrose's management considers each subsidiary a separate economic unit and maintains separate accounting records for each subsidiary. By maintaining separate accounting records for each subsidiary, Montrose is adhering to the accounting concept known as the
time period concept
measuring-unit concept
cost concept
entity concept
Question 27 of 50
Employer-sponsored benefit plans that provide healthcare benefits must comply with the federal Employee Retirement Income Security Act (ERISA) of 1974. Provisions of ERISA include
requirements for the disclosure of plan provisions and funding information to plan participants
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the requirement that healthcare coverage for certain individuals and for both small and large groups be guaranteed renewable
provisions to ensure that prospective or current enrollees in a group MCO are not discriminated against based on health status
the requirement that plan sponsors allow qualified beneficiaries to continue their group healthcare coverage for a specified period of time following a qualifying event that causes the loss of group healthcare coverage
Question 28 of 50
The Wexford MCO prepared a budget that provided an alternative set of projections for premium income for a new product that the MCO considered introducing to the market. The budget covered a period of one year and showed three columns of possible premium income based on a pessimistic sales figure, an expected sales figure, and an optimistic sales figure. This information indicates that the type of budget Wexford prepared is a
continuous budget
rolling budget
static budget
flexible budget
Question 29 of 50
The following statements are about an MCO's evaluation of its responsibility centers. Select the answer choice containing the correct statement.
One reason that an MCO would use cost-based transfer prices to evaluate the performance of its profit centers and investment centers is because, under this method of setting transfer prices, the selling center has maximum incentive to operate effectively and control costs.
When analyzing budget variances, an MCO's management should pay attention to unfavorable variances only.
In responsibility accounting, all employees who have any influence over an MCO's department are held equally accountable for the operations and financial outcomes of that department.
An MCO can reduce the problem of unattainable goals by involving responsibility managers in the preparation of their centers' budgets
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Question 30 of 50
Changes in an MCO's cash flow occur as a result of three activities: operating activities, investing activities, and financing activities. Two typical business transactions in a publicly owned MCO include selling healthcare benefit contracts and issuing common stock. From the answer choices below, select the response that correctly identifies these types of transactions as an operating, an investing, or a financing activity.
financing activity operating activity
operating activity financing activity
investing activity financing activity
operating activity investing activity
Question 31 of 50
The Allstar MCO has purchased a new information system, hoping that the initial investment in the system will result in an increase in both operational efficiency and the level of customer service. There is a possibility that the new system will not work as hoped, and that Allstar will incur greater expenses and fewer benefits from the system than anticipated. There is also a possibility that the investment will neither lose nor gain a significant amount of money. This information indicates that, by purchasing the new information system, Allstar experienced the type of risk known as
1) pure risk
2) speculative risk
Question 32 of 50
MCOs have access to a variety of funding sources depending on whether they are operated as for-profit or not-for-profit organizations. The Verde MCO is a for-profit MCO and the Noir MCO is a not-for-profit MCO. From the answer choices below, select the response that correctly identifies whether funds from debt markets and equity markets are available to Verde and Noir. Funds from Debt Markets Funds from Equity Markets are
available to Noir only available to Verde only
available to Verde and Noir available to Verde only
available to Verde only available to Noir only
available to Verde and Noir available to Verde and Noir
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Question 33 of 50
The qualities of accounting information include reliability, relevance, consistency, and materiality. With regard to these qualities, information that is reliable means that
the information contained in financial statements is useful, timely, and likely to affect an interested user's decisions about a company
the information contained in financial statements is accurate, objective, and free from bias and misrepresentation
a company's financial statements use the same accounting policies and procedures from one accounting period to the next, unless there is a sound reason for changing a policy or procedure
a company discloses in its financial statements all significant information-information that, if a company omitted or presented in a misleading manner, could substantially affect an interested user's opinion of the company
Question 34 of 50
The Elfton Corporation provides healthcare coverage to its employees through a self-funded health plan. Elfton also has specific stop-loss coverage, which was provided by the Pierrot Insurance Company through May 31, 1999, when the contract year ended. Since June 1, 1999, Elfton's stop-loss coverage has been provided by the Aqueduct MCO. The contracts with Pierrot and Aqueduct are identical and provide for the settlement of claims on an incurred basis. On May 2, 1999, an employee enrolled in Elfton's health plan was injured in an accident and required extensive medical treatment. The cost of the treatment was large enough to trigger Elfton's stop-loss coverage. On June 12, 1999, Elfton paid the medical expenses associated with the accident. With regard to which stop-loss carrier is liable for expenses covered by the contract and the date on which that carrier became liable, this information indicates that
Pierrot became liable on May 2, 1999, for paying its share of the expenses
Aqueduct become liable on June 12, 1999, for paying its share of the expenses
Aqueduct became liable on June 1, 1999, for paying its share of the expenses
Pierrot became liable on May 31, 1999, for paying its share of the expenses
Question 35 of 50
The primary purpose of Mainline's balance sheet is to measure Mainline's
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financial position as of a specified date
operating efficiency
cash flow
profitability
Question 36 of 50
A reconciliation is the process by which an MCO assesses providers' performance relative to contractual terms and reimbursement. With regard to this process, it can correctly be stated that
an MCO typically should conduct a reconciliation immediately after the evaluation period has ended
most agreements between MCOs and providers require reconciliations to be performed quarterly
a reconciliation typically includes payment to the providers of any withholds or bonuses payable to them
an MCO typically cannot conduct a reconciliation for a provider until the plan has received and settled all claims or other documentation of services that the physician provided during the evaluation period
Question 37 of 50
The Heritage MCO calculated the cost of collecting renewal premiums associated with its preferred provider organization (PPO) product by gathering cost data from all departments involved in the collection process, as well as by determining printing and postage expenses, machine costs for mailing premium notices, and the indirect costs of other departments involved in premium collection. In this situation, Heritage is using the method of cost analysis known as
break-even analysis
functional cost analysis
fixed cost analysis
change analysis
Question 38 of 50
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The Crystal MCO pays a capitation rate to its providers on a monthly basis. Crystal has determined that the average number of services used by a member in one year is 2.5 and the average fee-for-service (FFS) rate per office visit is $60. Members pay a $10 copayment for each office visit. This information indicates that Crystal would correctly calculate that the PMPM capitation rate it pays to its providers should be approximately
$20.00
$10.42
$12.50
$14.58
Question 39 of 50
The following statements are about the underwriting risk factors associated with groups seeking healthcare coverage. Select the answer choice that contains the correct statement.
A group with a large proportion of young females is likely to have higher healthcare costs than does a group with a large proportion of young males.
Antiselection risk tends to be lower in multiple-employer groups than in other types of groups seeking healthcare coverage.
Compared to small groups, large groups present higher overall risks to an MCO
Public employers-federal, state, and local government employers-generally present to an MCO a lower underwriting risk than do private employers
Question 40 of 50
In fee-for-service (FFS) and discounted FFS systems, excessive services can take one of three forms: churning, upcoding, and unbundling. Churning is defined in this context as the practice of a provider's
billing a plan member for amounts that exceed the payment made by the MCO for the service performed
billing for a procedure that pays more than the procedure actually performed by the provider
either seeing a plan member more often than is necessary, or providing more treatments and tests than are necessary
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billing for multiple components of a service that were previously included in a single fee, when the total reimbursement for the multiple component services would be higher than the single fee
Question 41 of 50
For this question, if answer choices (1) through (3) are all correct, select answer choice (4). Otherwise, select the one correct answer choice. The following statement(s) can correctly be made about an MCO's pricing of healthcare products:
The estimation of claims costs is a key element in pricing traditional indemnity benefits.
To develop the expected claims costs for a preferred provider organization's (PPO's) in-network plan, the MCO's actuaries adjust the base indemnity claims costs to reflect pertinent characteristics of the plan, including the provider discount arrangements and the impact of cost-containment procedures.
Cost sharing features in a traditional indemnity plan often include deductibles, coinsurance, out-of-pocket maximums, and plan maximums.
All of these statements are correct.
Question 42 of 50An MCO desires to price health plan benefits and other products in such a way that the rates for the MCO's products
are adequate, reasonable, equitable, and competitive. An MCO's premium rates are said to be adequate if the
MCO charges different prices to different covered groups on the basis of factors that have a direct impact on
utilization rates
rates are low enough to achieve the strategic objective of obtaining or retaining a specified share of the market
in which the MCO conducts business
rates do not exceed those that are needed to cover the MCO's costs and provide the MCO with a fair profit
rates are high enough to ensure that the MCO has enough money on hand to pay operating expenses, including
healthcare benefits and provider reimbursement, as they come due
Question 43 of 50
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With regard to the Medicaid program in the United States, it can correctly be stated that
a state's payment to MCOs for providing Medicaid services cannot be more than it would have cost the state to provide the services under Medicaid fee-for-service (FFS)
the federal government provides none of the funding for state Medicaid programs
states are prohibited from carving out specific services from the capitation rate that MCOs receive for providing Medicaid services
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
Question 44 of 50
The following statements are about solvency standards established by the National Association of Insurance Commissioners' (NAIC's) Health Maintenance Organization Model Act (HMO Model Act). Select the answer choice that contains the correct statement.
Plans meeting the net worth requirement through the percent-of-premium method must maintain a higher percentage of the premium revenues that exceed $150 million than of the first $150 million in premium revenues.
HMOs that receive more premiums than other HMOs generally are permitted to have a lower net worth than the other HMOs.
The HMO Model Act is prospective in its assessment of risk in that it uses expected expenditures and expected premium income to estimate future risk.
The net worth requirements in the HMO Model Act set a minimum fixed level of capital and surplus for all HMOs.
Question 45 of 50
One approach to evaluating capital investment alternatives employs the following decision rule: If the proposed investment's time-adjusted rate of return exceeds the company's weighted average cost of capital (WACC), accept the proposal. Otherwise, reject the proposal. This decision rule is associated with the capital budgeting method known as the
net presence value (NPV) method
basic payback method
internal rate of return (IRR) method
discounted payback method
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Question 46 of 50
One piece of information that a financial analyst would typically find in an MCO's cash budget is the
amount of the MCO's liabilities
amount of earnings retained by the MCO
types of assets the MCO owns
effects of the MCO's financing activities
Question 47 of 50
The following statements are about the variations in capitation arrangements based on the type of providers and medical services covered under the capitation contract. Select the answer choice that contains the correct statement.
Global capitation payments cover all physician services and associated diagnostic tests and laboratory work, but do not cover any other inpatient or outpatient services that the health plan offers.
Under a full professional capitation arrangement, a provider entity that receives per member per month (PMPM) capitation must subcapitate its individual physicians using PMPM capitation.
Most primary care capitation arrangements make the provider financially responsible for the cost of major diagnostic tests that a primary care provider (PCP) might order.
Under a specialty capitation arrangement, a specialist who experiences even a small number of very expensive cases risks very high losses, even if the population utilization rate is low
Question 48 of 50
For this question, if answer choices (1) through (3) are all correct, select answer choice (4). Otherwise, select the one correct answer choice. Mandated benefit laws are state or federal laws that require MCOs to arrange for the financing and delivery of particular benefits. Ways that mandated benefits have the potential to influence MCOs include
decreasing the cost of an MCO's health plan
requiring MCOs to contract with providers with which the MCOs would not have contracted otherwise
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eliminating uniformity among health plans of competing MCOs in a given market
all of the above
Question 49 of 50
The Aster MCO's capital structure consists of 30% debt and 70% equity. Aster's average after-tax cost of debt is 6% and its cost of equity is 10%. This information indicates that Aster's weighted average cost of capital (WACC) is equal to
8.00%
4.80%
8.80%
7.20%
Question 50 of 50
Many states have enacted small group reform laws to increase small employer access to affordable healthcare. Provisions of these small group reform laws typically
require each MCO that participates in a small group market to issue a contract to any employer who requests healthcare benefits, as long as the employer meets the statutory definition of a small group
permit an MCO to elect not to issue a contract to a particular group if the group has had poor claims experience or has a member who is suffering from a catastrophic illness or injury that would result in substantial healthcare expenses
prohibit an MCO from using community rating to determine a group's premium rate
define a small group as an eligible employer with between 10 and 100 employees
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