AHIP AHM-520 Free Practice Questions

NEW QUESTION 1

In order to show the efficiency of a health plan's managers in using the health plan's investments to earn a return for stockholders, a financial analyst most likely would use a type of profitability ratio known as

• A. A net gain-to-total income ratio
• B. An insurance leverage ratio
• C. A statutory return on assets (ROA) ratio
• D. A gross profit ratio

Answer: C

NEW QUESTION 2

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

NEW QUESTION 3

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 4

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 5

Federal law addresses the relationship between Medicare- or Medicaidcontracting health plans and providers who are at "substantial financial risk."
Under federal law, Medicare- or Medicaid-contracting health plans

• A. Place a provider at "substantial risk" whenever incentive arrangements put the provider at risk for amounts in excess of 10% of his or her total potential reimbursement for providing services to Medicare and Medicaid enrollees
• B. Must provide stop-loss coverage to a provider who is placed at "substantial financial risk" for services that the provider does not directly provide to Medicare or Medicaid enrollees
• C. Both A and B
• D. A only
• E. B only
• F. Neither A nor B

Answer: C

NEW QUESTION 6

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

NEW QUESTION 7

The following statements are about pure risk and speculative risk—two kinds of risk that both businesses and individuals experience. Select the answer choice containing the correct statement.

• A. Healthcare coverage is designed to help plan members avoid pure risk, not speculative risk.
• B. Only pure risk involves the possibility of gain.
• C. An example of speculative risk is the possibility that an individual will contract a serious illness.
• D. Only speculative risk contains an element of uncertainty.

Answer: A

NEW QUESTION 8

In order to achieve its goal of improved customer service, the Evergreen Health Plan will add three new customer service representatives to its existing staff, install a new switching station, and install additional phone lines. In this situation, the cost that would be classified as a sunk cost, rather than a differential cost, is the expense associated with:

• A. Adding new customer service representatives
• B. Maintaining the existing staff
• C. Installing a new switching station
• D. Installing additional phone lines

Answer: B

NEW QUESTION 9

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

NEW QUESTION 10

A health plan most likely would use benchmarking in order to

• A. Measure its performance and practices against those of other companies to help identify those practices that will lead to superior performance in a variety of financial and non- financial areas
• B. Calculate the percentage changes in its financial statement items over several consecutive accounting periods
• C. Determine both the direction and velocity of trends in its financial statements
• D. Display only percentage relationships in its financial statements

Answer: A

NEW QUESTION 11

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

• 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 expensesgenerated by the hospitalizations of Azalea plan members reach a specified level

Answer: B

NEW QUESTION 12

If the total asset turnover ratio for the Fjord health plan is 1.08 and the total asset turnover ratio for the Grove health plan is 1.35, then a financial analyst could correctly infer that Fjord has used its assets more effectively than has Grove.

• A. True
• B. False

Answer: B

NEW QUESTION 13

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 14

The Puma health plan uses return on investment (ROI) and residual income (RI) to measure the performance of its investment centers. Two of these investment centers are identified as X and Y. Investment Center X earns $10,000,000 in operating income on controllable investments of $50,000,000, and it has total revenues of $60,000,000. Investment Center Y earns $2,000,000 in operating income on controllable investments of $8,000,000, and it has total revenues of $10,000,000. Both centers have a minimum required rate of return of 15%.
One difference between the RI method and the ROI method is that

• A. The RI method demands greater goal congruence from Puma's managers than does the ROI method
• B. The RI method favors Puma's small investment centers more than does the ROI method
• C. Only RI can lead to decisions that improve Puma's short-term profits at the expense of its long-term objectives
• D. Only RI is useful to Puma for comparing investment centers of different sizes

Answer: A

NEW QUESTION 15

Experience rating and manual rating are two rating methods that the Cheshire health plan uses to determine its premium rates. One difference between these two methods is that, under experience rating, Cheshire

• A. Uses a purchaser's actual experience to estimate the group's expected experience, whereas, under manual rating, Cheshire uses its own average experience—and sometimes the experience of other plans—to estimate the group's expected experience
• B. can establish rates for groups that have no previous plan experience, whereas, under manual rating, Cheshire cannot establish rates for groups with no previous plan experience
• C. charges each group in the same class the same premium whereas, under manual rating, Cheshire charges lower premiums to groups that have experienced lower utilization rates
• D. can use group demographics to help determine the rate for a block of business, whereas, under manual rating, Cheshire cannot use group demographics when determining the rate for a block of business

Answer: A

NEW QUESTION 16

The following statements illustrate common forms of capitation:
* 1. The Antler Health Plan pays the Epsilon Group, an integrated delivery system (IDS), a capitated amount to provide substantially all of the inpatient and outpatient services that Antler offers. Under this arrangement, Epsilon accepts much of the risk that utilization rates will behigher than expected. Antler retains responsibility for the plan's marketing, enrollment, premium billing, actuarial, underwriting, and member services functions.
* 2. The Bengal Health Plan pays an independent physician association (IPA) a capitated amount to provide both primary and specialty care to Bengal's plan members. The payments cover all physician services and associated diagnostic tests and laboratory work.
The physicians in the IPA determine as a group how the individual physicians will be paid for their services.
From the following answer choices, select the response that best indicates the form of capitation used by Antler and Bengal.

• A. Antler = subcapitation Bengal = full-risk capitation
• B. Antler = subcapitationBengal = full professional capitation
• C. Antler = global capitation Bengal = subcapitation
• D. Antler = global capitationBengal = full professional capitation

Answer: D

NEW QUESTION 17
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