The Replace Guide To AHM-520 Preparation

NEW QUESTION 1

A health plan may experience negative working capital whenever healthcare expenses generated by plan members exceed the premium income the health plan receives.
Ways in which a health plan can manage the volatility in claims payments, and therefore reduce the risk of negative working capital, include:
* 1.Accurately estimating incurred but not reported (IBNR) claims 2.Using capitation contracts for provider reimbursement

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

Answer: A

NEW QUESTION 2

With regard to the financial statements prepared by health plans, it can correctly be stated that

• A. both for-profit, publicly owned health plans and not-for-profit health plans are required by law to provide all interested parties with an annual report
• B. a health plan's annual report typically includes an independent auditor's report and notes to the financial statements
• C. any health plan that owns more than 20% of the stock of a subsidiary company must compile the financial statements for the health plan's annual report on a consolidated basis
• D. a health plan typically must prepare the financial statements included in its annual report according to SAP

Answer: B

NEW QUESTION 3

The following statements illustrate the use of different rating methods by health plans:
✑ The Dover health plan established rates for small groups by using a rating method which requires that the average premium in each group cannot be more than 120% of the average premium for any other group. Under this method, all members of each group pay the same premium, which is based on the experience of the group.
✑ Under the rating method used by the Rolling Hills health plan, the health plan
calculates the ratio of a group's experience to the group's historical manual rate. Rolling Hills then multiplies this ratio by the group's future manual rate. Rolling Hills cannot consider the group's experience in determining premium rates.
From the following answer choices, select the response that correctly indicates the rating methods used by Dover and Rolling Hills.

• A. Dover = modified community rating Rolling Hills = factored rating
• B. Dover = modified community rating Rolling Hills = adjusted community rating (ACR)
• C. Dover = community rating by class (CRC) Rolling Hills = factored rating
• D. Dover = community rating by class (CRC) Rolling Hills = adjusted community rating (ACR)

Answer: D

NEW QUESTION 4

The Fiesta Health Plan prices its products in such a way that the rates for its products are reasonable, adequate, equitable, and competitive. Fiesta is using blended rating to calculate a premium rate for the Murdock Company, a large employer. Fiesta has assigned a credibility factor of 0.6 to Murdock. Fiesta has also determined that Murdock's manual rate is $200 PMPM and that Murdock's experience rate is $180 PMPM. Fiesta would correctly calculate that its blended rate PMPM for Murdock should be Fiesta's retention charge plus

• A. $152
• B. $188
• C. $192
• D. $228

Answer: B

NEW QUESTION 5

The core of a health plan's strategic financial plan is the development of its pro forma financial statements. The following statements are about these pro forma financial statements. Select the answer choice containing the correct statement.

• A. A health plan's pro forma financial statements forecast what the plan's financial condition will be at the end of an accounting period, without regard to whether the health plan achieves its objectives.
• B. Forecasting the balance sheet is more critical to the health plan than forecasting either the cash flow statement or the income statement, because the balance sheet drives the development of the other two statements.
• C. In order to avoid allowing the desired financial results to drive the assumptions used in developing the pro forma income statement, a health plan should avoid linking these assumptions to the health plan's overall strategic plan.
• D. A health plan can use its pro forma cash flow statement to calculate the net present value of the health plan's strategic plan.

Answer: D

NEW QUESTION 6

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 7

The HMO Model Act sets certain requirements that an entity that wishes to operate as an HMO must meet. These requirements include:

• A. Having an initial net worth of at least $5 million
• B. Maintaining a net worth equal to at least 5% of premium revenues for the first $150 million in premium revenue
• C. Using a prospective method to estimate future risk
• D. Obtaining a certificate of authority (COA) before beginning operations

Answer: D

NEW QUESTION 8

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

NEW QUESTION 9

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

NEW QUESTION 10

The following statements are about the Health Insurance Portability and Accountability Act (HIPAA) as it relates to the small group market. Three of these statements are true and one statement is false. Select the answer choice containing the FALSE statement:

• A. A health plan that participates in the small group market is required to issue a contract to any employer that requests healthcare benefits, as long as the employer meets the statutory definition of a small group.
• B. A small group must consist of more than 10 employees in order to be underwritten on a group, rather than an individual, basis.
• C. A health plan is prohibited from canceling a small group’s healthcare coverage because of poor claims experience.
• D. A health plan that participates in the small group market is limited in placing restrictions such as waiting periods and pre-existing conditions exclusions to individuals in high risk categories.

Answer: B

NEW QUESTION 11

The Titanium health plan's product has a unit price of $120 PMPM and a unit variable cost of $80 PMPM. Titanium has $100,000 in fixed costs per month. This information indicates that, for its product, Titanium's

• A. Unit contribution margin is $80
• B. Unit contribution margin is $200
• C. Break-even point is 500 members
• D. Break-even point is 2,500 members

Answer: D

NEW QUESTION 12

Costs that can be defined by behavior are most commonly classified as fixed costs, variable costs and semi-variable costs. Examples of fixed costs include:

• A. Rent, insurance expense, and depreciation on computer equipment
• B. Rent, claims processing costs, and selling expenses
• C. Claims processing costs, telephone expense, and depreciation on computer equipment
• D. Premium processing, rent, and selling expenses

Answer: A

NEW QUESTION 13

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

NEW QUESTION 14

In the following paragraph, a sentence contains two pairs of words enclosed in parentheses. Determine which word in each pair correctly completes the sentence. Then select the answer choice containing the two words that you have selected.
Budgeting approaches can be classified as static or flexible budgets, or as rolling or period budgets. A health plan most likely would use a (static / flexible) budget when a budget's objective is to reduce or limit expenses, and the health plan most likely would use a (rolling / period) budget if it would like to continually maintain projections for a certain time period into the future.

• A. static / rolling
• B. static / period
• C. flexible / rolling
• D. flexible / period

Answer: A

NEW QUESTION 15

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 16

The following statements are about risk management in health plans. Select the answer choice containing the correct response.

• A. Risk management is especially important to health plans because the Employee Retirement Income Security Act of 1974 (ERISA) allows plan members to recover punitive damages from healthcare plans.
• B. With regard to the relative risk for health plan structures based upon the degree of influence and relationships that health plans maintain with their providers, preferred provider organizations (PPOs) typically have a higher risk than do group HMOs and staff HMOs.
• C. Although there are clear risks associated with the provision of healthcare services and coverage decisions surrounding that care, the bulk of risk in health plans is associated with a health plan's benefit administration and contracting activities.
• D. A health plan generally structures its risk management process around loss reduction techniques and loss transfer techniques.

Answer: D

NEW QUESTION 17

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

NEW QUESTION 18

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

NEW QUESTION 19
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