NEW QUESTION 1

The Nuevo health plan's capital structure consists of 30% debt and 70% equity. Nuevo's average after-tax cost of debt is 6% and its cost of equity is 12%. The following statement(s) can correctly be made about Nuevo's weighted average cost of capital (WACC):

• A. Nuevo has a WACC of 10.2%
• B. If Nuevo establishes its WACC as the handle rate for capital investments, then it can expect an investment to add value to the health plan only if the investment is expected to earn a return of less than Nuevo's WACC
• C. Both A and B
• D. A only
• E. B only
• F. Neither A nor B

Answer: B

NEW QUESTION 2

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 3

The following statements are about the new methodology authorized under the Balanced Budget Act of 1997 (BBA) for payments by the Centers for Medicaid & Medicare Services (CMS) to Medicare-contracting health plans.
Select the answer choice containing the correct statement.

• A. Under this new methodology, Medicare-contracting health plans are paid the lower of (a) a floor payment amount per enrollee covered or (b) the health plan's payment rate increased by 2% from the previous year.
• B. The new methodology has decreased the rate of growth in payments from CMS to Medicare-contracting health plans.
• C. Under this new methodology, Medicare-contracting health plans are paid 90% of the adjusted average per capita cost (AAPCC) of providing a service to a beneficiary.
• D. Under the principal inpatient diagnostic cost group (PIP-DCG), a new risk adjustment methodology, Medicare-contracting health plans will no longer be required to calculate and submit to CMS a Medicare adjusted community rate (ACR).

Answer: B

NEW QUESTION 4

The Caribou health plan is a for-profit organization. The financial statements that Caribou prepares include balance sheets, income statements, and cash flow statements. To prepare its cash flow statement, Caribou begins with the net income figure as reported on its income statement and then reconciles this amount to operating cash flows through a series ofadjustments. Changes in Caribou's cash flow occur as a result of the health plan's operating activities, investing activities, and financing activities.
The basic formula for Caribou's income statement is

• A. Cash Inflows – Cash Outflows = Net Cash Inflow (Outflow)
• B. Revenues – Expenses = Net Income (Net Loss)
• C. Sources of Funds – Uses of Funds = Net Change in Cash
• D. Assets = Liabilities + Owners' Equity

Answer: B

NEW QUESTION 5

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

NEW QUESTION 6

The types of financial risks and costs to which a health plan is subject depends on whether the health plan provides services to the Medicare and/or Medicaid populations or to the commercial population. One distinction between providing services to the Medicare and Medicaid populations and to the commercial population is that Medicare and Medicaid enrollees typically:

• A. Are locked into a plan for a 12-month period, whereas enrollees from the commercial population may disenroll from a plan on a monthly basis
• B. Require less enrollee education than do enrollees from the commercial population
• C. Have higher incidences of chronic illness than do enrollees from the commercial population
• D. Are enrolled in a health plan through a group situation, whereas the commercial population typically enrolls in a health plan on an individual basis

Answer: C

NEW QUESTION 7

The Longview Hospital contracted with the Carlyle Health Plan to provide inpatient services to Carlyle’s enrolled members. Carlyle provides Longview with a type of stop-loss coverage that protects, on a claims incurred and paid basis, against losses arising from significantly higher than anticipated utilization rates among Carlyle’s covered population. The stop-loss coverage specifies an attachment point of 130% of Longview’s projected $2,000,000 costs of treating Carlyle plan members and requires Longview to pay 15% of any costs above the attachment point. In a given plan year, Longview incurred covered costs totaling $3,000,000.
With regard to the type of stop-loss coverage provided to Longview by Carlyle and to whether this coverage is classified as insurance or reinsurance, the risk transfer approach used in this situation can be described as:

• A. aggregate stop-loss reinsurance
• B. aggregate stop-loss insurance
• C. specific stop-loss reinsurance
• D. specific stop-loss insurance

Answer: C

NEW QUESTION 8

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 9

In order to determine a health plan's quick liquidity ratio, a financial analyst would divide the health plan's

• A. Total assets not invested in affiliates by its total liabilities
• B. Liquid assets by its total liabilities
• C. Liquid assets by its contractual reserves
• D. Total assets by its contractual reserves

Answer: C

NEW QUESTION 10

Providing services under Medicare or Medicaid can impose on health plans financial risks and costs that are greater than those related to providing services to the commercial population. Reasons that an health plan's financial risks and costs for providing services to Medicare and Medicaid enrollees tend to be higher include

• A. Most Medicare and Medicaid enrollees can disenroll from a health plan on a monthly basis
• B. The high incidences of chronic illness in both the Medicare and Medicaid populations results in higher costs related to coordinating care and case management
• C. Medicare and Medicaid enrollees tend to have a high level of costs in the first few months of enrollment as the health plan educates them about the health plan system and performs initial health screening to evaluate their health
• D. all of the above

Answer: D

NEW QUESTION 11

In order to calculate a simple monthly capitation payment, the Argyle Health Plan used the following information:
✑ The average number of office visits each member makes in a year is two
✑ The FFS rate per office visit is $55
✑ The member copayment is $5 per office visit
✑ The reimbursement period is one month
Given this information, Argyle would correctly calculate that the per member per month (PMPM) capitation rate should be

• A. $4.17
• B. $8.33
• C. $9.17
• D. $10.00

Answer: B

NEW QUESTION 12

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 13

Reconciliation is the process by which a health plan assesses providers' performance relative to contractual terms and reimbursement.
With regard to this process, it can correctly be stated that

• A. Areconciliation typically includes payment to the providers of any withholds or bonuses due to them
• B. Ahealth plan typically should conduct a reconciliation immediately after the evaluation period has ended
• C. Most agreements between health plans and providers require reconciliations to be performed quarterly
• D. Ahealth plan typically should not conduct reconciliation for a provider until the plan has received all claims or other documentation of services that the physician provided during the evaluation period

Answer: A

NEW QUESTION 14

The risk-based capital formula for health plans defines a number of risks that can impact a health plan’s solvency. These categories reflect the fact that the level of risk faced by health plans is significantly impacted by provider reimbursement methods that shift utilization risk to providers. The following statements are about the effect of a health plan transferring utilization risk to providers. Select the answer choice containing the correct statement:

• A. The net effect of using provider reimbursement contracts to transfer risk is that the health plan’s net worth requirement increases.
• B. Once the health plan has transferred utilization risk to its providers, it is relieved of the legal obligation to provide medical services to plan members in the event of the provider’s insolvency.
• C. The greater the amount of risk the health plan transfers to providers, the larger the credit-risk factor becomes in the health plan’s RBC formula.
• D. By decreasing its utilization risk, the health plan increases its underwriting risk.

Answer: C

NEW QUESTION 15

One difference between the internal and external analysis of a health plan's financial information is that

• A. Internal analysis of the health plan can be more detailed and more specific than can external analysis
• B. Internal analysts are more likely than external analysts to want comparative financial data about the health plan
• C. Only internal analysts use trend analysis to analyze the health plan's financial statements
• D. Only internal analysts typically conduct the financial analysis of the health planthemselves

Answer: A

NEW QUESTION 16

Assume that the Lambda, Mesa, and Novella health plans are equal in every way except that the health plans have obtained equal amounts of net cash inflows from different sources, as shown below:
HealthPlan Source LambdaFinancing activities MesaInvesting activities NovellaOperating activities
From the following answer choices, select the response which indicates the health plan that would most likely be the most attractive to a potential plan sponsor, to a potential creditor, and to a potential investor.

• A. Potential Plan Sponsor = Lambda Potential Creditor = Mesa Potential Investor = Novella
• B. Potential Plan Sponsor = Lambda Potential Creditor = Novella Potential Investor = Mesa
• C. Potential Plan Sponsor = Novella Potential Creditor = Lambda Potential Investor = Mesa
• D. Potential Plan Sponsor = Novella Potential Creditor = Novella Potential Investor = Novella

Answer: D

NEW QUESTION 17

Costs that can be defined by behavior are most commonly classified as fixed costs, variable costs, and semi-variable costs. From the following answer choices, select the response that correctly indicates a fixed cost and a variable cost for a health plan.

• A. Fixed Cost = depreciation on computer equipment Variable Cost = selling expenses
• B. Fixed Cost = premium processing expenses Variable Cost = rent on a regional office
• C. Fixed Cost = the cost for building maintenance Variable Cost = the cost for electricity
• D. Fixed Cost = the cost for electricityVariable Cost = fire insurance on the home office facility

Answer: A

NEW QUESTION 18

The Landau health plan will switch from using top-down budgeting to using bottom-up budgeting. One potential advantage to Landau of making this switch is that, compared to top-down budgeting, bottom-up budgeting is more likely to

• A. Require little time or labor to complete
• B. Enable Landau to incorporate key changes in regulatory requirements on a timely basis
• C. Reflect top management's intentions for Landau
• D. Reflect the realities of day-to-day operations

Answer: B

NEW QUESTION 19

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 20

Geena Falk is eligible for both Medicare and Medicaid coverage. If Ms. Falk incurs a covered expense, then:

• A. Medicaid will be M
• B. Falk’s primary insurer
• C. Medicare will be M
• D. Falk’s primary insurer
• E. Either Medicare or Medicaid will be M
• F. Falk’s primary insurer depending on her election
• G. Medicare and Medicaid will each be responsible for one-half of M
• H. Falk’s covered expense

Answer: B

NEW QUESTION 21
......