AHM-520 Health Plan Finance and Risk Management Questions and Answers

The theory of vicarious liability or ostensible agency can expose a health plan to the risk that it could be held liable for the acts of independent contractors. Factors that may give rise to the assumption that an agency relationship exists between a health plan and its independent contractors include:

Juan Ramirez, a licensed social worker, and Dr. Laura Lui, a licensed psychiatrist, are under contract to the Peninsula Health Plan. Peninsula has contracted with CMS to provide services to Medicare and Medicaid beneficiaries. Both Mr. Ramirez and Dr. Lui provide the same type of counseling services to Peninsula's enrollees. With respect to amendments made to the Balanced Budget Act (BBA) of 1997 that impact provider reimbursement, the amount by which Peninsula will reimburse Mr. Ramirez will be equal to:

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:

The following statements are about a health plan's evaluation of its responsibility centers. Select the answer choice containing the correct statement.

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):

The medical loss ratio (MLR) for the Peacock health plan is 80%. Peacock's expense ratio is 16%.

Peacock's MLR and its expense ratio indicate that Peacock

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 health plan can use segment margins to evaluate the profitability of its profit centers. One characteristic of a segment margin is that this margin

Because a health plan cannot decline coverage for individuals who are eligible for conversion of group health coverage to individual health coverage, the bulk of the health plan's underwriting for conversion policies is accomplished through health plan design.

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:

The following statements are about carve-out programs. Three of these statements are true, and one statement is false. Select the answer choice containing the FALSE statement.

Residual trend is the difference between total trend and the portion of the total trend caused by changes in provider reimbursement levels.

Consider the following events that could affect an health plan’s provider reimbursement levels:

Event 1 — The disenrollment of a large group with unusually high utilization rates

Event 2 — The introduction of a new treatment for infertility

Event 3 — A serious flu epidemic

Event 4 — A shift in inpatient medical services from obstetrical care to neonatal intensive care

One cause of residual trend is change in intensity, which would be represented by:

The Fairway health plan is a for-profit health plan that issues stock. The following data was taken from Fairway's financial statements:

• Current assets.....$5,000,000
• Total assets.....6,000,000
• Current liabilities.....2,500,000
• Total liabilities.....3,600,000
• Stockholders' equity.....2,400,000

Fairway's total revenues for the previous financial period were $7,200,000, and its net income for that period was $180,000.

For the previous financial period, Fairway's net profit margin was

One way that the Medicare and Medicaid programs differ is that under Medicare, a smaller proportion of provider reimbursement goes to the primary care providers and a greater proportion of the reimbursement goes to hospitals and specialists.

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.

Carlyle most likely is responsible for paying Longview for the claims incurred before Longview has actually paid the medical expenses.

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

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

With regard to the major risk factors associated with group underwriting, it can correctly be stated that, typically,

Under the doctrine of corporate negligence, a health plan and its physician administrators may be held directly liable to patients or providers for failing to investigate adequately the competence of healthcare providers whom it employs or with whom it contracts, particularly where the health plan actually provides healthcare services or restricts the patient's/enrollee's choice of physician.

Under the alternative funding method used by the Trilogy Company, the insurer charges Trilogy an initial premium that is based on the assumption that claims will be 93% of the expected claims for the year. If claims exceed 93% of expected claims, then Trilogy must reimburse the insurer for any additional claims paid, up to 112% of expected claims. The insurer bears the responsibility for paying claims in excess of 112% of expected claims.

From the following answer choices, choose the name of the alternative funding method described.

Health plans sometimes use global fees to reimburse providers. Health plans would use this method of provider reimbursement for all of the following reasons EXCEPT that global fees

One true statement about mandated benefit laws is that they

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.

Because Kayak's plan is a general asset plan, the funds that Kayak sets aside for the health plan are

The Atoll Health Plan must comply with a number of laws that directly affect the plan's contracts. One of these laws allows Atoll's plan members to receive medical services from certain specialists without first being referred to those specialists by a primary care provider (PCP). This law, which reduces the PCP's ability to manage utilization of these specialists, is known as _________.

The Lighthouse health plan operates in a state that allows the health plan to use an underwriting method of determining a group's premium in which underwriters treat several small groups as one large group for risk assessment purposes. This method, which helps Lighthouse more accurately estimate a small group's probable claims costs, is known as

The accounting department of the Enterprise health plan adheres to the following policies:

• Policy A—Report gains only after they actually occur
• Policy B—Report losses immediately
• Policy C—Record expenses only when they are certain
• Policy D—Record revenues only when they are certain

Of these Enterprise policies, the ones that are consistent with the accounting principle of conservatism are Policies

With regard to a health plan's underwriting of groups, it can correctly be stated that, generally, a

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

The Acorn Health Plan uses a resource-based relative value scale (RBRVS) to help determine the reimbursement amounts that Acorn should make to providers who are compensated under an FFS system. With regard to the advantages and disadvantages to Acorn of using RBRVS, it can correctly be stated that