The Down To Date Guide To AHM-520 Exam Prep

NEW QUESTION 1

One true statement about cash-basis accounting is that

• A. Cash receipt, but not cash disbursement, is an important component of cash-basis accounting
• B. Most companies use a pure cash-basis accounting system
• C. Cash-basis accounting records revenue according to the realization principle and expenses according to the matching principle
• D. Health insurance companies and health plans that fall under the jurisdiction of state insurance commissioners must report some items on a cash basis for statutory reporting purposes

Answer: D

NEW QUESTION 2

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 3

State A, which requires guaranteed issue of at least two mandated healthcare plans, has established a typical health coverage reinsurance program for small employer groups. One true statement about this reinsurance program is that it most likely

• A. is administered by a commercial reinsurance company that operates in State A
• B. allows a small employer carrier operating in State A to reinsure either an entire small group or specific individuals within the group
• C. has, for the coverage on a plan, a base premium, which is multiplied by a factor of 2 in the case of reinsurance on entire groups or a factor of 3 for reinsurance on individuals
• D. prohibits a small employer carrier operating in State A from placing individuals enrolled in small groups in a reinsurance pool

Answer: B

NEW QUESTION 4

If Grace Wilson is eligible for benefits under both the Medicare and Medicaid programs, then

• A. Medicare is M
• B. Wilson's primary insurer
• C. A Medicare- or Medicaid-contracting health plan is allowed to lock-in M
• D. Wilson's enrollment for a maximum period of 24 months
• E. The BBA requires the state to guarantee M
• F. Wilson's eligibility for a minimum of 18 months once she enrolls in a health plan network
• G. M
• H. Wilson can only receive Medicare- or Medicaid-covered services from a provider who participates in a health plan network

Answer: A

NEW QUESTION 5

The following statements are about rate ratios used by health plans. Select the answer choice containing the correct statement:

• A. While rate ratios consider family size, they are most often based on competitive factors, such as the ratios being used by competitors and the ratios that plan sponsors are requesting.
• B. If the rate ratio for a couple rate category is 2.0, then the single premium is divided by 2.0 to derive the couple rate category premium.
• C. A rate ratio can only be increased if the health plan has obtained regulatory approval.
• D. The effect of a typical family rate ratio is that a family rate is somewhat higher than it otherwise should be, and the single rate is somewhat lower that it otherwise should be.

Answer: A

NEW QUESTION 6

The methods of alternative funding for health coverage can be divided into the following general categories:
✑ Category A—Those methods that primarily modify traditional fully insured group insurance contracts
✑ Category B—Those methods that have either partial or total self funding
Typically, small employers are able to use some of the alternative funding methods in

• A. Both Category A and Category B
• B. Category A only
• C. Category B only
• D. Neither Category A nor Category B

Answer: C

NEW QUESTION 7

The following statements are about 501(c)(9) trusts. Select the answer choice containing the correct statement:

• A. In the event a 501(c)(9) trust is terminated, any funds remaining in the trust revert backto the employer.
• B. In order to satisfy Internal Revenue Code (IRC) requirements, membership in a 501(c)(9) trust is mandatory for all employees.
• C. Contributions made by an employer to a 501(c)(9) trust are deductible for federal income tax purposes.
• D. Typically, a 501(c)(9) trust is controlled solely by the employer that established the trust.

Answer: C

NEW QUESTION 8

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.
According to regulations, Fiesta's premium rates are reasonable if they

• A. vary only on the factors that affect Fiesta's costs
• B. are at a level that balances Fiesta's need to generate a profit against its need to obtain or retain a specified share of the market in which it conducts business
• C. are high enough to ensure that Fiesta has enough money on hand to pay operating expenses as they come due
• D. do not exceed what Fiesta needs to cover its costs and provide the plan with a fair profit

Answer: D

NEW QUESTION 9

The ability of a health plan to effectively perform the rating and underwriting functions has become critical to the plan's success. In developing its pricing strategy, a health plan has to address the marketplace's ongoing trends and factors, which include

• A. a decreased focus on small to mid-size employer groups
• B. an improvement in the financial performance of health plans
• C. a consolidation of the key players in the health plan industry
• D. a decreased complexity of the products being offered.

Answer: C

NEW QUESTION 10

The following examples describe situations that expose an individual or a health plan to either pure risk or speculative risk:
Example 1 — A health plan invested in 1,000 shares of stock issued by a technology company.
Example 2 — An individual could contract a terminal illness.
Example 3 — A health plan purchased a new information system.
Example 4 — A health plan could be held liable for the negligent acts of an employee.
The examples that describe pure risk are

• A. Examples 1 and 2
• B. Examples 1 and 4
• C. Examples 2 and 3
• D. Examples 2 and 4

Answer: A

NEW QUESTION 11

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 12

One way that a health plan can protect itself against case stripping is by requiring:

• A. Employees covered by a small group plan to contribute 100% of the cost of the healthcare coverage
• B. The small group to have no more than 10 members
• C. A minimum level of participation in order for a small group to be eligible for healthcare coverage
• D. Its underwriters to consider the characteristics of the employer, but not of the group members, when underwriting the group

Answer: C

NEW QUESTION 13

The Essential Health Plan markets a product for which it assumed total expenses to equal 92% of premiums. Actual data relating to this product indicate that expenses equal 89% of premiums. This information indicates that the expense margin for this product has:

• A. a 3% favorable deviation
• B. a 3% adverse deviation
• C. an 11% favorable deviation
• D. an 11% adverse deviation

Answer: A

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 likely way in which Investment Center X or Y could effectively increase its ROI is by

• A. Focusing only on increasing its total revenues
• B. Increasing its controllable investments
• C. Increasing total revenues, accompanied by a proportionate increase in operating income
• D. Increasing expenses in order to increase operating income

Answer: C

NEW QUESTION 15

The following statement(s) can correctly be made about a health plan's cash receipts and cash disbursements budgets:

• A. To predict both the timing and the amount of its cash receipts, a health plan constructs the cash receipts budget using data from its sales forecast and investment forecasts.
• B. A health plan uses a cash disbursements budget in order to establish the amount, but not the timing, of all of its cash disbursements.
• C. Both A and B
• D. A only
• E. B only
• F. Neither A nor B

Answer: B

NEW QUESTION 16

The amount of risk for health plan products is dependent on the degree of influence and the relationships that the health plan maintains with its providers. Consider the following types of managed care structures:
✑ Preferred provider organization (PPO)
✑ Group model HMO
✑ Staff model health maintenance organization (HMO)
✑ Traditional health insurance
Of these health plan products, the one that would most likely expose a health plan to the highest risk is the:

• A. preferred provider organization (PPO)
• B. group model HMO
• C. staff model health maintenance organization (HMO)
• D. traditional health insurance

Answer: C

NEW QUESTION 17
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