AHM-520

AHM-520 practice questions, page 6 of 9, with answer review and explanations.

Question 26

Dr. Jacob Winburne is compensated by the Honor Health Plan under an arrangement in which Honor establishes at the beginning of a financial period a fund from which claims approved for payment are paid. At the end of the given period, any funds remaining are paid out to providers. This information indicates that the arrangement between Dr. Winburne and Honor includes a provider incentive known as a:

  1. Risk pool, and any deficit in the fund at the end of the period would be the sole responsibility of Honor
  2. Risk pool, and any deficit in the fund at the end of the period would be paid by both Dr. Winburne and Honor according to percentages agreed upon at the beginning of the contract period
  3. Withhold, and any deficit in the fund at the end of the period would be the sole responsibility of Honor
  4. Withhold, and any deficit in the fund at the end of the period would be paid by both Dr. Winburne and Honor according to percentages agreed upon at the beginning of the contract period

Question 27

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

  1. 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.
  2. 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.
  3. A rate ratio can only be increased if the health plan has obtained regulatory approval.
  4. 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 than it otherwise should be.

Question 28

The Amethyst Health Plan uses a budgeting approach that requires each line of business within Amethyst’s operation to justify its continued operation. Amethyst begins with the premise that no resources will be allocated for the following period unless each dollar to be spent is justified and is shown to be within departmental plans and corporate goals and objectives. The budgeting approach used by Amethyst is known as:

  1. Bottom-up budgeting
  2. Top-down budgeting
  3. Zero-based budgeting
  4. Master budgeting

Question 29

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):

  1. Nuevo has a WACC of 10.2%
  2. 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
  3. Both A and B
  4. A only
  5. B only
  6. Neither A nor B

Question 30

Under the alternative funding method used by the Flair Company, Flair assumes financial responsibility for paying claims up to a specified level and deposits the funds necessary to pay these claims into a bank account that belongs to Flair. However, an insurer, which acts as an agent of Flair, makes the actual payment of claims from this account. When claims exceed the specified level, the insurer pays the balance from its own funds. No state premium tax is levied on the amounts that Flair deposits into this bank account. From the following answer choices, choose the name of the alternative funding method described.

  1. Retrospective-rating arrangement
  2. Premium-delay arrangement
  3. Reserve-reduction arrangement
  4. Minimum-premium plan