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A primary reason that a financial analyst would measure the Tapestry health plan's return on assets (ROA) is to determine the

A.

Amount of net income per share of Tapestry's common stock

B.

Rate of return on the book value of the stockholders' investment in Tapestry

C.

Proportion of earnings paid out to Tapestry stockholders in the form of cash dividends

D.

Efficiency of Tapestry's management

The Arista Health Plan is evaluating the following four groups that have applied for group healthcare coverage:

    The Blaise Company, a large private employer

    The Colton County Department of Human Services (DHS)

    A multiple-employer group comprised of four companies

    The Professional Society of Daycare Providers

With respect to the relative degree of risk to Arista represented by these four companies, the company that would most likely expose Arista to the lowest risk is the:

A.

Blaise Company

B.

Colton County DHS

C.

Multiple-employer group

D.

Professional Society of Daycare Providers

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

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.

The following paragraph contains two pair of terms enclosed in parentheses. Determine which term in each pair correctly completes the statements. Then select the answer choice containing the two terms you have chosen.

In a typical health plan, an (actuary / underwriter) is ultimately responsible for the determination of the appropriate rate to charge for a given level of healthcare benefits and administrative services in a particular market. The (actuary / underwriter) assesses and classifies the degree of risk represented by a proposed group or individual.

A.

actuary / actuary

B.

actuary / underwriter

C.

underwriter / actuary

D.

underwriter / underwriter

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.

The Column health plan is in the process of developing a strategic plan.

The following statements are about this strategic plan. Three of the statements are true, and one statement is false. Select the answer choice containing the FALSE statement.

A.

Human resources most likely will be a critical component of Column's strategic plan because, in health plan markets, the size and the quality of a health plan's provider network is often more important to customers than are the details of a product's benefit design.

B.

Column's strategic plan should only address how the health plan will differentiate its products, rather than where and how it will sell these products.

C.

Column most likely will need to develop contingency plans to address the need to make adjustments to its original strategic plan.

D.

Column's information technology (IT) strategy most likely will be a critical element in successfully implementing the health plan's strategic plan.

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

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

One true statement about variance analysis is that

A.

A price variance is the difference between the budgeted quantities to be sold and the actual quantities sold, multiplied by the budgeted amount

B.

Variance analysis suggests solutions to a particular problem

C.

Positive variances generally are favorable, from a health plan's point of view, for the plan's expenses but unfavorable for the plan's revenues

D.

An effective variance system typically focuses on matters that require management's attention