AHIP AHM-520 FAHM Exam Practice Test Instant Access

Question 1

A product is often described as having a thin margin or a wide margin. With regard to the factors that help determine the size of the margin of a health plan's product, it can correctly be stated that the

Agreater the risk a health plan assumes in a health plan, the thinner the product margin should be

Bmore that competition acts to force prices down, the wider the product margins tend to become

Cgreater the demand for the product, the thinner the margin for this product tends to become

Dlonger the premium rates are guaranteed to a group, the wider the health plan's margin should be

Answer : D

Question 2

For a given healthcare product, the Magnolia Health Plan has a premium of $80 PMPM and a unit variable cost of $30 PMPM. Fixed costs for this product are $30,000 per month. Magnolia can correctly calculate the break-even point for this product to be:

A274 members

B375 members

C600 members

D1,000 members

Answer : C

Question 3

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

ABoth A and B

BA only

CB only

DNeither A nor B

Answer : B

Question 4

The Zane health plan uses a base of accounting known as accrual-basis accounting. With regard to this base of accounting, it can correctly be stated that accrual-basis accounting

AEnables an interested party to view the consequences of obligations incurred by Zane, but only if the health plan ultimately completes the business transaction

BIs not suitable for measuring Zane's profitability

CRequires Zane to record revenues when they are earned and expenses when they are incurred, even if cash has not actually changed hands

DProhibits Zane from making adjusting entries to its accounting records at the end of each accounting year

Answer : C

Question 5

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:

ARequiring the providers to supply their own office space

BEmploying nurses and other healthcare professionals to support the physician providers

CRequiring providers to maintain their own medical records

DAll of the above

Answer : B

Question 6

With regard to the Medicaid program in the United States, it can correctly be stated that

AThe federal government provides none of the funding for state Medicaid programs

BFederal Medicaid law is different from Medicare law in that the federal government explicitly sets forth the methodology for payment of Medicaid-contracting plans but not Medicare-contracting plans

CA state's payment to health plans for providing Medicaid services cannot be more than it would have cost the state to provide the services under Medicaid fee-for-service (FFS)

DStates are prohibited from carving out specific services from the capitation rate that health plans receive for providing Medicaid services

Answer : C

Question 7

One true statement about the rate ratios used by a health plan is that the

AEnd result of a typical family rate ratio is that the health plan's family rate is subsidized by its single premium rate

Bhealth plan cannot arbitrarily increase or decrease its rate ratio for a rate category

Crate ratios used by the health plan most likely have been established by government regulations

Dhealth plan should determine its rate ratios by considering family size alone rather than competitive factors such as the ratios that competitors are using

Answer : A

AHIP AHM-520 Health Plan Finance and Risk Management FAHM Exam Practice Test