AHIP AHM-520 FAHM Exam Questions Instant Access

Question 1

Companies typically produce three types of budgets: operational budgets, cash budgets, and capital budgets. The following statements are about operational budgets. Select the answer choice containing the correct statement.

AExpense budgets, a type of operational budget, typically describe fixed expenses rather than variable expenses.

BOperational budgets can only show information by department or by line of business.

COperational budgets begin with a forecast of sales revenue and investment income.

DRevenue budgets, a type of operational budget, indicate the amount of income from operations that a company received from the previous budget period

Answer : C

Question 2

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

AWhen analyzing budget variances, a health plan's management should pay attention to unfavorable variances only.

BA health plan can reduce the problem of unattainable goals by involving responsibility managers in the preparation of their centers' budgets.

COne reason that a health plan would use cost-based transfer prices to evaluate the performance of its profit centers and investment centers is because, under this method of setting transfer prices, the selling center has maximum incentive to operate effectively and control costs.

DIn responsibility accounting, all employees who have any influence over a health plan's department are held equally accountable for the operations and financial outcomes of that department.

Answer : B

Question 3

The following information was presented on one of the financial statements prepared by the Rouge health plan as of December 31, 1998:

When calculating its cash-to-claims payable ratio, Rouge would correctly divide its:

ACash by its reported claims only

BCash by its reported claims and its incurred but not reported claims (IBNR)

CReported claims by its cash

DReported claims and its incurred but not reported claims (IBNR) by its cash

Answer : B

Question 4

The following information was presented on one of the financial statements prepared by the Rouge Health Plan as of December 31, 1998:

Rouge's current ratio at the end of 1998 was approximately equal to:

A0.84

B1.06

C1.19

D1.31

Answer : C

Question 5

The Sanford Group, a provider group, entered into a risk contract with a health plan. Sanford has purchased aggregate stop-loss coverage with an attachment point of 115% of the group's predicted healthcare costs of $2,000,000 for the year. Sanford has a copayment of 10% for any costs above the attachment point. If Sanford's actual costs for the year are $2,800,000, then, according to the terms of the aggregate stop-loss agreement, the amount that Sanford is responsible for is

A$2,080,000

B$2,300,000

C$2,350,000

D$2,380,000

Answer : C

Question 6

The following statements illustrate the use of different rating methods by health plans:

The Dover health plan established rates for small groups by using a rating method which requires that the average premium in each group cannot be more than 120% of the average premium for any other group. Under this method, all members of each group pay the same premium, which is based on the experience of the group.

Under the rating method used by the Rolling Hills health plan, the health plan calculates the ratio of a group's experience to the group's historical manual rate. Rolling Hills then multiplies this ratio by the group's future manual rate. Rolling Hills cannot consider the group's experience in determining premium rates.

From the following answer choices, select the response that correctly indicates the rating methods used by Dover and Rolling Hills.

ADover = modified community rating
Rolling Hills = factored rating

BDover = modified community rating
Rolling Hills = adjusted community rating (ACR)

CDover = community rating by class (CRC)
Rolling Hills = factored rating

DDover = community rating by class (CRC)
Rolling Hills = adjusted community rating (ACR)

Answer : D

Question 7

In order to print all of its forms in-house, the Prism health plan is considering the purchase of 10 new printers at a total cost of $30,000. Prism estimates that the proposed printers have a useful life of 5 years. Under its current system, Prism spends $10,000 a year to have forms printed by a local printing company. Assume that Prism selects a 15% discount rate based on its weighted-average costs of capital. The cash inflows for each year, discounted to their present value, are shown in the following chart:

Prism will use both the payback method and the discounted payback method to analyze the worthiness of this potential capital investment. Prism's decision rule is to accept all proposed capital projects that have payback periods of four years or less.

After analyzing this information, Prism would accept this proposed capital project under

ABoth the payback method and the discounted payback method

BThe payback method but not the discounted payback method

CThe discounted payback method but not the payback method

DNeither the payback method nor the discounted payback method

Answer : B

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