AHIP AHM-520 FAHM Exam Questions Instant Access

Question 1

The medical loss ratio (MLR) for the Peacock health plan is 80%. Peacock's expense ratio is 16%.

Peacock's MLR and its expense ratio indicate that Peacock

AHas a 4% potential profit margin

BHas a combined ratio of 64%

CMust increase its premium income in order to remain in business

DMust rely on investment income in order to avoid financial losses

Answer : A

Question 2

An actuary for the Noble Health Plan observed that the plan's actual morbidity was lower than its assumed morbidity and that the plan's actual administrative expenses were higher than its assumed administrative expenses. In this situation, Noble's actual underwriting margin was

Alarger than its assumed underwriting margin, and the plan's actual expense margin was higher than its assumed expense margin

Blarger than its assumed underwriting margin, but the plan's actual expense margin was lower than its assumed expense margin

Csmaller than its assumed underwriting margin, but the plan's actual expense margin was higher than its assumed expense margin

Dsmaller than its assumed underwriting margin, and the plan's actual expense margin was lower than its assumed expense margin

Answer : B

Question 3

The sentence below contains two pairs of terms enclosed in parentheses.

Determine which term in each pair correctly completes the statement. Then select the answer choice containing the two terms that you have selected. In analyzing its financial data, a health plan would use (horizontal/common size financial statement) analysis to measure the numerical amount that corresponding items change from one financial statement to another over consecutive accounting periods, and the health plan would use (trend/vertical) analysis to show the relationship of each financial statement item to another financial statement item.

AHorizontal / trend

BHorizontal / vertical

CCommon-size financial statement / trend

DCommon-size financial statement / vertical

Answer : B

Question 4

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

Question 5

Three general strategies that health plans use for controlling types of risk are risk avoidance, risk transfer, and risk acceptance. The following statements are about these strategies. Three of these statements are true, and one statement is false. Select the answer choice containing the FALSE statement.

AGenerally, the smaller the likely benefits of accepting a risk, and the lower the costs of avoiding that risk, the greater the likelihood that a health plan will elect to avoid the risk.

BA health plan is seldom able to transfer any of the risk that utilization rates will be higher than expected and that its cost of providing healthcare will exceed the revenues it receives.

CIf a risk is a pure risk from the point of view of a health plan, then the health plan most likely will attempt to avoid the risk.

DA health plan would most likely transfer some or all of its utilization risk if it pays a provider a rate that is based on the number of plan enrollees that choose the provider as their primary care provider (PCP).

Answer : B

Question 6

Contingency risks, or C-risks, are general categories of risk that have a direct bearing on both the cash flow and solvency of a health plan. One of these C-risks, pricing risk (C-2 risk), is typically the most important risk a health plan faces. Pricing risk is crucial to a health plan's solvency because:

AA sizable portion of any health plan's assets are held in long-term investments and any shift in interest rates can significantly impact a health plan's ability to pay medical benefits

BA health plan relies heavily on the sound judgment of its management, and poor management decisions can result in financial losses for the health plan

CA situation in which actual expenses exceed the amounts budgeted for those expenses may result in the health plan failing to retain assets sufficient to cover current obligations

DA sizable portion of the total expenses and liabilities faced by a health plan come from contractual obligations to pay future medical costs, and the exact amounts of those costs are not known at the time a product's premium is established

Answer : D

Question 7

The traditional financial ratios that analysts use to study a health plan's GAAP-based financial statements include liquidity ratios, activity ratios, leverage ratios, and profitability ratios. Of these categories of ratios, analysts are most likely to use

ALiquidity ratios to measure a health plan's ability to meet its current liabilities

BActivity ratios relate the returns of a health plan to its sales, total revenues, assets, stockholders' equity, capital, surplus, or stock share price

CLeverage ratios to measure how quickly a health plan converts specified financial statement items into premium income or cash

DProfitability ratios to measure the effect that fixed costs have on magnifying a health plan's risk and return

Answer : A

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