AHM-520 AHIP Exam Questions and Free Practice Test

Question 31

- (Topic 2)
The Puma health plan uses return on investment (ROI) and residual income (RI) to measure the performance of its investment centers. Two of these investment centers are identified as X and Y. Investment Center X earns $10,000,000 in operating income on controllable investments of $50,000,000, and it has total revenues of $60,000,000. Investment Center Y earns $2,000,000 in operating income on controllable investments of $8,000,000, and it has total revenues of $10,000,000. Both centers have a minimum required rate of return of 15%.
The following statements are about Puma's evaluation of these investment centers. Select the answer choice containing the correct statement.

A. Investment Center Y's RI is greater than Investment Center X's RI.

B. The ROI for Investment Center X is 16.7%, and the ROI for Investment Center Y is 20.0%.

C. Because Investment Centers X and Y are different sizes, Puma should not use ROI to compare these investment centers.

D. According to the evaluation of ROI, Investment Center Y achieves a higher return on its available resources than does Investment Center X.

Correct Answer:D

Question 32

- (Topic 2)
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

A. Has a 4% potential profit margin

B. Has a combined ratio of 64%

C. Must increase its premium income in order to remain in business

D. Must rely on investment income in order to avoid financial losses

Correct Answer:A

Question 33

- (Topic 1)
One true statement about cash-basis accounting is that

A. Cash receipt, but not cash disbursement, is an important component of cash-basis accounting

B. Most companies use a pure cash-basis accounting system

C. Cash-basis accounting records revenue according to the realization principle and expenses according to the matching principle

D. Health insurance companies and health plans that fall under the jurisdiction of state insurance commissioners must report some items on a cash basis for statutory reporting purposes

Correct Answer:D

Question 34

- (Topic 2)
A health plan can use cost accounting in order to

A. Determine premium rates for its products

B. Match the costs incurred during a given accounting period to the income earned in, or attributed to, that same period

C. Both A and B

D. A only

E. B only

F. Neither A nor B

Correct Answer:A

Question 35

- (Topic 1)
The Poplar Company and a Blue Cross/Blue Shield organization have contracted to provide a typical fully funded health plan for Poplar's employees. One true statement about this health plan for Poplar's employees is that

A. Poplar bears the entire financial risk if, during a given period, the dollar amount of services rendered to Poplar plan members exceeds the dollar amount of premiums collected for this health plan

B. Poplar and the Blue Cross/Blue Shield organization share the financial risk of paying for claims under Poplar's health plan

C. The Blue Cross/Blue Shield organization, upon acceptance of a premium, becomes the group plan sponsor for Poplar's health plan

D. The Blue Cross/Blue Shield organization, upon acceptance of a premium, bears the entire financial risk of paying for the administrative expenses associated with health plan operations

Correct Answer:D

Question 36

- (Topic 1)
When pricing its product, the Panda Health Plan assumes a 4% interest rate on its investments. Panda also assumes a crediting interest rate of 4%.
The actual interest rate earned by Panda on the assets supporting its product is 6%. The following statements can correctly be made about the investment margin and interest margin for Panda's products.

A. Panda most likely built the crediting interest rate of 4% into the investment margin of its product.

B. Panda's investment margin is the difference between its actual benefit costs and the benefit costs that it assumes in its pricing.

C. The interest margin for this product is 2%.

D. All of these statements are correct.

Correct Answer:C

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