Group and Health Core

Question 1

Types of group life insurance benefit

Answer 1

Hint: being sad and depressed sometimes pushes your very close loves

1. BASIC group term life (most common) - provides employees a common level of basic insurance protection
2. group SUPPLEMENTAL (or optional) life - provides additional insurance beyond basic group term life. Typically employee-pay-all with unisex rates in 5 year age brackets.
3. Group ACCIDENTAL DEATH AND DISMEMBERMENT - typically offered as a companion to group term life and with the same face amount. 100% of the face amount is paid upon death or loss of more than one member (hand, foot, sight). 50% is paid upon loss of one member.
4. DEPENDENT group life - multiple coverage options are usually provided, offering coverage of up to $100,000 on the spouse and $10,000 on each child.
5. SURVIVOR income benefits - provides a monthly payment in lieu of a lump sum death benefit. Benefit is typically a percentage of monthly earnings, such as 25% for a spouse and 15% for a child.
6. group PERMANENT LIFE - plan types are single-premium group paid-up life, group ordinary life, and group term and paid-up.
7. group UNIVERSAL life - consists of a term life component and a side fund that accumulates with interest to provide tax-favored savings and long-term insurance protection
8. group VARIABLE UNIVERSAL life - same as GUL except several investment options including equities are available
9. group CREDIT life insurance - death benefit equals the unpaid consumer debt of the insured
10. LIVING benefits

Question 2

Typical basic group life plan designs

Answer 2

Hint: finish my salty peanuts

1. flat dollar plans - such as $10,000 for all employees
2. multiple of earnings plans (most common design) - such as 1 or 2 times earnings
3. salary bracket plans - salary ranges are established and benefits vary by range
4. position plans - benefits vary based on the employee’s position in the company

Question 3

Group term life disability provisions

Answer 3

Hint: wet

1. waiver of premium - coverage continues without premium payment when an employee becomes totally disabled
2. total and permanent disability - a monthly benefit is paid when an insured becomes totally and permanently disabled. on death, the original death benefit is reduced by any disability payments made.
3. extended death benefit - pays the death benefit if the insured’s coverage terminates upon total disability prior to age 60 and the insured remains disabled and dies within one year

Question 4

Benefit provisions for group disability income

Answer 4

Hint: a looped

1. benefit AMOUNTS - benefits paid monthly for LTD and weekly for STD. replaces a percentage of pre-disability earnings. a maximum benefit amount may further limit payments.
2. LIMITATIONS and exclusions - benefits for mental and nervous conditions are usually limited to the first 2 years of disability. disabilities resulting from an act of war intentionally self-inflicted injury are usually excluded
3. benefit OFFSETS - benefits are reduced by income from other sources, such as SS, retirement benefits, workers’ compensation, and part-time work
4. OPTIONAL benefits
5. benefit PERIOD - commonly 2 years, 5 years, or to age 65 for LTD. For STD, typically 13 or 26 weeks to coordinate with the LTD elimination period.
6. ELIMINATION period - the period of time the employee must be disabled before collecting disability benefits. Commonly 3 months or 6 months for LTD. For STD, commonly 8 days and may be shorter for accidents than for sicknesses.
7. DEFINITION of disability

Question 5

Typical definitions of disability for group disability income

Answer 5

1. LTD - as a result of sickness or accidental injury, the employee is unable to perform some or all of the material and substantial duties of an occupation, and has a loss of a percentage of pre-disability earnings
   a. during the first 24 months after the elimination period, the occupational duties are based on the employee’s own occupation, and the loss of income percentage is 20%
   b. after the first 24 months, the occupational duties are based on any gainful occupation for which the employee is reasonably suited by education, training, and experience, and the loss of income percentage is 40%
2. STD - the employee is unable to perform all the duties of his or her own occupation. coverage is typically for only non-occupational accidents or sicknesses to avoid overlap with workers’ compensation

Question 6

Methods for reducing benefits for income earned during a disability

Answer 6

Hint: POW

1. proportionate loss formula - calculates the percentage of lost earnings due to disability and applies it to the benefit otherwise payable
2. 50% offset - reduces the benefit by $1 for every $2 of work earnings
3. work incentive benefit - ignores all earnings during an initial period, except benefits are capped so that work earnings plus benefits do not exceed pre-disability earnings. after the initial period, either the proportionate loss formula or 50% offset is used

Question 7

Optional benefits that may be added to group disability contracts

Answer 7

Hint: cc specs, 24FS

For LTD:

1. COLA - cost of living adjustments to provide inflation protection for benefits
2. CONVERSION option - insured who lose coverage can covert to either group or individual disability coverage
3. SURVIVOR benefit - a lump sum benefit payable to the insured’s survivors upon the death of the insured
4. PENSION benefit - an additional benefit payment to replace lost contributions to retirement plans
5. EXPENSE REIMBURSEMENT for day care expenses
6. CATASTROPHIC benefits - additional amounts for more serious disabilities, such as those resulting in total paralysis
7. SPOUSAL benefits - disability protection for spouses of insured employees

For STD:

1. 24 hr coverage
2. FIRST DAY hospital coverage - elimination period is waived if the insured is confused in the hospital due to a disability
3. SURVIVOR benefit (same as LTD)

Question 8

Key dimensions of medical benefit plans

Answer 8

Hint: pic

1. definition of COVERED SERVICES and conditions under which those services will be covered
2. degree to which the INDIVIDUAL PARTICIPATES in the cost of the service
3. degree to which the PROVIDER PARTICIPATES in the risk related to the cost of the service

Question 9

services covered by medical policies

Answer 9

hint: DDD WAX fast paced nuking hammer P

1. DME
2. DISEASE management benefits
3. DIAGNOSTIC services
4. wellness benefits
5. ambulance
6. x-ray and lab services
7. facility services - includes acute care hospitals, emergency rooms, OP facilities, psychiatric facilities, alcohol and drug treamtent programs, SNF, and HHC
8. professional services - includes surgeries, office visits, home visits, hospital visits, emergency room visits, and preventive care
9. private NURSING duty
10. nurse help lines
11. prescription drugs

Question 10

Purposes for having the insured share in the cost of the medical plan

Answer 10

Hint: UCR

1. Control utilization - studies have shown drastic reductions in utilization when a plan is subject to deductibles, copays, or coinsurance
2. control costs - requiring cost sharing lowers the premium and can potentially lead to more affordable coverage
3. control risk to the insurer - requiring cost sharing results in a benefit program that more truly represents an insurable risk

Question 11

Types of provider reimbursement

Answer 11

Hint: BIG DDD SAC

1. BONUS pools - pays the provider a bonus if utilization is below target or quality-of-care criteria are met. funded through withholds
2. INTEGRATED delivery system - the insurer employees the providers of care
3. case rate or GLOBAL payments - a single reimbursement is negotiated to cover all services associated with a given condition. Commonly used for maternity and transplant services
4. DISCOUNTS from billed charges
5. per DIEM reimbursements - a negotiated amount per day of hospital stay. varies by level of care
6. hospital DIAGNOSIS RELATED GROUPS (DRGs) - a set payment based on the patient’s diagnosis, regardless of the length of stay or level of services
7. fee SCHEDULES and maximums
8. AMBULATORY payment classifications - similar to DRGs used for OP charges
9. CAPITATION - the provider performs a defined range of services in return for a monthly payment per enrollee. variations include global and specialty capitation

Question 12

Provisions included in medical plans

Answer 12

Hint: ccc mops

1. COBRA continuation - employers with at least 20 employees must offer continued coverage for 18 to 36 months beyond a person’s normal termination date
2. CONVERSIONS - offered to individuals no longer eligible under the group medical plan
3. COORDINATION OF BENEFITS - to determine the payment when a service is covered under multiple benefit plans
4. MANDATED benefits
5. OVERALL exclusions
6. PRE-EXISTING CONDITIONS exclusion - limits coverage for services related to preexisting conditions
7. SUBROGATION- assigns the carrier the right to recovery from any injuring party

Question 13

Common exclusions for medical plans

Answer 13

hint: POWER to change my world

1. services for which PAYMENT is not otherwise required
2. OTHER specified services, such as mental, hearing, and vision services
3. services required due to an act of WAR
4. services deemed to be EXPERIMENTAL
5. services provided by a provider RELATED to the patient
6. TRANSPLANTS
7. services related to COSMETIC surgery
8. services deemed not to be MEDICALLY NECESSARY
9. services provided as a result of a WORK-RELATED injury

Question 14

Criteria for provincial Medicare plans to qualify for federal contributions under the Canada Health Act

Answer 14

Hint: AA cup

1. ACCESSIBILITY - reasonable access by residents to hospital and physician services must not be impeded by charges made to those residents
2. public ADMINISTRATION- the plan must be administered on a non-profit basis by a public authority
3. COMPREHENSIVENESS - all medical-required hospital and physician services must be covered under the plan
4. UNIVERSALITY - all legal residents of a province must be entitled to the plan’s services on uniform terms and conditions
5. PORTABILITY - the plan may not impose a waiting period in excess of 3 months for new residents, and coverage must be maintained when a resident moves or travels within Canada or is temporarily out of the country

Question 15

Benefits covered by most Canadian provincial Medicare plans

Answer 15

hint: hoop DDD P

1. HOSPITAL services - room and board in a public ward, as well as physicians’ services, diagnostics, anesthesia, nursing, drugs, supplies, and therapy
2. OTHER professionals, such as optometrists, chiropractors, osteopaths, and podiatrists
3. OUT OF PROVINCE coverage - includes expenses incurred in other provinces and outside Canada
4. PHYSICIAN services - includes services of a general practitioner, specialist, psychiatrist, and others
5. prescription DRUGS for social assistance recipients and residents over age 65 in most provinces
6. other DIAGNOSTIC SERVICES, such as laboratory tests and x-rays performed outside a hospital
7. DENTAL care - medically-required oral and dental surgery performed in a hospital
8. PROSTHESIS and therapeutic equipment

Question 16

Concerns about the Canadian Medicare system, from recent reports

Answer 16

hint: lets reds

1. waiting for months to see a specialist is common
2. shortages of equipment, specialists, and technicians cause waiting for diagnostic procedures
3. waiting for elective and non-emergency surgery is common, due to a lack of operating room time and a shortage of hospital beds
4. emergency rooms are overcrowded, due in part to the unavailability of after-hours clinics
5. people who need LTC tend to wait in hospitals because of a shortage of beds in LTC facilities
6. Technology-intensive services are not available everywhere
7. the demand for services exceeds the supply, resulting in rationing
8. some essential services (such as prescription drugs for chronic illnesses) are not c5. out of Canaovered by Medicare

Question 17

Categories of expenses commonly covered by private (supplemental) medical plans in Canada

Answer 17

Hint: happy pretty parents make offspring

1. hospital charges - plans usually pay charges for room and board, up to the amount needed to upgrade to a semi-private or private room
2. prescription drugs - these represent approximately two-thirds of the cost of private medical plans. various plans deigns exist, but they generally cover all drugs prescribed by a physician
3. health practitioners - eligible expenses are usually subject to inside limits
4. miscellaneous expenses - these are usually eligible only if prescribed by a physician and include almost any insurable expense not otherwise covered, such as ambulance, x-rays, and prosthesis
5. out of Canada coverage - the most common coverage is for emergency care for short trips outside Canada

Question 18

Group dental insurance is provided through:

Answer 18

Hint: acute

1. associations
2. chambers of commerce
3. unions
4. traditional employers
5. multiple employer trusts

Question 19

organizations that sell dental insurance

Answer 19

hint: HD bits

1. Dental HMOs
2. Dental referral plans
3. Blue Cross and Blue Shield plans
4. insurance companies
5. Third party administrators
6. dental service corporations

Question 20

Basic components of dental plan designs

Answer 20

Hint: o clap

1. substantial OOP costs ensure that participants use care appropriately
2. benefits are divided into different classes, with reimbursement varying by CLASS
3. plans only reimburse for the LEAST EXPENSIVE form of adequate treatment
4. cost containment provisions exist to limit the ANTI-SELECTION that results from the elective nature of benefits
5. plans are designed to emphasize PREVENTIVE care

Question 21

classes of dental benefits

Answer 21

hint: please bring me oreos

1. Type 1 (preventive and diagnostic)- oral exams,x-rays, cleanings, fluoride, sealants
2. Type II (basic) - fillings, anesthesia, endodontics, periodontics, and extractions
3. Type III (major) - inlays, onlays, crowns, bridges and dentures
4. Type IV (orthodontics) is sometimes added to dental plans

Question 22

Dental plan cost containment provisions

Answer 22

Hint: Peel MD

1. PRE-EXISTING conditions limitations - prevent the plan from paying for charges incurred prior the insurance effective date
2. benefits after insurance ENDS- coverage for work started before termination only continues for 31 days
3. EXCLUSIONS include cosmetic services, experimental treatments, and services for on the job injuries
4. reimbursement LIMITATIONS- may reimburse 100% for Type I, 80% for Type II, and 50% for Type III
5. Calendar year annual MAXIMUM- typically $1000, but ranges from $500 to $2500
6. calendar year DEDUCTIBLE- typically $50 or less and may be waived for Type I

Question 23

underwriting and rating parameters for dental

Answer 23

Hint: peg, cod, wit

1. PARTICIPATION- usually 75% required to reduce antiselecton
2. ELIGBILE individuals - usually active employees and dependents (COBRA applies)
3. GROUP SIZE - minimum group size of 5 is usually enforced to avoid antiselection
4. employer CONTRIBUTIONS - usually the employer contributions at least 50% to ensure minimum participation
5. OTHER coverages - if dental is packaged with other insurance options, it helps to prevent antiselection
6. DEMOGRAPHICS- rates can vary based on gender, age, location, industry, or family structure
7. WAITING and deferral PERIODS - may have waiting period for new hires
8. INCENTIVE coinsurance - start with low coinsurance for types II and III and raise the level each year as the individual utilizes preventives services
9. TRANSFERRED business - if the plan is a replacement, then pay for claims incurred in the prior year

Question 24

Dental reimbursement models and delivery systems

Answer 24

hint: i phd

1. indemnity - traditional FFS reimbursement
   a. scheduled indemnity plans
   b. UCR
2. PPO - generally reimbursed with discounted FFS
   a. managed indemnity plans
   b. discounted FFS PPO plans
   c. Fee schedule PPO plans
   d. exclusive provider organization (EPO) plans
   e. POS plans
3. dental HMO - generally pre-paid or capitated
   a. independent provider association plans
   b. staff model DHMO plans
4. discount card plans - members receive discounts from preferred providers

Question 25

Comparison of dental reimbursement models

Answer 25

Premium: high for ind, medium for PPO, low for DHMO
Patient access: highest for ind, fair for PPO, limited for DHMO
benefit richness: least for ind, fair for PPO, highest for DHMO
reimbursement: UCR/ schedule for ind, schedule for PPO, capitation for DHMO
cost management: least for ind, fair for PPO, most for DHMO
utilization: high for ind, high for PPO, low for DHMO
quality assurance: least for ind, fair for PPO, highest for DHMO
fraud potential: high for ind, moderate for PPO, low for DHMO
provider contracting: no for ind, yes for PPO, yes for DHMO

Question 26

claim administration procedures used by dental plans

Answer 26

hint: Please leave clean dishes untouched
1. predeterminiation - the plan wants members to submit expensive treatment plans for review before service
2. least expensive alternative treatment - may limit reimbursement to this amount
3. coordination of benefits - done to avoid paying benefits in excess of charges
4. dental review - difficult claims should be reviewed by a dental consultant
5. maximum allowable charge (aka UCR) - expenses are limited based on:
a. dentist’s usual fee for hte procedure
b. the fee level set by the plan administrator based on charges submitted in the same geographical area
c. the reasonable fee charged for a service when unusual circumstances or complications exist

Question 27

reasons for increase in prescription drug costs

Answer 27

hint: bad bad ppp

1. biologic - these are very expensive and are not easily replicated, so generics will not be produced for most of them
2. faster approval process - the FDA has streamlined its approval process, increasing the number of high-cost drugs coming to the market
3. direct to consumer advertising - marketing of high-cost drugs has been effective, resulting in many patients requesting the new drugs
4. brand name advertising - after generics become available, marketing of brand drugs continues, which helps maintain their sales
5. aging population - leads to more demand for drug therapies
6. increase in awareness of and testing for disease - often results in drug therapies to avoid acute illnesses
7. personalized medicine - genetic testing sometimes leads to unnecessary medication use
8. prescription drug pipeline - manufacturers are anxious to recover their investments in research and development of new drugs
9. patents - these protect a drug’s original manufacturer from competition for a period of time

Question 28

types of prescription drug benefit coverage

Answer 28

hint: dungeon master
1. prescription drug cards - generally do not integrate with medical benefits, so only drug claims count toward the deductible. usually administered separately from medical benefits, often using a PBM or third-party administrator
2. drug coverage through a major medical plan - drugs are integrated with medical benefits, so both count toward satisfying the deductible. other benefit features are also integrated

Question 29

Types of formulary designs

Answer 29

hint: cot

1. closed - only formulary drugs are covered. But plans must have a process to cover non-formulary drugs for individual patients based on medical necessity
2. open - all eligible drugs are covered, but cost sharing may vary
3. tiered - separate formulary tiers are established, with copays or coinsurance varying by tier

Question 30

Process for adding drugs to the formulary

Answer 30

hint: I escaped a catastrophic issue

1. the Pharmacy and Therapeutics Committee monitors for new products and gathers INFORMATION on them
2. Then they determine whether the drug is clinically EFFECTIVE , safe, and cost effective. The drug is not added if it fails any of these criteria.
3. If the criteria are met and there are no therapeutically interchangeable products, the drug is ADDED to the formulary.
4. If the criteria are met but there are interchangeable drugs, the health plan does a COST ANALYSIS to determine which drug to add.
5. After decisions are made, the health plan must IMPLEMENT changes and educate its associates, providers, pharmacists, and customers.

Question 31

Factors that determine leverage when negotiating rebates from drug manufacturers

Answer 31

Hint: not many changes

1. Number of lives represented - successful contracting requires at least 500K lives over which the plan can exert formulary control
2. Control of market share - ability to move market share to preferred products
3. Consistency of behavior - the predictability of the plan’s response to a manufacturer’s actions

Question 32

Sales and marketing process for group long-term care insurance

Answer 32

hint: F papr. Secrets can breed resentment.

1. First sale (to plan sponsor) - must educate about the value of group LTCI, which includes:
   a. Keeping the current and competitive benefit portfolio, with no cost to the sponsor if it is offered as a voluntary coverage
   b. Helping attract and retain quality employees
   c. Reducing productivity losses through missed or distracted work time
   d. Responding to the needs and expectations of employees
2. Second sale (enrollment of employees) - the enrollment campaign will discuss the benefits of LTCI, which includes:
   a. Protecting retirement savings from potentially catastrophic LTC expenses
   b. Preserving one’s freedom of choice and independence if LTC services are needed
   c .Avoiding becoming a burden to one’s family financially and for caregiving

Question 33

Marketing tools and media used in the group LTCI enrollment campaign

Answer 33

hint: bam, new, veg

3. lead generator BROCHURES
4. informational ARTICLES in company publications
5. MAILINGS to employees’ homes
6. a toll-free NUMBER to request additional information
7. E-MAIL reminders
8. a WEBSITE to educate about the plan and, if desired, to allow rate quotes and enrollment
9. VIDEOS
10. a printed or CD enrollment kit that includes plan details and an application
11. GROUP enrollment meetings

Question 34

types of LTCI plans

Answer 34

hint: Sally rarely makes someone in my department calculate math
1. service reimbursement model - pays the cost of LTC services, subject to fixed limits that vary by type of service
2. service indemnity model - a fixed benefit is paid for any day or week that formal LTC services are received, regardless of the actual charges incurred
3. disability or cash model - a fied benefit is paid for each day an insured is eligible for benefits, whether or not services are actually received

Question 35

Plan provisions on LTCI policies

Answer 35

hint: tie, sir, cab, men

1. Benefit TRIGGERS - the insured must satisfy the benefit trigger to become eligible for benefits. For tax-qualified policies, the trigger must be:
   - the inability to perform at least two ADLs or
   - a cognitive impairment that requires substantial supervision to protect the health and safety of the insured
2. INFLATION protection - increases the benefit limits as LTC costs increase over time
3. ELIMINATION or waiting period - a time period during which the insured must remain disabled and benefit eligible before benefits are paid
4. SPOUSAL RIDERS and discounts
5. INTERNATIONAL COVERAGE - some plans provide limited benefits for care received abroad
6. RESTORATION OF BENEFITS - many plans restore the lifetime maximum benefit if an insured recovers before exhausting the plan’s benefits
7. CASH BENEFITS
8. ALTERNATE plan of care - allows the insurer to pay benefits for services not explicitly covered by the contract
9. BENEFIT LIMITS - enrollees select a daily benefit maximum for institutional care. Other benefits are tied to this daily benefit.
10. Share lifetime MAXIMUM BENEFIT POOL - some plans allow an insured who uses all of his or her benefits to tap into any remaining benefits of a spouse’s policy
11. policy EXCLUSIONS - examples include pre-ex conditions, alcoholism, drug addiction, and treatment covered by other policies or Medicare
12. NONFORFEITURE benefits - sold as an optional benefit. Provides a reduced, paid-up benefit to insureds who lapse coverage

Question 36

Benefit triggers for LTCI policies

Answer 36

hint: a creative whale can drive jeeps
1. the inability to perform at least 2 activities of daily living

2. a cognitive impairment that requires substantial supervision to protect the health and safety of the insured
   a. wandering and getting lost
   b. combativeness
   c. inability to dress appropriately for the weather
   d. poor judgement in emergency situations

Question 37

Definitions of the ADLs allowed by HIPAA

Answer 37

hint: can’t touch DEBT

1. bathing
2. continence - the ability to maintain control of bowel and bladder function or ability to perform associated personal hygiene
3. dressing
4. eating
5. toileting - getting to and from toilet, getting on and off toilet
6. transferring

Question 38

Types of nonforfeiture benefits on LTCI policies

Answer 38

hint: bonnie pretended to care

1. shortened BENEFIT PERIOD - the minimum standard for tax-qualified plans. pays the benefit amount and frequency in effect at the time of lapse. but lifetime maximum is reduced to the sum of premiums paid minus benefits paid
2. reduced PAID-UP - daily and lifetime maximums are reduced and coverage is extended for the life of the insured
3. extended TERM- benefit maximums do not change but only disabilities that commence within a limited time period are covered
4. contingent NONFORFEITURE benefit - often provided to those who lapse due to a substantial premium increase and had not purchased a nonforfeiture benefit. Uses the shortened benefit period approach

Question 39

Types of health insurers and MCOs

Answer 39

hint: in some marraiges, people evolve. Parents have to cherish children.

1. indemnity - indemnifies the beneficiary from the financial cost of health care. there are few controls for managing cost.
2. service plans - similar to indemnity, but adds contracting with providers as a way to manage costs
3. managed indemnity - overlays some manage care features onto indemnity plans
4. PPOs - contract with a network of participating providers who agree to accept the PPO’s payment structure and levels. Members who see PPO providers have higher levels of coverage.
5. Exclusive provider organizations - similar to PPOs, but care received by nonparticipating providers is not covered
6. POS plans - combine an HMO with indemnity-type coverage for care received outside HMO. Members decide at the point of service whether to use the HMO or go out of network
7. HMOs - provides basic and supplemental health services in the manner prescribed by the HMO Act
8. CDHPs - combined a high deductible health plan with some form of individual pretax savings account
9. Third-party administrators - administer benefits for self-funded employer groups, but do not assume risk
10. consumer operated and oriented plans - member-run health insurers created to offer coverage to small groups and individuals through the ACA exchanges

Question 40

Common types of manged care overlays

Answer 40

hint: girls like sweet reds with dinner

1. GENERAL utilization management - offering a menu of UM activities that can be selected by the employers or insurers
2. LARGE CASE management - includes identifying catastrophic cases, notifying reinsurers, monitoring the treatment, and negotiating payments for high-cost cases
3. SPECIALTY UM - focuses on utilization review for specialty services, such as behavioral health care
4. RENTAL networks - networks of contracted providers within individual markets
5. WORKERS’ compensation UM - addresses standard UM and some unique aspects involved with workers’ compensation benefits
6. DISEASE MANAGEMENT - focuses on common chronic diseases, such as diabetes

Question 41

Features that differentiate HMOs from health insurers

Answer 41

hint: lab, DW, crap

1. licensed under different LAWS than health insurers
2. must provide adequate ACCESS to providers within their service areas
3. must require “no BALANCE BILLING” clauses in all provider contracts that are stronger than those found in non-HMOs
4. Must allow DIRECT ACCESS to primary care physicians and OB/GYN physicians
5. Must have WRITTEN POLICIES and procedures for physician credentialing, utilization management, and quality management
6. must maintain defined minimum levels of CAPITAL RESERVES
7. usually share some financial RISK with physicians
8. most are accredited by an ACCREDITING organization
9. most require members to see a PCP for routine services and to access specialty care

Question 42

Types of HMOs

Answer 42

hint: others can’t touch my octopus

1. open-panel - the HMO contracts with private physicians who agree to its terms and conditions and wh o meet its credentialing criteria
   a. independent practice association (IPA) models - the HMO contracts with an IPA. Physicians are not employees of the HMO or the IPA, and htey continue to see their non-HMO patients
   b. Direct contract model - the HMO contracts directly with independent physicians or medical groups
2. closed-panel - most of the care is provided through either a single medical group associated with the HMO or through physicians employed by the HMO. Closed to private physicians.
   a. group model - the HMO contracts with a multi-speciality medical group practice to provide all physician services to the HMO’s members. The physicians are employed by the group practice
   b. staff model - physicians are employed by the HMO and are paid by salary plus bonus or incentives
3. true network model - the HMO contracts with more than one large medical group or physician organization
4. mixed model HMOs - most commonly occurs when a closed-panel HMO adds open panel components
5. Open-access HMOs - the member selects a PCP and gets the most benefits by using the HMO system. Can bypass the PCP to get in-network specialty care directly, but with less coverage. only services provided IN are covered.

Question 43

Advantages and disadvantages of open-panel HMOs

Answer 43

hint: a monster pranced down Everest. Don’t mix potions.

Advantages:

1. More easily marketed and sold because of large panel of private physicians
2. Easier for members to find a participating physician that is conveniently located
3. In IPA models, routine medical management functions may be delegated to the IPA.
4. Easier and less costly to set up and maintain

Disadvantages

1. Because the HMO is not providing medical care itself, it has little ability to manage care
2. Premiums are often higher than those of closed panels

Question 44

Advantages and disadvantages of closed-panel HMOs

Answer 44

hint: a monster attacks candy canes. don’t make leave change colors.

1. not as easily marketed to new members who would have to change doctors
2. locations of medical offices may not be convenient for all members
3. only feasible in medium to large cities
4. more complex and costly to set up and maintain

Question 45

Types of integrated health care delivery systems (IDSs)

Answer 45

hint: poached peaches in milk chocolate, grilled pork with walnuts, pho, mso, f, pso, h

1. IPAs
2. Physician practice management companies - these companies purchased physician practices. Most failed because once physicians sold their practices there was no longer sufficient incentive for them to be productive.
3. group practice without walls - formed as a vehicle for physicians to organize without being dependent on a hospital for services or support
4. physician-hospital organizations - an entity through which a hospital and its physicians negotiate with payers
5. management services organizations - provides a vehicle for negotiating with payers and also provides services to support physicians’ practices
6. foundation model - a hospital creates a not-for-profit foundation which purchases physicians’ practices. Usually done when there is a legal barrier to a hospital employing physicians directly.
7. provider-sponsored organizations - groups of providers who contract directly with Medicare on an at-risk basis for all medical services. They failed because they did not properly spread risk, they attracted too many bad risks, and they did not typically conduct utilization management and disease management.
8. Hospitals with employed physicians - the hospital employs PCPs and specialists. This substantially increases the hospital’s negotiating leverage.

Question 46

Structural requirements of accountable care organizations (ACOs).

Answer 46

hint: elf BMI

1. Those ELIGIBLE to form an ACO include
   a. group practices
   b. networks of individual practices
   c. hospitals
   d. rural health clinics
   e. federally-qualified health centers
2. must be a LEGAL ENTITY that is authorized to conduct business in each state in which it operates
3. must be FORMED for the purposes of
   a. receiving and distributing shared savings
   b. repaying shared losses or other monies owed to CMS
   c. establishes, reporting, and ensuring provider compliance with health care quality criteria
4. at least 75% of the ACO’s BOARD seats must be held by ACO participants
5. MANAGEMENT STRUCTURE must be similar to what is found in a nonprofit health plan
6. participants must have a sufficient INVESTMENT such that ACO losses would be a significant motivator

Question 47

Key characteristics of patient-centered medical homes

Answer 47

hint: QT CAVE P

1. QUALITY and safety are key parts, enhanced by evidence-based medicine
2. patients receive care from a TEAM of individuals led by the personal physician
3. the patient’s care is coordinated or integrated across all elements of the health care CONTINUUM
4. personal physicians take responsibility for providing or ARRANGING all of the care for the patient
5. payment should appropriately recognize the added VALUE provided to patients
6. patients have ENHANCED ACCESS to care through open scheduling and expanded hours
7. patients have an ongoing relationship with a PERSONAL PHYSICIAN

Question 48

Types of individual health insurance

Answer 48

hint: my little girl said all dogs bark like dogs

1. MAJOR medical
2. LIMITED benefit medical - don’t cover enough services to meet the definition of major medical
3. GROUP conversions - policies offered to individuals leaving group coverage. state laws typically required this coverage to be offered.
4. Medicare SUPPLEMENT and Medicare select - supplement Medicare coverage by filling in the gaps in that coverage
5. Medicare ADVANTAGE- plans that contract with the US government to provide benefits to Medicare beneficiaries
6. DISABILITY income - covers income lost due to an illness or injury
7. BUSINESS protection coverage - disability coverage that protects a business against the impact of an employee becoming disabled
8. LTC - covers services for individuals who need assistance performing basic ADLs or who are cognitively impaired
9. DENTAL - not usually sold in the individual market due to antiselection concerns

Question 49

Types of limited benefit medical insuranec

Answer 49

hint: hope other doctors change

1. hospital indemnity - pays a flat amount per day of IP hospitalization. Often limited to a certain number of days, and may have an elimination period
2. other scheduled benefits - limited coverage for one or more indemnity-type benefits
3. dread disease - provide coverage only for a specified list of medical conditions
4. critical illness - provide a lump sum benefit in the case of a heart attack, stroke, heart surgery, cancer, or diagnosis of specified conditions

Question 50

Methods used by disability income policies to adjust for the cost of living

Answer 50

hint: goats act dumb

1. guaranteed insurability - automatically offering increased coverage to active insureds, at specified intervals
2. automatic increases - adjust insured amounts over time, without action by the insured
3. increase benefit payments over time for those on disability

Question 51

Major types of business protection coverage

Answer 51

hint: kids don’t bite

1. keyperson coverage - sold to businesses to protect them from the risk of key individuals becoming disabled. Benefits last one or two years, to provide time for the key employee to be replaced.
2. disability buyout coverage - provides the funds needed (generally lump sum) for totally disabled partner or owner of a business to be bought out by the remaining partners or owners
3. business overhead expense - pays for business overhead expenses in the even to f the owner’s disability. coverage periods are typically fairly short, to provide for short-term needs only

Question 52

Benefits that may be covered by LTC policies

Answer 52

hint: not all hairy horses run marathons ‘cause being cute doesn’t count

1. nursing home care - care provided in a facility that provides skilled, intermediate, or custodial care, and is either Medicare-approved or state-licensed to provide this care
2. assisted living facility care
3. home and community-based care - LTC services provided in the person’s home or in a community-based facility
4. hospice care - care provided through a facility or program designed to serve the terminally ill
5. respite care - formal, paid care provided to relive an informal care provider
6. home modifications and equipment - services that allow an individual to remain at home, rather than have to be institutionalized
7. Care management services - services provided to develop a plan of care, identify providers, and coordinate care
8. bed reservation benefit - continues to reimburse the insured for institutional care even if he or she needs to temporarily transfer to an acute care facility due to a medical condition
9. caregiver training - provides training and education to help informal caregivers obtain state license as a home health care provider
10. death benefit - typically pays a percentage of all premiums paid minus any benefits paid
11. cash alternative benefit - some plans give the option of receiving claim payments from home and community-based care as a cash benefit, rather than as a reimbursement benefit

Question 53

Methods of providing inflation protection on LTC policies

Answer 53

hint: asp

1. automatic inflation protection - benefit limits increase automatically each year by a preset percentage on a compound basis
2. simple inflation protection - like automatic inflation, but using simple interest instead of compound interest
3. periodic increase offers - the insured is periodically given the opportunity to purchase additional coverage on a guaranteed issue basis

Question 54

Components of gross premium

Answer 54

hint: cats and cows probably opened pastries inside

1. claim costs
2. administrative expenses - includes the costs of designing, developing, underwriting, and administering the product, as well as an allocation of overhead costs. Frequently much higher in the first year than in renewal years.
3. Commissions and other sales expenses - includes special bonuses, incentives, and advertising
4. premium tax
5. other taxes and assessments - includes federal and state income taxes and new assessments due to the ACA
6. risk and profit charges - depends on the degree of risk involved, the amount of capital allocated to support the product, and the expected return on the capital
7. investment earnings - typically credited based on assets held

Question 55

Considerations in developing administrative expense assumptions

Answer 55

hint: eagles attract far more active communities

1. how expenses are allocated to the product. methods include:
   a. activity based allocation - distributes expenses according to some measure of use
   b. functional expense allocation - determines how expenses are split by line of business for new and renewal business
   c. multiple allocation methods - a combination of the other two methods
2. how administrative expenses should be allocated to groups - should differentiate between first year and renewal expenses
3. What the competition includes as expenses in its pricing - adjustments may be needed to match what others are doing in the marketplace

Question 56

Types of bases used for allocating expenses

Answer 56

hint: pep ccc

1. percent of premium
2. percent of claims
3. per policy
4. per employee
5. per claim administered
6. per case

Question 57

Common rating characteristics included in manual rates for group health insurance

Answer 57

hint: P gag shit

1. age
2. gender
3. health status
4. rating tiers
5. geographic factors
6. industry codes
7. group size
8. length of the premium period

Question 58

common rating tiers for group health insurance

Answer 58

1. one tier: composite
2. two tier: employee only, family
3. three tier: employee only, employee and one dependent, family
4. four tier: employee only, employee with one dependent, employee with children, family
5. five tier: employee only, couple, employee with child, employee with children, family

Question 59

Considerations in developing a manual claim table for life insurance

Answer 59

hint: a painter came down making really cool artistic collages

1. two APPROACHES can be used:
   a. manual PREMIUM tables - calculate the manual premium rate, then adjust for group size. this adjustment will reflect the margin, profit, and expenses appropriate for the group size, relative to the averages built into the table.
   b. manual CLAIM tables - calculate the manual claim rate then add the appropriate margin, profit, and expenses
2. DATA sources - could use SOA studies, industry mortality tables, population statistics, or own company experiences
3. changes in MORTALITY - expected future mortality improvement should be reflected
4. REINSURANCE - the net cost of reinsurance should be factored into the claim table or expenses
5. CONVERSIONS to individual life policies - these create severe antiselection, which should be reflected in the manual rates
6. manual ADJUSTMENTS are made for group -specific traits
7. rates for the group are based on age and gender mix, but groups typically end up charging a COMPOSITE rate to all employees

Question 60

Uses of general population data for pricing life insurance

Answer 60

hint: iguanas race green newts

1. estimating annual IMPROVEMENTS in mortality
2. determining RATIOS of mortality by age bracket
3. comparing male and female mortality (GENDER)
4. developing rates for the NON-WORKING population (the very young and very old)

Question 61

Manual claim table adjustments for group life

Answer 61

hint: my country lacks cultural PRIDE

1. MARKETING considerations - e.g. added charges for rate guarantees
2. CONTRIBUTION schedules - e.g. a 5% discount if the employer pays the entire premium
3. LIFESTYLE factors - e.g. adjustments based on the percentage of employees that smoke
4. CASE SIZE factors and volume adjustments - larger groups may have lower mortality or expenses
5. PLAN OPTIONS - optional benefits and allowing lots of employee choices will create antiselection
6. REGIONAL factors
7. INDUSTRY factors - usually based on SIC codes
8. DISABILITY factors - an adjustment is needed if a group has a different waiver of premium approach than is assumed in the manual rates
9. EFFECTIVE DATE adjustment - an adjustment is needed if the central date of coverage is not July 1

Question 62

Types of living benefits for life insurers

Answer 62

hint: LTC

1. LTC benefits - provides a monthly benefit of 2% of the face amount, beginning when the insured is permanently confined to a nursing home
2. Critical illness benefits - typically pays 25% of the face amount upon the occurrence of a listed disease, such as stroke or cancer
3. terminal illness benefit - pays 25% to 50% of the face amount when the insured has been diagnosed with a terminal illness with less than 6 or 12 months to live

Question 63

Steps in developing claim costs for use in a rate manual

Answer 63

hint: cannibals need people

1. collect data - data should be collected for a period of at least 12 months to avoid seasonality issues
2. normalize the data for important rating variables
3. project experience period costs to the rating period - claim costs need to be trended from the experience period to the rating period

Question 64

Important rating variables when normalizing data for use in the rate manual

Answer 64

hint: a giant brown cat upstaged poor orangutans

1. AGE and gender - it may be appropriate to have separate age and gender factors for different major service categories or different plan types such as high deductible plans
2. GEOGRAPHIC area - the data should be adjusted to reflect one specific geographic area
3. BENEFIT PLAN - adjust the data to reflect a common benefit plan
4. group CHARACTERISTICS- the manual rate should represent the average group with respect to group characteristics, such as industry and group size
5. UTILIZATION MANAGEMENT programs - adjust for any changes in these programs
6. PROVIDER REIMBURSEMENT arrangements - adjust for any changes in provider arrangements
7. OTHERrisk adjusters - these may eventually become the primary method of risk adjustment

Question 65

Methods of adjusting manual rates for specific benefit plans

Answer 65

1. claim probability distributions - these are typically used to estimate the impact on claim costs of deductibles, coinsurance, OOP maximums, and annual benefit maximums
2. actuarial cost models - these models build estimated total claim costs by developing a net claim cost for each detailed type of service and summing to get the total

Question 66

Data sources for estimating disability claim costs

Answer 66

hint: only cows get into Ivy college

1. a company’s OWN DATA is the best source if the data is reliable and credible
2. rate filings of COMPETITORS
3. research of GOVERNMENTAL and business publications
4. INSURER STUDIES - such as loss ratio studies and actual to expected incidence or termination rates
5. INDUSTRY data and tables
6. data from CONSULTING firms and reinsurers

Question 67

Industry data and tables

Answer 67

1. 1987 Commissioners Group Disability table - adopted by the NAIC as the statutory minimum reserve basis for LTD
2. SOA 2000 basic experience table
3. TSA reports - contain exposure and actual to tabular ratios
4. 1985 commissioners individual disability table A - basis for active life reserves and claim reserves for individual policies
5. SOA individual disability experience committee 1990-1999 study

Question 68

Types of disability income experience studies

Answer 68

hint: CIA

1. calendar year loss ratio study
   a. compute the ratio of incurred claims to earned premium for a given calendar year
   b. incurred claims are calculated as paid claims plus the increase in claim reserves
   c. may not provide a clear picture of historical trends because results are affected by reserve changes
2. incurral year loss ratio study
   a. compute the ratio of incurred claims to earned premium for a given incurral year
   b. incurred claims are calculated as the PV of claim payments made to date plus the PV of the current claim reserve
   c. shows historical trends because the full cost of a claim is attributed to the year the claim was incurred
3. study of actual-to-expected incidence or termination rates - ratios of a company’s actual claim incidence or termination rates compared to expected rates from published industry tables or company data

Question 69

Formula for disability income net monthly premium

Answer 69

net monthly premium - incidence rate x sum (benefit x continuance x interest discount)

the summation runs for the entire length of the benefit period

Question 70

Group characteristics that impact disability income claim costs

Answer 70

hint: an orange is edible and sweet
1. AGE and gender

2. OCCUPATION - may need to adjust for
   a. hourly vs. salaried
   b. blue vs. grey vs. white collar
   c. union vs. non-union
   d. commissioned sales personnel
3. INDUSTRY - for group insurance, it is more appropriate to rate based on industry than on occupation
4. average EARNINGS per employee - claim costs decrease as average earnings increases
5. AREA - claim costs vary due to legal environment and the general attitude and culture of the area
6. SIZE of group - claim costs follow a U shaped curve, with higher costs for the largest and smallest employers

Question 71

Data sources for developing dental claim costs

Answer 71

hint: be careful with pistols

1. covered BENEFITS - plans often have a missing tooth provision and limit the replacement of dentures to once every 5-7 years
2. COST SHARING provisions - these provisions are important because receiving proper dental care is very elective from the insured’s point of view. provisions include deductibles, coinsurance and copays, and maximum limits
3. WAITING PERIOD - used to discourage individuals from enrolling for one year to treat significant dental problems and then dropping coverage
4. PERIOD OF COVERAGE - will need to project past experience into the future. dental trend should not be assumed to be the same as medical trend

Question 72

Network and care management practices that impact dental claim costs

Answer 72

hint: rats cause mischief

1. provider REIMBURSEMENT levels
   a. FFS reimbursement may be base don usual, customary, and reasonable levels
   b. PPO networks contract for reduced fees from a limited number of dentists. The dentist may not bill above those levels
   c. capitation is common with dental HMO plans
2. CARE MANAGEMENT practices - these will depend on the reimbursement method used. practices include preauthorization and self-management

Question 73

Insured characteristics that impact dental claim costs

Answer 73

hint: a gator saw people take other crocodiles

1. AGE and gender - adults have higher costs than children, females have higher costs than males
2. GEOGRAPHIC area - can be a significant factor
3. group SIZE- smaller groups have higher costs
4. PRIOR COVERAGE and pre-announcement - groups without prior coverage will have high costs in the first year due to utilization by those who had put off having dental work done. if the plan is announced many months prior to becoming effective, this problem becomes even worse.
5. employee TURNOVER- high turnover increases costs since some new employees didn’t have prior coverage
6. OCCUPATION or income - entertainers, professionals, and groups who are more aware of their benefits have higher costs
7. CONTRIBUTION and participation - groups with less than 100% participation will have higher costs due to antiselection. The level of participation is inversely related to the required contribution level

Question 74

Major effects of the year 2000 changes in the NAIC LTC Model Act

Answer 74

hint: dam bers
1. requires DISCLOSURE of rating practices at the time of application e.g. including a statement that the policy may be subject to future rate increases
2. requires an ACTUARIAL CERTIFICATION at the time of initial rating - must include a statement that the initial rates are sufficient to cover anticipated costs under moderately adverse experience
3. eliminates MINIMUM LOSS RATIO requirements in the initial rate filing
4. places limits on EXPENSE ALLOWANCES in the event of a rare increase - if a rate increase is requested, the lifetime loss ratio must not be less than a weighted average of 58% of the initial premium and 85% of the premium increase
5. Requires REIMBURSEMENT of unnecessary rate increases - this could result if the revised premium schedules are more than double the initial rates
6. for policies in a rate SPIRAL, guarantees policyholders the right to switch to currently-sold insurance without underwriting
7. authorizes the commissioner to BAN companies for 5 years if they persist in filing inadequate initial problems

Question 75

Major effects of HIPAA on LTC

Answer 75

hint: QTTR (quitter)

1. defined qualified plans
2. clarified taxation of premium and benefits - established that a qualified LTC insurance contract shall be treated as an accident and health insurance contract for tax purposes
3. standardized benefit triggers
4. allowed tax reserves to be calculated on a one-year preliminary term basis for tax-qualified plans

Question 76

Major stakeholders in the group LTC policy design process

Answer 76

hint: even elephants bring insight

1. employer group
   a. LTC is appealing because it complements other products such as disability and life coverages and relative to medical is a low-cost benefit with stable pricing
   b. may not be able to offer guaranteed issue to all active employees, since this could make the premiums more expensive than similar individual policies
2. employees
   a. may not yet be aware of the risk covered by LTC insurance
   b. concerned with the significant cost, which may even exceed the cost of individual policies
3. insurance brokers - have found that group LTC insurance provides the opportunity to open the door to competitive life and disability markets
4. insurance company
   a. concerned with up-front acquisition costs, the risk of low enrollment, and the need to sell to both the employer and employee
   b. costs vary significantly by participation level, making this a key assumption

Question 77

Assumptions needed for a LTC pricing model

Answer 77

hint: clam, prom, gem, is

1. voluntary LAPSES- lapse rates are much lower than for other types of health insurance. premiums are very sensitive to changes in lapse assumptions
2. MORTALITY - most companies use the 1994 GAM table
3. MORBIDITY
   a. marital status
   b. gender
   c. benefit trigger
   d. area
   e. case management
4. selection factors
5. expenses - start-up expenses are high relative to other types of business
6. interest - the investment rate on assets is a key assumption because of the large amount of reserves
7. reserve basis - important considerations include the level of margins and how these margins are achieved
8. other assumptions - including the average daily benefit and premium mode
9. profit - typically based on lifetime goals for pre-tax profits, post-tax profits, return on investments, or return on equity

Question 78

reasons for experience rating

Answer 78

hint: gorillas can act

1. groups want it - at least those with good experience want the premium to reflect it
2. the insurer wants to quote and charge premiums that are as competitive as possible
3. the insurer wants to avoid antiselection

Question 79

theoretical considerations in determining credibility levels

Answer 79

hint: fox says cah-sha-ee!

1. coverages with low claim frequency are more volatile and will require a larger exposure base to be credible
2. coverages with widely varying claim sizes will tend to be more volatile
3. the statistical confidence interval chosen by the insurer
4. historically, statistical fluctuation was considered to vary inversely with the square root of the number of claims or lives. so it will take 4 times the exposure to vary the credibility
5. for coverages with stochastically independent claims, longer experience periods can be used to increase exposure and therefore credibility

Question 80

Practical considerations in determining credibility levels

Answer 80

1. competitive pressures to keep rates low
2. corporate strategy
3. administrative capacity
   - trade-off between quality and quantity of business

Question 81

Pooling methods

Answer 81

hint: Charlie likes charred mutton chops

1. catastrophic claim pooling - forgive large claims
2. loss ratio or rate increase limits - put a cap on one of the following: the loss ratio used in pricing, the rate increase proposed, or the aggregate claim dollars a group will be charged
3. credibility weighting - weight with the expected incurred claims for the entire pool
4. multi-year averaging - combine several years of experience
5. combination methods - for example, use both catastrophic claim pooling and a rate increase cap

Question 82

loadings on the net premium (retention)

Answer 82

hint: ed - duck tacos, pickled peppers, red ember IPA

1. EXPENSE LOADINGS - usually the largest part of retention
2. DEFICIT RECOVERY charge - charged to a specific policyholder to recover that policyholder’s past losses
3. TERMINATION RISK charge - charged to everyone to finance the risk of groups leaving while in a deficit position
4. POOLING charges - usually covered in net premium
5. PROFIT charge or contribution to free servers - may be built into other assumptions
6. charge to cover RISK OF RATE GUARANTEES. this risk arises due to misestimation risk and trend risk
7. EXPLICIT MARGIN - reduces insurer’s risk
8. INVESTMENT income - may be credited

Question 83

considerations in deciding whether to use retrospective experience rating

Answer 83

hint: sara - cranberry fruit popsicles

1. group SIZE- the group must be large enough to have credible data and to warrant the cost and time of experience rating
2. CONTRACT PROVISIONS regarding the funding arrangement - some funding arrangements will replace the experience rating formula
3. company FINANCIAL SITUATION - crucial for insurers with small surplus
4. company POLICIES and practices - is an overriding factor

Question 84

special funding arrangements for group insurance

Answer 84

hint: ruokai - fresh spicy mustard, seared ribs

1. RESERVELESS plans - the insurer forgoes premiums equal to part or all of the claim reserves. in return, the insurer receives a terminal premium when the group terminates. The policyholder chooses how to invest money.
2. FULLY-INSURED plans - the standard arrangement. policyholder pays insurer, who pays claims.
3. SELF-INSURED plans - a trust receives employer money and pays the claims. stop loss is usually purchased from an insurer. governed by ERISA (no premium taxes or state mandates).
4. MINIMUM PREMIUM contracts - fully insured plan that includes a minimum premium rider. avoids premium tax on the portion of premium used to pay claims.
5. STOP LOSS contracts - trends are leveraged, so give them special attention
6. RETROSPECTIVE PREMIUM arrangements - the policyholder pays some percent of the regular premium. at the end of the period, the policyholder is liable for an additional premium up to some amount.

Question 85

Components of medical trend

Answer 85

hint: matt - diced salmon, bread, raspberry milkshake

1. general MACRO ECONOMIC FACTORS - the force of trend is the trend in average per capita reimbursement to providers of medical care services from all types of private payers
2. changes in DEMOGRAPHICS and health status of the covered population
3. the STRUCTURE of the carrier’s provider contracts, and changes in that structure
4. BENEFIT and cost sharing PROVISIONS, and changes in those provisions
5. RANDOM fluctuations - is a major source of variation for small blocks
6. MANAGED CARE initiatives - some initiatives will have a one-time effect on trends, while others will have longer term impacts

Question 86

External sources of trend information

Answer 86

hint: penny - milk chocolate and nougat tart

1. proprietary databases
2. medicare - history of cost increase for the over age 65 and disabled populations. distorted by eligibility expansions and legislative changes.
3. national health expenditure portion of GDP - generally not helpful for current monitoring purposes because publication of the index is slow and subject to revision.
4. Medical CPI/PPI - M-CPI measures the increase in OOP costs and the consumer portion of health insurance costs. PPI measures the cost of producing units of health care services.
5. Trend surveys - typically compiled by consultants. Provides a second opinion of internal trends.

Question 87

Micro-economic variables for modeling health care consumption.

Answer 87

hint: hell - avocados, apples, pears

1. health status of the individuals
2. availability and scope of insurance
3. access to care
4. actions of the primary care physicians

Question 88

Macro-economic variables that affect health care cost trends

Answer 88

hint: worthington - IPA, salmon, tomatoes, mayo

1. WEALTH - increased welath is a leading indicator of increased consumption and also investment in research
2. general INFLATION
3. PHYSICIAN supply - increased supply should decrease prices and increase quantity and quality
4. population AGING- causes consumption to increase
5. more SPECIALISTS- appears to have led to greater use of technology and more intense therapies
6. effect of THIRD PARTY payers -decreases the consumer’s sensitivity to costs and increases consumption
7. MANAGED CARE - has affected consumption

Question 89

Trend analysis techniques

Answer 89

hint: ashley - riddichio and edemame

1. actuarial models - projects utilizationa nd price data by type of service, but the result is mostly based on historical experience
2. linear regression model of historical average trend, but does adjust for random fluctuation
3. ARIMA models - do not work for cyclical changes that affect trends, so they are only good for short periods
4. External indicator models - typically statistical in nature and rely on causal modeling techniques. Requires the use of a leading indicators or a coincident indicator that has specified future values such as Health Cost Index.

Question 90

Common challenges in trend analysis

Answer 90

hint: patrick - shrimp on mostacotti pasta with lemon

1. changes in claim PROCESSING and payment patterns
2. SEASONALITY - can smooth out by using 12 month moving averages
3. ONE-TIME EVENTS such as high flu season - can significantly change claims during one period, followed by a return to normal levels in later models
4. MARGINS- in some situations, adding an explicit margin for uncertainty can be appropriate or even required
5. changes in PRIOR PERIOD ESTIMATES - the base period claim costs to which the trend is applied may not be complete when claims are projected, so the reserve estimate will impact projected claims
6. LEGISLATIVE CHANGES - rating laws, mandated benefits, and other changes can cause one-time and ongoing changes in trends

Question 91

Steps of the product development cycle

Answer 91

hint: Ivan - dumplings, buns, shrimp, and rice

1. innovate - consists of
   a. understanding the company’s strategic perspective
   b. development of new ideas
   c. idea screening - check for consistency with corporate goals and feasibility with the corporation’s abilities
   d. market assessment - to determine if a market exists for the product
2. design the product - this phase consists of determining the product structure, plan design options, contribution requirements, and regulatory compliance
3. build the product
4. sell the product - the product is often test marketed, after which revisions are done before it is mass marketed
5. assess the product - monitor financial results and consumer and market feedback
6. revise the product - changes may be indicated by the product assessment, regulatory requirements, or consumer demand

Question 92

Common drivers of product ideas

Answer 92

hint: ice cream can make children sleepy during educational classes

1. INNOVATOR or follower - some companies are successful at innovating, while others are successful at following and learning from competitors
2. CHANGING LAWS and regulations - new rules can lead to new products developed specifically to operate within the new set of rules
3. CONSUMER demand - companies must constantly seek consumer feedback and market intelligence
4. MARKETING and sales - these teams can spot holes in the product spectrum where consumer demand is not being fully met
5. leveraging insurer CAPABILITIES - product development teams must know what the insurer does well and find ways to grow in those areas
6. SOCIAL NEED - for example, Medicare Part D served the social need to helping seniors who were being overwhelmed by the cost of expensive medications
7. changing DEMOGRAPHICS- leads to a shift in the types of products that will be marketable and sellable
8. changing ECONOMY and financial markets - leads to changes in purchasers’ views of their need for insurance
9. COMPETITIVE ADVANTAGE - product development ideas should utilize the company’s competitive advantage

Question 93

Questions answered by a market assessment

Answer 93

hint: Erica - oranges, raspberry vinigarette, pecans, cranberry salad

1. what EXISTS in the market today?
2. what is the product OBJECTIVE for the consumer?
3. what is the REGULATORY environment for this product?
4. what are the financial VALUE and other benefits for the consumer?
5. what are the PRICE targets?
6. what is the likely reaction from COMPETITORS?
7. how will the SALES team react?

Question 94

Steps for building a new product

Answer 94

hint: Eric - peanuts, fries , icee, soda

1. project enrollment - this is critical to helping senior management decide whether the product is worth pursuing
2. price the product - includes an assessment of the market price sensitivity. after initial pricing, the projected enrollment should be reviewed again.
3. perform financial assessments - to determine whether the new product can meet the company’s required return on investment or return on equity
4. implement the infrastructure needed to administer the product (process claims, bill and collect premiums, and service member inquiries)
5. get senior management approval

Question 95

Key players in the product development cycle

Answer 95

hint: Darci - seared marshmallow sundae under cherry flavored ice cream, apples and oranges

1. product development team - is responsible for generating new product ideas and studying the market
2. senior management - sets the company goals and is responsible for making the decision to pursue a proposed idea
3. marketing - is focused on advertising, name recognition, and branding
4. marketing - is focused on advertising, name recognition, and branding
5. underwriters - can help quantify the risk associated with certain plan features
6. information technology (IT) - can help in understanding the feasibility of the infrastructure needed to administer the product
7. operations - work with IT teams to administer the product
8. compliance - ensures the product is compliant with laws and regulators
9. actuarial - prices the product and works on the projections and feasibility studies
10. finance - reviews the projected enrollment and pricing to determine whether projections meet corporate profit targets

Question 96

Desired characteristics of premium rates

Answer 96

hint: ACE

1. adequate - high enough to generate an acceptable return on equity
2. competitive - low enough to enroll enough members to meet volume and growth targets
3. equitable - to avoid an unreasonable amount of cross-subsidization among groups

Question 97

Information gathered during underwriting for managed health care

Answer 97

hint: steven - pop

1. health STATUS- determined based on:
   a. for individual and small group: physician exams, prescription drug histories, and medical questionnairs
   b. for large groups: medical and cost experience and a listing of employees’ major health conditions
2. ability to PAY the premium - based on income verification and credit history
3. availability of OTHER COVERAGE - information is needed for coordination of benefits with other insurance and workers’ compensation
4. historical PERSISTENCY - groups that frequently change carriers may not persist long enough for the insurer to recoup acquisition costs

Question 98

Steps in the rate formula for managed health care

Answer 98

hint: beth - American meatloaf, royal coke

1. develop the projection period base rate PMPM - based on historical medical costs trended forward, and reflects the average
2. apply group-specific additive adjustments - such as the added cost of covering mandated services in a given state
3. apply group-specific multiplicative adjustments - includes factors for the benefit plan, geographical area, age/ gender, degree of health care management, and health status
4. add retention loads - includes administrative expenses, a buildup of contingency reserves, coordination of benefits savings, and profit
5. convert to a contract rate - for group coverages, this includes developing tiered rates

Question 99

Rate setting approaches

Answer 99

hint: Rosenbaum - fish, tarter sauce, broccoli
1. RERATING- rating based on direct, existing experience

2. FUNDAMENTAL pricing - rating from other data sources, which are adjusted to apply to the current situation
   a. TABULARmethod - an existing table is used as the morbidity basis for pricing. Typically used for long term, non-inflation sensitive products
   b. BUILD UP and density functions - a model is built to determine expected claims in the rating period. Generally used for inflation-sensitive products
   c. SIMULATION - an existing distribution of expected claims is projected into the rating period, using all known information about the claimants

Question 100

Major considerations in the rate setting process

Answer 100

hint: mike - roasted eel with soy dressing

1. the market - competitors’ pricing sets expectations for consumers, limiting pricing options
2. existing products - expectations will exist for the company’s product, based on its current products
3. distribution system - the compensation system, the structure of the distribution system, and the level of company control are all relevant in pricing
4. regulatory situation - limitations may exist that impact how rates are set, and whether needed rate increases are allowed
5. strategic plan and profit goals - pricing practices should reflect the company’s goals

Question 101

Major rating variables

Answer 101

hint: ann - danish with grape marmalade, oranges, and pecans
greg: sprite, hickory smoked wings and strawberry oatmeal

1. age - claim costs increase significantly by age for almost all health insurance coverages
2. duration - durational trends are the trends in excess of those generated by insured age alone. They typically come from initial underwriting and from cumulative antiselection
3. gender - most coverages vary rates by gender, unless prohibited by law
4. marital status - this is a big factor for LTC, since having a spouse at home can decrease the need for a nursing home
5. parental status - rates must vary based on how many people are insured
6. occupation - an important rating factor for DI coverages, but not for other coverages
7. geographical area - rates may vary by area due to different patterns of care, provider contracts, availability of care, and legal requirements
8. current health status
9. past claim history - renewal rates are sometimes based on claim experience
10. smoking status
11. weight
12. presence and nature of other coverage
13. situation - specific factors

Question 102

Types of age rating structures

Answer 102

hint: unagi eel and avocados

1. attained age rating - a policyholder’s rate is a function of his age at renewal. Also referred to as step rating if rates are grouped into age bands
2. entry age or issue age rating - the rate reflects the age of the policyholder when the policy was issued
3. uni-age rating - the rate structure doesn’t recognize age at all, leading to subsidization of older individuals. most community rate structures are uni-age

Question 103

Using the buildup and density function approach for pricing

Answer 103

1. buildup approach - each claim type has its own claim cost calculation, as the product of claim frequency times average cost per service. The total claim cost is the same of the various categories. Works well for benefits with copays
2. density functions - calculates a distribution of the expected annual claims for an individual, with no calculation of the different categories of benefits. Is useful when calculating the impact of deductibles and OOP limits.
3. Combining buildup and density fluctuations - for PPO products, may calculate IN costs using the buildup approach, and OON costs using the density approach. The two are combined to get a final cost.

Question 104

Steps of the rerating approach for pricing

Answer 104

hint: evelyn - rice, peanut chicken rolls

1. gather EXPERIENCE on existing business - use incurred claims and earned premiums. the reliability of the data should be assessed before using it.
2. RESTATE experience - past premiums should be restated to the rate levels currently in effect
3. project PAST RESULTS to the future - adjust for items that cause future experience to differ from past experience
4. COMPARE the projection against desired results - a rate increase is calculated by determining how much rates need to change to produce the desired loss ratio
5. apply REGULATORY and management adjustments

Question 105

adjustments needed for using past claims to project future claims

Answer 105

hint: cora - dried bangus, cooked longonisa, oil

1. changes in the COVERED POPULATION
2. changes in DURATION - should anticipate durational effects in claim costs
3. changes in BENEFITS - changes may be explicit (such as a change in copays) or implicit (such as a change in how a policy provision is interpreted)
4. changes in CLAIM COSTS - must project changes in frequencies and changes in average costs
5. LEVERAGING - as trends changes the average claim cost, the impact of deductibles and copays causes claims to increase at a rate greater than trend
6. OTHER changes - includes antiselection, changes in uw, and change sin business practices

Question 106

Reasons for management adjustment in pricing

Answer 106

hint: Christie - pusit, sans rival, puto

1. COMPETITIVENESS of the premiums for new business
2. PROFITABILITY in other lines of business
3. SOCIAL policy
4. RELATIONS with the public or the sales force
5. desire to manage the block from a long-term PERSPECTIVE

Question 107

Items included in asset share projections

Answer 107

hint: creep c

1. exposure value - including the number of policies sold or in force, number of claims or claim payments, number of premium collections, and number of units sold or in force
2. revenue values - including premium, investment income, and explicit subsidies
3. claim values - paid claims, incurred claims, claim reserves, claim adjustment expense reserves, and policy reserves
4. capital values - must model the cost of the capital used by the line of business
5. expense targets - expense loadings may be very detailed. the cost of capital is sometimes treated as an expense
6. profit targets - profit is calculated in one of the following ways
   a. percent of premium - present value of profits divided by PV of premium
   b. ROI - this is the interest rate at which the PV of future profits will exactly equal the initial investment
   c. ROE - this is like the ROI method, except the initial investment is increased by the amount of capital that is set aside to cover the business

Question 108

Steps for experience rating of disability coverage

Answer 108

hint: make everyone buy that
1. determine the group’s MANUAL RATE with profit and expenses removed

2. determine the EXPERIENCE-BASED RATE using the last 3-5 years
   a. discount claims and reserves to the midpoint of the experience period or to the actual date of disability
   b. divide by exposure to get the experience-based claim rate
   c. if large claims are pooled, add a pooling charge
3. BLEND the manual rate and the expense-based rate to get the case claim rate
   a. blended rate = manual claim rate x (1-Z) + experience claim rate x Z
   b. Z = N / (N+K) where N = member of life years and K = constant
4. Final case premium = blended rate/ TARGET loss ratio

Question 109

Steps in the claim process for disability

Answer 109

hint: even dragons prefer prada

1. determine ELIGIBILITY for coverage - is the claimant insured and actively at work, is there a pre-existing condition?
2. determine if the DEFINITION OF DISABILITY is met - this is the most difficult step of the process
3. determine the PAYMENT AMOUNT (usually straightforward)
4. get ongoing PROOF of disabilities
   a. STD - often approved for a specified period based on the type of disablement
   b. LTD - reviewed annually, when the condition of treatment changes, or when the definition of disability changes

Question 110

Tools of the claim process for determining and handling disabilities

Answer 110

hint: Mr. Feenie says fail Matthews

1. medical evaluation - begins with an APS and can include independent medical exams
2. rehabilitation plans - providing vocational training or physical rehabilitation
3. financial evaluation of the claimant - verification of pre-and post-disability earnings
4. settlements -there are risky, so be sure the insurer is not perceived as taking advantage of the claimant
5. fraud review - check information for inconsistencies or alterations
6. managed disability - techniques are used to manage disability and encourage a return to work

Question 111

Uses of health insurance loss ratios

Answer 111

hint: PIGS take cocaine

1. evaluating of an organization’s PERFORMANCE
2. providing consumers with INFORMATION on the relative quality of competing health plans
3. projecting future earnings GROWTH of HMOs
4. TESTING products against minimum loss ratio standards
5. COMPARING insurers and MCOs

Question 112

Users of loss ratios

Answer 112

hint: lisa - vanilla ice cream, with raspberries, toasted almonds, milk toffee

1. legislators use loss ratios to make sure that a reasonable percentage of premium is allocated to the cost of benefits
2. regulators use loss ratios to monitor insurance companies
3. investors, investment analysts, and lenders use loss ratios to track tends in a company’s earnings
4. rating agencies refer to loss ratio trends in their reports
5. insurance companies and managed care companies use loss ratios to set target premiums, determine rate increase needs, assess product viability and performance, and to compare results with other companies
6. consumer advocates use loss ratios to compare the performance of companies, reasoning that high loss ratios are best for consumers

Question 113

Payment mechanisms for prescription drugs

Answer 113

hint: AAA wum

1. average manufacturer price (AWP) - the price manufacturers use for selling to wholesalers. In Canada, this is called the manufacturer’s list price (MLP), and is regulated to ensure the prices charged are reasonable and in line with the prices of alternative treatments
2. wholesale acquisition cost (WAC) - the manufacturer’s suggested list price, which may also be used as a sale price to the wholesaler
3. average wholesale price (AWP) - is based on data obtained from manufacturers and distributors, but it’s not an average nor is it based on any actual prices paid by anyone
   a. WAC and AWP are ht emost widely accepted mechanisms. WAC must equal 80% of AWP in the US, due to legislation
4. Actual acquisition cost (AAC) - the price retailers pay to wholesalers, negotiated between the two parties. In some cases, pharmacies buy drugs directly from manufacturers, in which case AAC = AMP
5. Usual and customary retail price - the price consumers pay to retailers. It includes the retailer’s AAC plus a markup.
6. Maximum allowable cost (MAC) - is typically used for generic drugs and can be viewed as a fee schedule

Question 114

Layers (participants) within the prescription drug distribution channel

Answer 114

hint: Mr. Wheaton request camera people

1. manufacturers produce drugs and typically sell them to wholesalers based on AMP or WAC
2. Wholesalers act as middlemen because retailers generally prefer to purchase drugs from one source rather than negotiating with hundreds of individual manufacturers. They sell to retailers based on WAC plus a markup or a discount off AWP
3. Retailers dispence prescription drugs to consumers, charging a U&C retail price. But if insurance is involved, the retailer will negotiate pricing with the insurer or its contracted pharmacy benefit manager.
4. Consumers purchase drugs at the U&C price if there is no insurance. if insurance is involved, consumers typically pay a copay or coinsurance and the insurer pays the rest of the negotiated price.
5. PBMs and insurers are not involved in distributing drugs except for PBMs who own mail service or specialty pharmacy facilities

Question 115

Actuarial standards for the use of data

Answer 115

hint: SLURR

1. SELECTION of data
2. LIMITATIONS of the actuary’s responsibility - the actuary is not required to audit the data or determine whether data supplied by others is intentionally misleading
3. USE of data - the actuary must decide whether the data is of sufficient quality, if adjustments need to be made, or if data defects prevent the analysis from being done
   documentation regarding data quality
4. RELIANCE on data and other information supplied by others - the actuary may rely on such information but should disclose this reliance
5. REVIEW of data - the actuary should review the data for reasonableness and consistency, unless such a review is not practical

Question 116

Considerations in selecting data for an actuarial analysis

Answer 116

hint: a really large flame-broiled steak

1. APPROPRIATENESS for the intended purpose
2. REASONABLENESS, comprehensiveness, and consistency of the necessary data elements
3. any known material LIMITATIONS of the data
4. the cost and FEASIBILITY of obtaining alternative data in a reasonable time frame
5. the cost and BENEFIT associated with using an alternative data set or data source
6. SAMPLING methods that were used to collect the data

Question 117

Required documentation related to data quality

Answer 117

hint: please don’t add sexually lisidious comments because lisidiousness offends donors

1. the process the actuary followed to evaluate the data, and any limitations due to data that was not reviewed
2. a description of any material defects the actuary believes are in the data
3. a description of any adjustments or modifications made to the data#25 ap
4. the source of the data
5. any limitations on the use of the actuarial work product due the the data quality issues
6. any unresolved material concerns the actuary may have about the data
7. any results that may be biased due to data quality issues, including the magnitude of the bias
8. disclosures in accordance with ASOP 41 in the following situations
   a. if any material assumption or method was prescribed by law
   b. if the actuary relies on other sources and thereby disclaims responsibility for any material assumption or method
   c. if the actuary has otherwise deviated materially from ASOP guidance

Question 118

Situations in which ASOP #25 applies

Answer 118

hint: let every body rise

1. when the actuary is required by applicable law to evaluate credibility
2. when the actuary chooses to evaluate the credibility of subject experience
3. when the actuary is blending subject experience with other experience
4. when the actuary represents the data being used as statistically or mathematically credible

Question 119

Recommended practices for using credibility procedures

Answer 119

hint: a really unique characteristic can prevent homeliness

1. the actuary should use an appropriate credibility procedure when determining if the subject experience has full credibility or when blending the subject experience with the relevant experience. In selecting a procedure, consider
   a. whether the procedure is expected to produce reasonable results
   b. whether the procedure is appropriate for the intended use and purpose
   c. whether the procedure is practical to implement when considering its cost and benefit
2. the actuary should exercise professional judgement in selecting relevant experience to blend with the subject experience. This relevant experience should have characteristics similar to the subject experience.
3. The actuary should use professional judgment when selecting, developing, or using a credibility procedure.
4. The actuary should consider the homogeneity of both the subject experience and the relevant experience.

Question 120

Definition of employee benefits

Answer 120

hint: Lindsay - trail mix with raisins, little marshmallows

1. the employer’s share of LEGALLY-REQUIRED payments
2. payments for TIME NOT WORKED
3. the employer’s share of MEDICAL and medically-related payments
4. the employer’s share of RETIREMENT and savings plan payments
5. MISC benefits

Question 121

Reasons for the growth of employee benefit plans

Answer 121

hint: Becca - tall, light espresso with cream

1. BUSINESS reasons - good benefit plans help the employer attract and retain capable employees, and can improve employee morale and productivity
2. favorable TAX legislation - many plans are designed to maximize available tax benefits
3. LEGISLATIVE actions - the government has encouraged employee benefit plans through various legislative actions
4. EFFICIENCY of the employee benefits approach - marketing of benefits through the employer is a cost-effective and administratively efficient distribution channel
5. WAGE INCREASE LIMITS - wage increase limits during WWII and the Korean War led to an expansion of employee benefits as a way in which employers could increase the employees’ total compensation
6. COLLECTIVE BARGAINING - the Taft-Hartley Act requires good-faith collective bargaining over conditions of employment

Question 122

Characteristics of the group technique of providing employee benefits

Answer 122

hint: every fish needs plenty (of) water, liquid, and algae

1. only certain groups are ELIGIBLE- groups formed solely for the purpose of obtaining insurance should not be offered coverage
2. steady FLOW of lives through the group - to maintain a fairly healthy group
3. minimum NUMBER of persons in a group - to prevent less-healthy lives from being a major part of the group
4. a minimum PORTION of the group must participate - such as 75%of employees must be covered in plans where the employee must pay a portion of the premium
5. eligibility requirements and WAITING PERIODS are imposed
6. maximum LIMITS for any one person - to prevent the possibility of excessive amounts of coverage for any particular unhealthy individual
7. AUTOMATIC DETERMINATION of benefits - some benefits may be determined based on a formula to prevent unhealthy lives from obtaining large benefits amounts
8. a central and efficient ADMINISTRATIVE AGENCY - to minimize expenses and handle the mechanics of the benefit plan

Question 123

Questions to ask in evaluating employee benefit plans

Answer 123

hint: coco fab

1. how should the plan be COMMUNICATED?
2. what are the OBJECTIVES of the employer and employee?
3. who should be COVERED under the benefit plan? retirees? dependents?
4. should employees have benefit OPTIONS?
5. how should the benefit plan be FINANCED?
6. how should the benefit plan be ADMINISTERED?
7. what BENEFITS should be provided?

Question 124

Reasons for using the functional approach to designing and evaluating employee benefits

Answer 124

hint: IE cow

1. a systematic approach is needed to ensure that the various benefits can be INTEGRATED with each other
2. benefits must be organized to be as EFFECTIVE as possible in meeting employee needs
3. a systematic approach is needed to keep benefits CURRENT, cost effective, and in compliance with regulations
4. it is important to analyze where current benefits may OVERLAP and costs may be saved
5. avoiding WASTE in benefits can be an important cost-control measure for employers

Question 125

Common loss exposures covered by employee benefit plans

Answer 125

hint: mudder, clop, cd

1. medical expenses for employees and their dependents
2. losses due to employees’ disability
3. losses due to the death of active employees, their dependents, and retired employees
4. retirement needs of employees and their dependents
5. capital accumulation needs or goals
6. needs arising from unemployment or from temporary termination or suspension of employment
7. needs for financial counseling, and other counseling services
8. losses resulting from property and liability exposures
9. needs for dependent care assistance
10. needs for educational assistance for employees and their dependents
11. needs for LTC for employees and their dependents
12. other employee benefit needs or goals

Question 126

Categories of persons the employer may want to or be required to provide benefits for

Answer 126

hint: FDR doesn’t stand to lead parades

1. active full-time employees
2. dependents of active full-time employees
3. retired former employees
4. dependents of retired former employees
5. disabled employees and their dependents
6. surviving dependents of deceased employees
7. terminated employees and their dependents
8. employees on temporary leaves of absence
9. active employees who are not full time

Question 127

Typical elements of CDHPs

Answer 127

hint: cc chai

1. a COMMUNICATIONS PROGRAM to encourage consumerism and healthy behaviors
2. a health COACH or consultant to help individuals use available information and provide guidance on use of health care providers
3. for serious CHRONIC conditions, a proactive medical professional to coordinate care for the patient
4. a HDHP
5. an individual health ACCOUNT to pay for expenses not covered by the HDHP
6. INFORMATION and tools to provide health education and help find the highest-quality providers at the lowest cost

Question 128

Basic plan structures of CDHPs

Answer 128

hint: Flinstones don’t catch dinosaurs

1. first-dollar coverage provided through a health care account
2. employee is responsible for the difference between the account amount and the deductible
3. after the deductible, the plan coinsurance and copayments apply
4. deductibles, coinsurance, and copayments differ for single versus family coverage and IN versus OON services

Question 129

Types of health care accounts

Answer 129

1. HSA
   a. must accompany a high-deductible health plan with a minimum deductible and maximum OOP limit
   b. can be used to pay for qualified medical expenses, health insurance premiums in limited circumstances, LTC premiums , and LTC services
   c. owned by the employee, who gets to keep the unused balance upon terminating employment
2. HRA - can be used to pay for qualified medical expenses, health insurance premiums, and LTC premiums
3. FSA - can be used to pay for qualified medical expenses
   b. the contribution amount must be specified at the beginning of the period, and the employee can use the full amount at any time in the coverage period
   c. funds not used by the end of the period are forfeited

Question 130

Comparison of key features of health care accounts

Answer 130

who can set up account:
HSA - individuals and employees covered by HDHP and no other health insurance
HRA and FSA - employeres

who can contribute:
FSA and HSA - employers and employees
HRA - only employers

contribution limits:
HSA - $3050 for individuals and $6150 for families
HRA - n federal tax limit, employers usually set limits
FSA - through 2012: no limit, 2013: 2500

Carryover of unused balances:
HSA - yes
HRA- yes, subject to employer limits
FSA - No

Portability
HSA - yes
HRA and FSA - no

Question 131

Tax treatment of health care accounts

Answer 131

employer contributions:
HSA, HRA, FSA - contributions excluded from gross income and not subject to FIA, funding limits for HSA and FSA

individual contributions:
HSA - funding limits, contributions are deductible
HRA - employees cannot contribute
FSA - generally pretax and not subject to FICA

earnings on account:
HSA - generally not taxable
HRA and FSA - accounts are generally notional, so there are no earnings

distributions:
HSA - permissible reimbursements are not taxed, otherwise 20% penalty
HRA and FSA - distributions only allowed for qualified medical expenses

Question 132

Plan designs consideration for CDHPs

Answer 132

hint: people can forget CHP

1. Establishing the PARAMETERS of the HDHP
2. Employer CONTRIBUTION strategy - must decide how much to contribute to the employees’ accounts - CDHP contributions are often set to compare favorably with other options
3. whether the CDHP will be a FULL REPLACEMENT plan or one of multiple options. a full replacement plan will minimize adverse selection and maximize cost savings, but may face employee resistance
4. for HRA plans, whether to permit CARRYOVER of unused balances
5. selecting a type of HEALTH CARE ACCOUNT
6. level of PREVENTIVE care coverage - most offer an initial health screening or physical at no, or very low, cost. Also included are immunizations, routine annual physicals, and well-moth and well-baby visits

Question 133

Advantages of voluntary benefits

Answer 133

hint: man - steak and red potatoes. girls - Parmesan chicken pasta

employer advantages:

1. more benefits can be offered without significant added cost
2. can supplement or replace employer-sponsored benefits that have been reduced or eliminated
3. can act as an employee recruitment or retention tool
4. can offer the employees that meet performance targets

employee advantages:

1. can get the employer’s group discount
2. in some cases, can purchase with pretax dollars
3. convenience of obtaining benefits through the workplace
4. they are often portable (employees can keep them upon changing jobs)

Question 134

Types of voluntary benefits

Answer 134

hint: gald, chad, slav, cd, hits

1. group term life
2. dependent life insurance
3. supplemental life insurance
4. long-term and/ or short-term disability income
5. dental insurance
6. LTC coverage
7. adoption assistance
8. accidental death and dismemberment insurance
9. automobile insurance
10. homeowners insurance
11. benefits under a legal services plan
12. vision benefits coverage
13. critical car insurance
14. cancer insurance
15. group homeowners and automobile insurance
16. hospital indemnity insurance
17. travel accident insurance
18. student medical insurance

Question 135

Common functions for administering employee benefits

Answer 135

hint: don’t do fancy cocaine to make enemies cower reluctantly

1. benefit plan DESIGN - create a benefit program that addresses the needs of the organization and can be effectively administered and communicated
2. benefits plan DELIVERY - involves serving plan participants through various activities. Must meet legal standards for quality service
3. Benefits policy FORMULATION - management must make decisions on questions and issues that arise. Those decisions must be codified into policies.
4. COMMUNICATIONS- must effectively communicate benefit programs and plan provisions, which is challenging due to workforce diversity and plan complexity. Legal standards require certain communications
5. Applying TECHNOLOGY- involves setting up a database containing information on all the employer’s different benefit plans. This information should be secure and easily accessible to the employer and its employees.
6. cost MANAGEMENT and resource controls - benefits directors must evaluate proposals from insurers and develop the firm’s risk-management approach
7. Monitoring the EXTERNAL environment - involves monitoring various factors that impact benefit management activities
8. legal and regulatory COMPLIANCE- must comply with fiduciary, funding, and other requirements as prescribed by law. Many standards were codified as part of ERISA
9. management REPORTING- information systems are needed to monitor financial results, utilization, and compliance. Reports are needed in order to:
   a. compare to the competition
   b. measure achievement of human resources objectives
   c. assess and manage program risks

Question 136

Activities required for serving plan participants

Answer 136

hint: to pace

1. new employee benefit orientation
2. policy clarification on benefits eligibility, coverage, and applicability of plan provisions
3. dealing with exceptional circumstances and unusual cases
4. collection and processing of enrollment data, claims information, and requests for plan distributions
5. benefits counseling and response to employee inquiries for active employees
6. benefits counseling for employees who are terminating, retiring, disabled, or on leave

Question 137

Technological tools used by benefits directors to support customer-driven processes

Answer 137

hint: ie ice

1. IMAGING and optical storage - eliminates paper records and allows sharing of documents over a network.
2. EXECUTIVE information systems - provide management information in summary format. Helps identify utilization patterns and cost factors.
3. access to information over the INTERNET- facilitates paperless communication from the plan sponsor to insurance carriers, investment custodians, and third party administrators
4. CLIENT-SERVER technology - integrates networked applications with desktop and mobile tools, allowing decentralized management and supporting self-sufficient plan participants
5. EMPLOYEE SELF-SERVICE - allows customer-driven benefits modeling, retirement planning, and updating of personal data

Question 138

Methods for comparing benefit programs to the competition

Answer 138

hint: forget all realistic reasons

1. compare the benefits payable to representative employees under different circumstances
2. compare actual costs to the employer for different benefit plans
3. calculate relative values of the different benefits based on uniform actuarial methods and assumptions
4. compare benefit plans feature by feature to isolate specific provisions that may be appealing to certain employee groups

Question 139

External factors that impact benefit management activities

Answer 139

hint: get good POT desserts

1. GENERAL business and competitive conditions - benefit programs are increasingly important for attracting and retaining employees. There is a trend toward benefits outsourcing.
2. GOVERNMENTAL policy - requires monitoring laws and subsequent regulations, as well as proposed legislation
3. new PRODUCT DEVELOPMENT - must develop a means to evaluate new products and services, and to integrate them into existing plan offerings
4. new ORGANIZATIONAL STRUCTURES - must design plans to fit the new structures and remain compliant
5. TECHNOLOGICAL enhancement and innovation - must keep abreast of technological changes and proactively plan the introduction of new technologies
6. workforce DEMOGRAPHIC shifts - greater diversity has led to flexible benefit plan offerings, the aging of the workforce has created greater interest in retirement programs

Question 140

Reasons plans are outsourcing benefits administration

Answer 140

hint: Cigna employs fools too

1. the COMPLEXITY of administering benefits
2. the EFFICIENCIES of specialized service providers
3. the abilities of specialized providers to obtain FAVORABLE PRICING because of their business volume
4. The ability of service providers to more readily implement TECHNOLOGY and monitor regulations and market trends

Question 141

Cafeteria plan advantages and disadvantages to the employee

Answer 141

hint: ATC doesn’t include reusable shoes

Advantages:

1. employees can pay for benefit expenses on a tax-favored basis
2. employees can have more control over their health spending

Disadvantages:

1. benefit elections must be made prior to the beginning of the year, and the election is irrevocable
2. the use-it-or-lose-it rule means benefit dollars unused at the end of the year are forfeited
3. since there is no FICA tax, participants may see a slight reduction in social security benefits

Question 142

Cafeteria plan advantages and disadvantages to the employer

Answer 142

hint: a tight wad doesn’t allow any actual tips

Advantages

1. the employer does not have to pay FICA or FUTA (federal unemployment tax act) taxes on contributions
2. deferred amounts do not count when determining workers’ compensation premium
3. creates increased awareness of the overall cost and value of employee benefits
4. helps to contain health care costs and prevent wasting benefit dollars on duplicate or unneeded benefits

Disadvantages

1. the large cost of administration and operation of a cafeteria plan
2. if a medical reimbursement account is included in the plan, the total amount of the employee’s account must be available at any time in the year
3. adverse selection can result in increased costs
4. plans are subject to complex coverage and nondiscrimination testing

Question 143

Types of cafeteria plans in the US

Answer 143

hint: please feed fish

1. premium conversion plans - there are no employer contributions. the plan is offered so that employees can pay for their employee-paid insurance costs on a tax-favored basis.
2. FSAs - these accounts are permitted for medical reimbursements, dependent care, and adoption.
3. Full flex plans - participants can select from a wide range of benefits. the employer selects an amount to give for benefits, which is put towards the cafeteria plan or into an account

Question 144

Benefits that can be offered in a cafeteria plan

Answer 144

qualified benefits (tax free basis)

1. employer-provided accident or health coverage - this includes medical, dental, vision, disability, AD&D, business travel and accident plans, hospital indemnity, cancer policies, Medicare supplements, and reimbursements for FSAs
2. Individually-owned accident or health policies
3. Employer-provided group term life insurance coverage (only the first $50K is non-taxable)
4. Employer-provided dependent care assistance
5. Employee-provided adoption assistance
6. Contributions to a 401K plan
7. Contributions to an HSA
8. Coverage under a qualified group legal plan
9. Post-retirement life insurance (only for employees of educational organizations)
10. Employer-provided adoption assistance

Permissable benefits (taxable)

1. cash
2. paid vacation days
3. group term life insurance in excess of $50K

Question 145

Benefits that cannot be offered in a cafeteria plans

Answer 145

hint: MMM LLL DDD CCC San Fr4

1. contributions to medical savings accounts
2. qualified scholarships and education assistance programs
3. certain fringe benefits
4. qualified LTC insurance (although an HSA fund can be used to pay for LTC)
5. Athletic facilities
6. De minimis benefits
7. Cash value or dependent life insurance
8. Employee discounts
9. Lodging on the business premises
10. Meals
11. Moving expense reimbursements
12. No-additional-cost services
13. Parking and mass transit reimbursement
14. Contributions to a college savings account
15. Legal or financial assistance
16. 403b plans
17. Deferred compensation
18. Reimbursement for cosmetic surgery
19. Retirement health benefits paid for working employees

Question 146

Objectives of employee benefits communications

Answer 146

hint: SCREW

1. adhere to STATUTORY reporting and disclosure requirements
2. support employee benefits COST-CONTAINMENT strategies (e.g. controlling medical costs by promoting preventive care and emphasizing healthy lifestyles)
3. Support human resources RECRUITMENT and retention objectives
4. EDUCATE plan participants on the programs’ provisions
5. Demonstrate the value of benefits to the employee’s WHOLE compensation package

Question 147

Benefits communications that group health plans must provide to plan participants

Answer 147

hint: ed - meat and cheese dinner rolls with classic house wine

1. statement of ERISA plans
2. notification of benefit DETERMINATION
3. summary of MATERIAL MODIFICATIONS to the plan (at least 60 days before the effective date of the change)
4. summary ANNUAL REPORT
5. COBRA notices
6. summary plan DESCRIPTION within 90 days after the person becomes a participant, describing the rights, benefits, and responsibilities under the plan
7. summary of material REDUCTION in covered services or benefits
8. WOMEN’S health and cancer rights act notices
9. medical CHILD support other notices
10. HIPAA notices
11. WELLNESS program disclosure

Question 148

Categories of information included in the summary plan description

Answer 148

hint: callie - eggs, apple crisp pancakes, and espresso
5. CLAIMS and appeals processes - including the procedures for submitting claims and the remedies available for claim denials

2. plan ELIGIBILITY requirements
3. plan ADMINISTRATION
4. summary of benefits, rights, and obligations including:
   a. a statement identifying circumstances that may result in loss or suspension of benefits
   b. const-sharing provisions and provisions governing the use of network providers
5. for pension plans, information on the pension benefit guaranty corporation
6. ERISA rights

Question 149

Employee groups for benefits communications

Answer 149

hint: Nailin - add lights 4 reception

1. new hires - problems include benefit misunderstandings, missing applications, and vendor enrollment delays. a good communication process will anticipate and reduce some of these problems.
2. all employees - during annual open enrollment, must communicate plan design modifications, plan cost increases, and changes in family members’ eligibility statuses.
3. employees who experience life changes - the life-events approach extracts information whether a life event occurs, and then communicates the options available and actions required to make benefits changes
4. retirees - clearly state what has and has not changed, and the actions the retiree must take. Should use short sentences, avoid jargon, give examples when possible and avoid small font sizes.
5. employees with 401K plans - provide information that allows participants to exercise control over their own investment decisions. includes financial planning seminars throughout the year and other sessions for specific groups such as sessions on SS benefits and retiree medical for those nearing retirement

Question 150

Most common employee benefits for small companies

Answer 150

hint: monina - dollop (of) daisy cream, lemonade
1. MEDICAL - plan design options usually include HMOs, PPOs, POS plans, direct-access POS plans, and CDHPs

2. DISABILITY income insurance - long-term, short-term, and supplemental
3. DENTAL - may not be cost effective, especially for the smallest because the employer is paying some of the cost and tax savings can result if a pretax spending account is used
4. CAFETERIA plan - this can include an FSA to provide tax benefits. types include:
   a. premium-only plans- includes only pre-tax premium payments
   b. full-range cafeteria plan - may offer 3-4 options in each benefit area. small companies are generally not able to offer these due to cost and lack of availability
5. LIFE and AD&D - for companies with fewer than 10 employees, it may be cheaper to buy individual policies than a group policy

Question 151

Challenges for small companies offering group medical plans

Answer 151

hint: Justin - marinated galbi and dragonfruit

1. small companies are most often fully insured, they are subject to state-MANDATED benefits
2. because employees are usually in a relatively small GEOGRAPHIC AREA, plans must be designed using options available in that area
3. small companies may have to provide additional DOCUMENTATION so that insurers can verify the existence of the company
4. most states do not allow companies to JOIN FORCES to form larger purchasing pools in order to get group discounts

Question 152

Reasons a small company should require employee contributions for medical insurance

Answer 152

hint: allie - orange infused lemonade

1. most employees today are ACCUSTOMED to paying some level of contribution
2. requiring a contribution motivates employees who have OTHER COVERAGE options to use those options
3. it is easier to require contributions beginning at the plan’s INCEPTION that it is to start requiring contributions at a later date
4. Requiring a contribution can help avoid LEGAL PROBLEMS since the contribution makes it clear who is covered by the plan versus who opted out

Question 153

Eligibility and amounts for the ACA small employer tax credit

Answer 153

hint: 25 fries, 50 waters, 10 sliders

1. to be eligible, employers must:
   a. have no more than 25 full-time employees (FTEs)
   b. have average annual wages of $50K or less
   c. pay at least 50% of the premium for employees
2. the credit is a percentage of the employer-paid premium. it is on a sliding scale, with the maximum available to employer with fewer than 10 FTEs and average annual wages of less than $25K. the maximum credit is
   a. 35% from 2010-2013
   b. 50% beginning in 2014 and can only be taken for up to two consecutive years and if employees are covered under a state-based exchange

Question 154

Types of flexible accounts in Canada

Answer 154

hint: Harvey - pancakes and eggs
1. health spending account (non-taxable if requirements are met) - may cover any health care expenses that would be tax deductible under the Income Tax Act, as long as they are not covered by the provincial plan or private insurance
2. personal account (taxable) - may cover a wide range of benefits, at the employer’s discretion, such as child care, financial counseling, or even sports equipment or gym memberships
3. executive perquisite account (taxation depends on the taxability of the covered expense) - normally administered separately from the flexible plan

Question 155

Advantages to the employer of offering flexible accounts

Answer 155

hint: employer self service in CT

1. EXPAND the types of benefits offered with little or no additional employer cost
2. add a new benefit without SUBSIDIZING an expensive coverage area
3. offer a benefit that might appeal to only a SMALL SEGMENT of the employee population
4. CONTAIN COSTS by setting a defined contribution while providing employees with flexibility over how funds are spent
5. TEST the appeal of flexible benefits without committing to a full-choice program

Question 156

Additional advantages of health spending accounts

Answer 156

HInt: trey swacker - reduced sugar milkshake

1. deliver compensation TAX effectively
2. encourage employees to SELF-INSURE predictable and budgetable expenses such as vision and dental
3. REPLACE existing coverage, allowing the employer to gain control of future cost increases
4. SOFTEN the impact of higher employee cost sharing
5. obtain the MAXIMUM VALUE from health benefits under the Quebec tax system

Question 157

Requirements for Canadian health spending account reimbursements to be tax-free

Answer 157

hint: Aaron - fried cheesy biscuits

1. an employee’s election to ALLOCATE funds to the account must be made in advance of the plan year and must be irrevocable. An exception is allowed for family status changes
2. The plan must require FORFEITURE of any unused account balances, using one of the following methods
   a. one year rollover of unused BALANCES- funds allocated to the account can be used to reimburse current year expenses or rolled over to next year’s account. Unused mounts are forfeited at the end of the second year
   b. one year rollover of unpaid CLAIMS- roll over unpaid claims from the prior year to be paid by this year’s account balance. fund remaining at the end of the year are forfeited

Question 158

Sources of funds for health spending accounts

Answer 158

hint: Carol - steak, fries, bread

1. new contributions by the employer
2. employer savings from reducing medical plan costs
3. employees directing employer-provided flexible credits to the account
4. employees allocating a part of annual bonuses or company savings plan matches to the account

Question 159

Considerations for designing flexible accounts

Answer 159

hint: Monica - french lemon oil asparagus, yogurt

1. how will MID-YEAR changes be handled - this will vary by account type and the reason for the change
2. FUNDING considerations - for example, decide if contributions to the accounts will be monthly or annually
3. should there be LIMITS on how much the employee can allocate to the flexible account
4. how will the presence of the account impact OTHER benefit choices?
5. type of APPROACH- decide whether to introduce flexible account and which types of accounts to offer
6. disposition of funds at YEAR END- funds are forfeited, rolled over, or (for personal or perquisite accounts) paid in cash

Question 160

Advantages and disadvantages of health spending accounts replacing health and dental plans

Answer 160

hint: Fast DB fans

Advantages for employer

1. fixed contribution gives the employer control over benefit cost increases
2. contributions to the account are tax deductible
3. the accounts are easy to administer and communicate

Advantages for the employees

1. the accounts provide flexibility as to how the money is spent
2. benefits are non-taxable to the employee
3. can be used to buy insurance
4. the employee can decide what expenses are covered

Disadvantages

1. benefits are inadequate since there is no insurance
2. inequities
   a. a flat contribution per employee means families receive relatively less protection than singles
   b. a percentage of pay contribution means lower-paid employees receive less protection than higher-paid employees
3. inflation is borne by the employees

Question 161

Pricing objectives for flexible benefit programs

Answer 161

hint: Rachel - elderfleur liquor cocktail

1. realistic prices - option price tags should reflect the value of the coverage
2. equity - credits should be allocated based on an equal dollar amount or percentage of pay for all employees
3. no losers - each employee should be able to repurchase prior coverage with no increase in costs
4. no additional company cost - the new plan should cost the same as the old plan would have in the next plan year

Question 162

Pricing approaches for flexible benefit programs

Answer 162

hint: foreigners feel awkward sitting by escalators

1. flat credits - an equal amount of credits are allocated to all employees. Achieves objective 2 (equity). Variations include:
   a. family credits - each employee receives credits equal to the current company cost for family coverage. Price tags are based on expected claims. Fails objective 4 (no additional company cost).
   b. average credits - each employee receives credits equal to the current average company cost for all employees. Price tags are based on expected claims. Fails objective 3 (no losers)
   c. single coverage credits - each employee receives credits or subsidies equal to the current company cost for single coverage. in order to have no losers, price tags for family coverage are reduced. fails objective 1 (realistic prices)
2. buy-back pricing - credits are allocated based on the average cost to the employer of singles and families prior to the flexible benefit program. Fails objective 2 (equity) because families get more credits
3. Election - based pricing - same as buy-back pricing except families who opt down are given fewer credits, such that singles and families in those options have the same net cost. Comes closer to achieving objective 2 (equity), but still fails

Question 163

Steps in flexible benefit option pricing process:

Answer 163

hint: Dakota - orange soda, cheesy tortallini, apples, nutella bundt

1. DATA collection and analysis
2. Preliminary OPTION pricing - determine a fair price (based on relative values) for each option, using the claims data collected
3. Preliminary SUBGROUP pricing - divide into smaller groups, such as single vs. family
4. Anticipation of CHANGES - adjust preliminary prices for the following:
   a. medical and dental inflation
   b. technological improvements
   c. plan benefit changes
   d. adverse selection
   e. shifts in government benefits -causing private plan costs to increase
   f. smarter -consumers - upon seeing the cost of care, they stop using some unnecessary care
5. TAXES and administration fees - decide whether to include these in price tags
6. ADJUSTMENTS to realistic price tags
   a. subsidized pricing
   b. carve-out pricing - subsidize all options by the cost of the lower option, so that option then costs $0
7. NO COVERAGE option pricing- decide whether to allow employees to waive coverage, and calculate opt-out credits
8. Pricing by BUSINESS UNIT or location - may be done to reflect local costs or competition

Question 164

Reasons for and against using subsidized pricing

Answer 164

hint: u can achieve SMARD

Reasons to use subsidized pricing:

1. encourage selection of cost-efficient options
2. to limit potential for adverse selection by encouraging broader participation

Reasons to avoid subsidized pricing:

1. Can skew employee choices by making ht etrue value of each option
2. can restrict cost management effectiveness since some costs are hidden and are therefore harder to control
3. Re-pricing can be harder if prices are artificially derived in the first place
4. it is harder to determine employer cost because price tags no longer equal expected claism

Question 165

Decisions needed for developing the credit structure of the flexible benefit program

Answer 165

hint: Santa - almond amaretto, Equidorian roses, olives
1. sources of credits
2. amount of credits - for the upcoming year and develop a strategy for future years
3. Allocation of credits - considerations include:
a. equity (objective 2)
b. allowing repurchase of the current program (objective 3 - no losers)
c. organizational objectives

Question 166

Sources of credits for flexible benefit programs

Answer 166

hint: CBA will request donations

1. CURRENT benefits - employer costs of current benefits that will continue as part of the program
2. BENEFIT REDUCTIONS - a plan may be eliminated and the savings may be used as credits
3. ADDITIONAL employer money - to provide a new benefit plan or make the program more attractive
4. WELLNESS credits - employees may have to earn credits through health or wellness initiatives, such as not smoking and completing a health risk assessment
5. RENEGOTIATION of compensation - employees can direct a portion of their bonus into flex credits
6. employee after-tax payroll DEDUCTIONS

Question 167

Organizational objectives of credit allocation

Answer 167

hint: child protective services sends bad parents away

1. cost management
2. profit sharing - allocate credits based on the profitability of the company
3. service recognition - vary credits based on length of service
4. social responsibility - may require a minimum level of coverage
5. benefit value equity - may want to give the same number of credits to everyone
6. employee performance - may link some credits to performance
7. health awareness - link credits to a health awareness campaign

Question 168

Analyses for testing the pricing structure of the flexible benefit plan

Answer 168

hint: Wen - Emperor’s rice
1. Winners and losers analysis - a comparison of an employee’s situation before and after implementing the program

2. employer cost analysis - involves identifying costs in the following categories:
   a. credits
   b. price subsidies
   c. adverse selection
   d. dependent coverage - will the program cause employees to change their coverage?
   e benefit utilization - will the new plan cause employees to change the services they use?
3. Reasonableness - test whether the options are understandable, if the price tags make sense, and if the credits are adequate for employee needs

Question 169

Plan design approaches for controlling adverse selection

Answer 169

hint: Peter Dinklage - goat head, steamed turnips, peppered meat, fine desserts

1. PARALLEL DESIGN should be maintained - e.g. include vision and ortho at the same coverage in all plans
2. DELAY FULL PAYMENT - have lower benefits during a waiting period of 6 to 12 months
3. certain coverages can be GROUPED together - predictable expenses such as dental or vision could be grouped with less predictable expenses such as supplemental medical
4. Offer a HEALTH SPENDING ACCOUNT instead of insurance - useful for vision and dental
5. not allow a large SPREAD between options - could be done by requiring a a core coverage level
6. TEST the program with employees - to bring to light potential design weaknesses
7. require PROOF OF INSURABILITY for increases in coverage
8. only allow MID-CYCLE CHANGES if a life-changing event occurs
9. limit the FREQUENCY OF CHOICE - allow benefit changes only every 2-3 years, instead of annually
10. Limit the DEGREE OF CHANGE - restrict changes to one level of coverage per year (staircase rule)

Question 170

Pricing strategies for controlling adverse selection

Answer 170

hint: red sauce

1. risk-based pricing - price options in a way that reflects the expected cost of the benefit
2. employer subsidization - subsidize prices to encourage broad participation, which will cause a better spread of risk

Question 171

Options for spreading the cost of adverse selection

Answer 171

hint: Lauren - high-priced stuff

1. load the prices of the lesser-valued options - reduces the reward for opting down
2. Load the prices of the highest-valued option- this may cause more employees to opt down
3. spread the cost of the adverse selection over the price of all the options

Question 172

Suggestions for successfully launching flexible benefits plans

Answer 172

hint: CLASH

1. make COMMUNICATION a priority - before, during, and after the launch
2. LISTEN to employees - this includes the use of focus groups
3. make sure the ADMINISTRATION SYSTEM is robust
4. get buy-in from SENIOR MANAGEMENT - make sure they understand and endorse the plan
5. get the necessary HELP- consult with professionals who have designed flex plans in the past

Question 173

Workers in the US who are not covered by SS

Answer 173

hint: Read George Orwells 1984

1. RAILROAD employees, who are covered by a program similar to SS
2. about one fourth of state and local GOVERNMENT workers (those who are covered by plans that are comparable to SS)
3. A very small number of people who OBJECT to receiving governmental benefits on religious grounds
4. Federal employees hired before 1984

Question 174

Requirements for insured states under SS

Answer 174

hint; Danerys frees children

1. disability-insured status - requires between six credits (at young ages) to 40 credits (at age 62 or older). Some credits must have been earned recently as follows:
   a. for those required to have 20 or more credits, 20 credits must be from the last 40 quarters
   b. for those required to have between 6 and 20 credits, at least half must have been earned after age 21
   c. for those required to have 6 credits, all must be from the last 12 quarters
2. fully-insured status - requires credits equal to the worker’s age minus 22, with a minimum of 6 and a maximum of 40
3. currently-insured status - required 6 credits in the 13 calendar quarters ending with the quarter of death

Question 175

Eligibility and benefit amounts for SS disability and survivor benefits

Answer 175

1. disabled-worker benefits
   a. eligibility-must be disability insured and fully insured and be unable to engage in any “substantial gainful activity”
   b. benefit amounts - calculated using essentially the same procedures used for retired worker benefit amounts, using an assumed age of 62 and no early-retirement reduction factor
2. survivor benefits
   a. eligibility - family members may receive survivor benefits if the worker was either fully insured or currently insured at the time of death
   b. benefit amounts - the worker’s primary insurance amount (PIA) is computed using the standard procedures and assuming an age of 62. Survivors receive a percentage of the PIA
   i. 75% for eligible children
   ii. between 71.5% and 100% for eligible widows/ widowers
   iii. 82.5% for an eligible surviving parent, or 75% each for two parents

Question 176

Individuals eligible for Medicare coverage

Answer 176

hint: Athena - dates, Edam, oranges

1. AGED- at least 65 and eligible for SS or railroad retirement benefits
2. DISABLED- entitled to SS or railroad retirement disability benefits for at least 2 years
3. end stage renal disease (ESRD) - insured workers with ESRD, including spouses and children with ESRD
4. some OTHER aged and disabled individuals who pay mandatory premiums

Question 177

Types of Medicare coverage and funding

Answer 177

hint: have some appetizers please

1. Part A - hospital insurance
   a. eligible persons receive coverage automatically with no premium charge
   b. funded through payroll tax rate of 1.45% of all earnings, with a matching employer tax
2. Part B - supplementary medical insurance
   a. requires a monthly premium
   b. beneficiaries can decline coverage, but a premium penalty applies of coverage is elected at a later date
   c. financed through general revenues (75%) and beneficiary premiums (25%)
3. Part C - Medicare Advantage
   a. alternative to Parts A and B. Offered by private plans, which receive a capitation from Medicare, which varies by county and enrollee risk
   b. typically offer lower cost sharing plus coverage for some services not covered under Medicare
4. Part D - covers most prescription drugs. Provided through private insurers. Funded through general revenues(74.5%) and premiums (25.5%)
5. Medicare supplement - private insurance to cover OOP costs and some other benefits not covered by Medicare

Question 178

Services covered by Medicare Part A

Answer 178

hint: Happy hour is soon

1. IP hospital - semi-private room and ancillary services and supplies
2. SNF - semi-private room, meals, skilled nursing, and rehabilitative services after a related three-day IP hospital stay
3. home health agency - services following discharge from a hospital or SNF
4. hospice care - provided to terminally ill patients with life expectancies less than six months

Question 179

Medicare Part A cost sharing and coverage limits

Answer 179

IP hospital
cost sharing: $1156 deductible per benefit period, $289 per day for days 61-90 each benefit period, $578 per day for days 91-150 each lifetime reserve day
coverage limits: 60 lifetime reserve days, no coverage beyond lifetime reserve

SNF
cost-sharing: $144.50 per day for days 21-100 of each benefit period
coverage limits: no coverage after 100 days each benefit period

home health agency
no cost sharing
coverage limits: 100 visits per illness

hospice care
no cost sharing or coverage limits

blood
cost sharing: cost of first 3 pints of blood
no coverage limits

Question 180

Services covered by Medicare Part B

Answer 180

hint: OPAL SHIRT to dress down Paris

1. OP hospital including ER
2. Medical care by qualified health practitioners including diagnostic tests, supplies, and equipment
3. One-time initial wellness physical within 6 months of enrolling in Part B
4. Ambulance
5. Clinical laboratory and radiology
6. Physical and occupational therapy
7. Speech pathology
8. OP rehab
9. Radiation therapy
10. Transplants
11. Dialysis
12. HHC beyond that covered by Part A
13. Drugs and biologicals that cannot be self-administered
14. Certain preventive services such as an annual flu shot and cancer screeings

Question 181

Medicare Part B cost sharing

Answer 181

1. Calendar year deductible ($140 in 2012)
2. Coinsurance after the deductible (usually 20% of the Medicare-approved amount, but does not apply to clinical lab and certain preventive care services)

Question 182

Approaches for improving Medicare solvency

Answer 182

hint: T-score

1. increase TAXES
2. Reduce or eliminate some covered SERVICES
3. Increase Medicare COST SHARING through higher deductibles and copays
4. Adopt OTHER initiatives to lower cost trend, such as accountable care organizations
5. Raise the ELIGIBILITY age for benefits to age 66 or 67
6. Adjust REIMBURSEMENT to providers of care

Question 183

Medicare provider reimbursement

Answer 183

hint: WHOM PE
1. hospitals - reimbursed on a prospective payment system basis using the diagnosis-related grouping methodology. Paid a set amount of each admission (which encourages hospitals provide services efficiently) based on the patient’s condition and the services provided

2. Physicians - uses a complex fee schedule to assign relative values to services. Reimbursement equals the sum of area-adjusted unit values, multiplied by a nationwide conversion factor. Unit values for the procedures are based on:
   a. work value- measuring the time and skill required
   b. practice expense - reflecting the cost of rent, staff, supplies, equipment, and overhead
   c. malpractice value - measuring the associated professional liability costs
3. OP services - reimbursed on an OP prospective payment system known as ambulatory payment classification

Question 184

Categories of Medicaid-eligible individuals

Answer 184

hint: Circe paid Peter Dinklage some money

1. children
2. parents or other caretakers with dependent
3. pregnant women
4. individuals with disabilities
5. seniors
6. states also often extend coverage to medically-needy individuals

Individuals in these categories must also meet income and asset requirements (the minimum criteria is states must cover all pregnant women and children under age 6 with incomes below 133% of the federal poverty level).

Question 185

Equivalence requirements for Part D employer group waiver plans (EGWPs)

Answer 185

hint: Bronn doesn’t cheat

1. benefits must be at least as rich as standard Part D benefits
2. The deductible must be no greater than the standard Part D deductible
3. Catastrophic coverage must be at least as rich as standard Part D catastrophic coverage

Question 186

Types of Part D plans

Answer 186

hint: PM

1. Prescription drug plans (PDPs) - private stand-alone plans that offer drug-only coverage
2. Medicare Advantage prescription drug plans (MA-PDs) - plans that offer both prescription drug and health coverage

Question 187

Late enrollment penalty for Part D plans

Answer 187

hint: Sansa bears many children

1. Applies to those who do not sign up for Part D when they are first eligible
2. Is 1% of the base beneficiary premium for every month the person waited to enroll
3. Is paid every month for the beneficiary’s lifetime
4. Does not apply if the individual had creditable coverage through another source (such as an employer or retirement plan). Coverage is creditable if it is at least as good as Medicare Part D.

Question 188

Options provided by CMS to incentivize employers to participate in Part D

Answer 188

hint: REW

1. retiree drug subsidy (RDS)
   a. from Bluhm ch 25: to qualify for the subsidy, the plan must provide an actuarial attestation that it provides coverage at least as rich as Part D (gross test) and with a subsidy at least as great as the Part D subsidy (net test)
   b. the government reimburses the sponsor for 28% of prescription drug spending otherwise covered by Part D for drug costs between the cost threshold and cost limit
   c. drug rebates are subtracted from the amount eligible for the subsidy
   d. easiest and potentially most lucrative option, although the ACA eliminated the employer tax deduction for the subsidy of 2013
2. employer group waiver plan - was conceived to be superior to the RDS. Two options are:
   a. direct contract EGWP - contract directly with CMS to become a PDP
   b. 800 series EGWP - outsource to a third-party PDP or MA-PD, who performs the administrative and financial functions of the plan
3. Coordinate benefits in a wraparound plan
   a. employer plan fills in benefit voids that are not covered by Part D (e.g. paying the deductible or a percentage of the coverage gap or total OOP costs)
   b. a concern with this option is that pharmacies may not be prepared to manage patients with two benefits (Part D and the wraparound plan)

Question 189

Advantages of using EGWP instead of RDS

Answer 189

hint: Greg Malone’s car doesn’t accept cash

1. GOVERNMENTAL Accounting Standards Board Statements 43/45 liability is reduced
2. MINIMAL DISRUPTION to the membership - current plan design can usually be maintained
3. tax obligations are treated equally between EGWP and
4. COST SAVINGS - savings are about 15-20% in RDS compared to 19-35% under EGWP
   RDS
5. DIRECT monthly subsidy is received from CMS
6. ADDITIONAL advantages of using an 800 series EGWP
   a. administrative functions are handled by the third-party sponsor
   b. risk avoidance - risk is shifted to the third-party sponsor
   c. the employer has no direct contract with CMS
   d. the third-party will handle compliance and regulatory issues
7. Part D benefit provides CATASTROPHIC coverage

Question 190

Beneficiary cost sharing for the standard Part D benefit design

Answer 190

Drug cost range: 0-320 is at deductible level and beneficiary pays 100%

Drug cost range is 320-2930 is at initial coverage level and beneficiary pays 25%

Drug cost range until member reaches TrOOP of 4700: coverage gap (donut hole) level, beneficiary pays 86% for generic and 50% for brand

Drug cost range after TrOOP: catastrophic coverage level, beneificary pays greater of 5% or a copay of $2.60 for generics and preferred multiple source drugs or $6.50 for other drugs

Question 191

Guidelines for developing Part D formularies

Answer 191

hint: pat dat g

1. PREFERRED drug rebates must go to the payer
2. may include prior AUTHORIZATIONS, step therapy, generic drug requirements, and preferred brand drugs
3. there are 146 THERAPEUTIC CATEGORIES that must be included
4. must include at least 2 DRUGS in each therapeutic category and class of covered drug
5. must include all or substantially all ANTIDEPRESSANTS, antipsychotics, anticonvulsants, anticancer, immunosuppresesant, and HIV/AIDS medications
6. may offer TIERED formularies, with tier 1 having the lowest cost sharing and subsequent tiers having increased cost sharing
7. if a GENERIC is available, it must be included in the formulary

Question 192

Tools used in the electronic prescribing process

Answer 192

hint: fried meat fritters

1. FORMULARY and benefit transactions - shows which drugs are covered by the plan
2. MEDICATION history transactions - shows which medications a beneficiary is already taking (to reduce adverse drug events)
3. FILL STATUS notifications - prescribers receive a notice from the pharmacy when the prescription has been filled (to monitor adherence for chronic patients)

Question 193

CMS requirements for medication therapy management (MTM) programs

Answer 193

hint: Dr. Chase - marbled quail on muffins

1. All Part D sponsors must establish an MTM program to ensure that drugs are used
2. It must be designed to REDUCE THE RISK of adverse events
3. It must target beneficiaries who have multiple CHRONIC diseases, are taking multiple Part D drugs, and are likely to incur annual costs for covered Part D drugs in excess of $3000
4. It must offer a MINIMUM LEVEL of services, including interventions for beneficiaries and prescribers and medication reviews for the beneficiary
5. It must target beneficiaries for enrollment at least QUARTERLY during each year
6. Enrollment must be only through an OPT-OUT method
7. It must MEASURE and report details on the interventions and medication reviews

Question 194

Services included in MTM programs

Answer 194

hint: Steven Brwon - fajita entree con red peppers

1. patient health STATUS assessments
2. medication “BROWN BAG” reviews
3. FORMULATING, monitoring, and adjusting prescription drug treatment plans
4. patient EDUCATION and training
5. COLLABORATIVE drug therapy management
6. refill REMINDERS
7. special PACKAGING

Question 195

Services offered by LTC pharmacies

Answer 195

1. drug packaging, labeling, and delivery systems for LTC medication use
2. pharmacy operations and prescription ordering
3. drug delivery service on a routine, timely basis
4. access to urgent medications on an emergency basis
5. pharmacist on-call services (around the clock)
6. emergency boxes and log system
7. standard ordering systems and medication inventories
8. drug disposition systems for controlled and noncontrolled drugs
9. ability to provide intravenous medications
10. compounding or alternative forms of drug composition
11. miscellanous reports, forms, and prescription ordering supplies

Question 196

Definition of Part D covered drugs

Answer 196

hint: Filipino - ube, pansit, inihao bangus, mango, fried vigan sausage

1. available only by prescription, approved by the FDA, used and sold in the US, and used for a medically-accepted indication
2. Includes prescription drugs, biological products, insulin, and vaccines
3. Also includes medical supplies associated with the injection or inhalation of insulin, and fees for vaccine administration

Question 197

Medications that are excluded from Medicare Part D

Answer 197

hint: Vietnamese - boba, bahn mi, mint and orange chicken, egg noodles

1. Medications available under Medicare Parts A or B
2. Drugs that are EXCLUDED or restricted under Medicaid (e.g. fertility and hair growth drugs), with the exception of smoking cessation agents
3. Prescription VITAMINS and mineral products, except prenatal vitamins and fluoride preparations
4. NONPRESCRIPTION drugs
5. OP drugs where the associated tests or monitoring services must be purchased exclusively from the manufacturer
6. BARBITURATES
7. BENZODIAZEPINES
8. drugs used to treat ERECTILE DISFUNCTION
9. drugs used to treat MORBID OBESITY
10. drugs used to relieve COUGH AND COLD symptoms

Question 198

Medicaid federally-mandated services

Answer 198

hint: HP BFFS need HLP to make Remus nice

1. hospital (IP and OP)
2. physician
3. early and periodic screening, diagnostic, and treatment (for ages under 21)
4. family planning
5. federally-qualified health center
6. freestanding birth center
7. home health
8. laboratory and x-ray
9. nursing facility (for ages 21 and over)
10. nurse midwife
11. rural health clinic
12. tobacco cessation counseling and pharmacotherapy for pregnant women
13. non-emergency transportation

Question 199

Medicaid optional services most commonly covered

Answer 199

hint: spoon dat pimp cph

14. services for individuals with SPEECH, hearing, and language disorders
15. PROSTHETIC devices
16. OCCUPATIONAL therapy
17. OPTOMETRYand eyeglasses
18. NURSING facility for ages under 21
19. DENTAL
20. AUDIOLOGY
21. TARGETED case management
22. PHYSICAL therapy
23. INTERMEDIATE care facility for individuals with mental retardation
24. MEDICAL or remedial care provided by licensed practitioners under state law
25. PRESCRIBED drugs
26. CLINIC services
27. IP psychiatric for ages under 21
28. hospice

Question 200

Key characteristics of an effective Medicaid managed health care plan

Answer 200

hint: chaos nudic coc

1. comprehensive NETWORK of providers who are responsive to Medicaid consumers
2. effective UTILIZATION programs
3. targeted and effective DISEASE MANAGEMENT programs
4. INNOVATION with providers as it relates to use of electronic medical records and pay for performance
5. COMPASSION
6. targeted and effective CASE MANAGEMENT programs for pregnancies, neonatal services, chronic illnesses, and childhood illnesses such as asthma
7. excellent and effective CALL CENTER support
8. effective OUTREACH that is both culturally and linguistically sensitive and addresses health literacy
9. coordination of any service that may be CARVED OUT, such as behavioral care, pharmacy, and LTC
10. capability for patient-centered medical HOME and health homes
11. ability to work with ACCOUNTABLE CARE ORGANIZATIONS
12. OPERATIONAL EXCELLENCE for providers, such as claims payment accuracy and timeliness
13. robust quality program to meet and exceed STATE REQUIREMENTS

Question 201

Elements to ensure success of managed LTC programs

Answer 201

hint: Rolly - peanut butter and chocolate donuts, cinnamon and nutmeg iced tea
5. RATE design - rates should be structured to incentivize appropriate utilization (e.g. encourage health plans to place as few people in nursing homes as possible)

1. POPULATION - should include as broad a population as possible
2. BENEFITS - should include all Medicaid and waiver benefits, if possible
3. program AUTHORITY - the state should ensure the authorization for the program does not impose participation limits
4. CLINICAL delivery - care managers develop comprehensive care plans and work with multiple providers to ensure reduced utilization of costly services
5. Program DESIGN- for example, can use personalized evaluations of individuals to determine appropriate placement and allocation of services
6. COMPREHENSIVE care management - the care plan should tie primary care to specialty care to home supports
7. NETWORK development and increased access - networks must include nontraditional providers such as personal care, adult day are, and home-delivered meals
8. IDENTIFICATION and intervention - use analytic tools and face-to-face assessments to identify individuals who are at risk of needing services as early as possible, in order to effectively impact community placement
9. TRANSITION management - proper management of the transition from acute care to a new setting can help reduce the number of nursing home placements

Question 202

Long-range financing challenges for the Medicare program

Answer 202

hint: shaking my head

1. income to the HOSPITAL INSURANCE trust fund is not adequate to fund the HI portion of Medicare benefits. The HI trust fund is projected to be depleted in 2026, at which time payroll tax revenues are projected to cover only 87% of program costs
2. increases in SUPPLEMENT Medical insurance costs increase pressure on beneficiary household budgets and the federal budget. The SMI trust fund is expected to remain solvent because its financing is tied to projected future costs. But this will require increases in beneficiary premiums and general revenue contributions
3. increases in total MEDICARE SPENDING threaten the program’s sustainability. Total Medicare expenditures were 3.6% of GDP in 2012. Under current law projections, they are expected to grow to 6.5% of GDP in 2085.

Question 203

ACA provisions to address Medicare’s financial condition

Answer 203

hint: BP RAP

5. creation of the independent payment advisory BOARD - to recommend changes to provider payments if Medicare spending exceeds a target per capita growth rate
6. health care PAYMENT and delivery system improvements - for example, initiatives on bundled payments and accountable-care organizations
7. increases in Medicare REVENUES - increasing the payroll tax, Part B premiums, and Part D premiums for those with higher incomes
8. Medicare ADVANTAGE plan payments will be reduced gradually relative to FFS costs
9. reductions to provider PAYMENT updates - to reflect productivity improvements

Question 204

Users of financial statements

Answer 204

hint: R PAPERS
6. RATING agencies

1. PROVIDERS of capital - such as investment banks, private lenders, and individual investors
2. independent AUDITORS
3. anyone who is PARTY to any of the company’s transactions - this includes policyholders and creditors
4. EXPERT ADVISORS to users of financial statements - this includes attorneys, actuaries, and accountants
5. RULE-MAKING authorities - such as SEC and FASB
6. STOCK ANALYSTS

Question 205

Criteria for an item to be included in the financial statement

Answer 205

hint: don’t make random roars

1. definition - the item needs to meet the definition of an asset, liability, revenue, or an expense
2. measurability - an item must be measurable in terms of a relevant attribute
3. relevance - information about the item needs to be consistent, comparable, and meaningful to the user
4. reliability - the information must be accurate, verifiable, and free of bias

Question 206

Organizations responsible for setting GAAP standards

Answer 206

1. American Institute of Certified Public Accountants (AICPA) - provides guidance through:
   a. accounting research bulletins
   b. accounting principles board opinions
   c. practice bulletins
   d. industry audit guides
2. financial accounting standards board (FASB) - provides guidance through:
   a. concept statements
   b. statements of financial accounting standards
   c. FASB interpretations
   d. FASB technical bulletins
   e. FASB emerging issues task force issues
   f. FASB staff positions
3. securities and exchange commission (SEC) - has authority to promulgate standards, but generally relies on the AICPA and FASB

Question 207

Renewability provisions for health insurance products

Answer 207

hint: cc song

1. COLLECTIVELY renewable - insurer may cancel policies in similar rating classes, but cannot cancel individual policies
2. CONDITIONALLY renewable - the policy may be cancelled if certain specified reasons are met
3. SHORT-TERM (such as short-term medical) - this type of policy only provides coverage for a set term, but it may provide one or two renewals
4. OPTIONALLY renewable - the policy can be cancelled at any renewal date
5. NON-CANCELABLE - insurer cannot cancel the policy or increase premiums for any reason
6. GUARANTEED renewable - insurer cannot cancel the policy, but may increase rates

Question 208

Types of health insurance policies

Answer 208

hint: Cigna dinner: steak, baked lobster in Indian sauce

1. Medical COVERAGES - for two markets: under age 65 and over age 65
2. DISABILITY income
3. Medical SAVINGS accounts
4. BUSINESS OVERHEAD policies - cover costs incurred by a business while the key owner of manager is disabled
5. LTC policies
6. INDEMNITY policies - such as a set amount per day of hospital confinement
7. INCOME REPLACEMENT policies - attempt to reimburse actual economic losses associated with a disability
8. Medicare SUPPLEMENT - fills the gaps in coverage provided by Medicare

Question 209

Types of liabilities for group life and health insurance

Answer 209

hint: ACE PADS

1. ACTIVE life and unearned premium reserves - group life and health contracts generally do not have active life reserves, but unearned premiums must be held as a liability for active lives in a group
2. CLAIM reserves and claim adjustment expense reserves
3. EXPENSE capitalization - a deferred policy acquisition cost of unearned gross premiums should be established as an asset
4. PREMIUM deficiency reserves - this reserve funds any projected losses in advance
5. reserves for ACCRUED experience refunds
6. DEFERRED profit liability
7. liabilities related to STOP-LOSS reinsurance arrangements

Question 210

Primary financial statement exhibits

Answer 210

hint: BISC

1. balance sheet - a financial snapshot, taken at a point in time, of all the assets the company owns, and all the claims against those assets
2. income statement - shows revenues and expenses, illustrating how owner’s equity changes over time (revenue - expenses = net income)
3. Sources and Uses statement - is used to gain a picture of where a company got its money and how it spends money
4. cash flow statement - provides a detailed look at changes in the company’s cash balance over time, separating changes based on if the cash flow came from operating, investing, or financing activities

Question 211

Principle virtues of the cash flow statement

Answer 211

hint: East Australian Current

1. It is EASY to understand
2. It provides more ACCURATE information about some activities than what appears on income statements and balance sheets
3. It highlights the extent to which operations are generating or consuming CASH

Question 212

Primary reasons why a company’s book value does not represent the value of the company

Answer 212

1. Financial statements are transactions based, so an asset’s value on the statements is based on the purchase price and depreciation, not its true value
2. investors buy shares of a company based on the future income they hope to receive, not based on the value of the company’s assets

Question 213

Steps in the percent-of-sales approach for creating pro forma statements

Answer 213

hint: he feels especially silly

1. examine HISTORICAL data to determine which financial statement items have varied in proportion to sales in the past
2. estimate FUTURE sales as accurately as possible
3. Estimate statement items by EXTRAPOLATING historical patterns to the newly estimated sales. Some items will not vary with sales, and will therefore need to be forecasted independently.
4. Test the SENSITIVITY of the results to reasonable variations in the sales forecast.

Question 214

Ways to cope with uncertainty in financial forecasts.

Answer 214

hint: SSS

1. sensitivity analysis - systematically changing one assumption at a time and observing how the forecast responds
2. scenario analysis - looks at how a number of assumptions might change in unison in response to a particular economic event. Generates a separate forecast for each scenario.
3. Simulation - assign probability distributions to a number of uncertain inputs and use a computer to generate a distribution of possible outcomes

Question 215

Stages of the financial planning process

Answer 215

hint: Circe’s a queen

1. Corporate executives develop a CORPORATE STRATEGY, including development of performance goals for the different divisions
2. Division mangers determine the ACTIVITIES needed for achieving the goals defined in stage 1
3. Department personnel develop QUANTITATIVE PLANS and budgets based on the activities defined in stage 2

Question 216

Life cycles of successful companies

Answer 216

hint: Sir Robert must die

1. startup - the company loses money while developing products and establishing market foothold
2. rapid growth - the company is profitable but is growing so rapidly that it needs regular infusions of outside financing
3. maturity - growth declines and the company switches from absorbing outside financing to generating more cash than it can profitably reinvest
4. decline - the company is perhaps marginally profitable, generates excess cash, and suffers declining sales

Question 217

Growth management strategies for when actual growth exceeds sustainable growth

Answer 217

hint: SID POMP
1. Sell new equity - this strategy is unavailable for many companies and unattractive to others. Many companies find it difficult to raise new equity.
2. increase leverage - raises the amount of debt the company can add for each dollar of retained profits
3. Reduce the payout ratio - raises sustainable growth by increasing the proportion of earnings retrained in the business
4. Profitable pruning - generates cash directly through sale of marginal businesses and reduces the actual sales growth by eliminating some of the sources of growth
5. outsourcing - when a company outsources, it releases assets that would otherwise be tied up
6. increase pricing - attacks growth directly
7. merge with cash cow that would bring in liquidity and borrowing capacity

Question 218

Growth management strategies for when sustainable growth exceeds actual growth

Answer 218

hint: Italian clam linguine with sauvingon blanc

1. look within the firm to remove internal constraints on company growth
2. ignore the problem - continue to invest in the core business despite poor returns, or sit on idle resources. This may lead investors or the board of directors to force a management change
3. return the money to shareholders - done by increasing dividends or repurchasing shares
4. buy growth - acquire an existing business or start a new product line from scratch
5. reduce financial leverage
6. cut prices

Question 219

Reasons why US corporations don’t issue more equity

Answer 219

hint: NEEUU

1. recently, companies in the aggregate have not needed new equity
2. equity is expensive to issue (costs about 5% to 10% of the amount raised)
3. Many managers consider anything that lowers earnings per share as bad, and issuing new equity will initially lower EPS
4. Most companies feel their stock prices are undervalued, so they choose not to sell new stock at what they think is too low a price
5. Many managers view the stock market as an unreliable funding source, so they build funding strategies that do not rely on the stock market

Question 220

Types of group insurance financial reporting

Answer 220

hint: sargeants may put privates away

1. STATUTORY - the focus is to demonstrate solvency through the balance sheet, so conservative standards are mandated
2. GAAP - attempts to accurately reflect the earnings during a reporting period, so it focuses on the income statement. Therefore, much of the conservatism in statutory reporting is removed.
   a. in the US, publicly-traded companies and mutual companies must prepare GAAP reports
   b. in Canada, insurers can only publish statements that are based on statutory accounting
3. TAX- in general, statutory financial reports are the starting point, with certain adjustments to reserve items
4. managerial reporting - financial reports (usually GAAP) are modified to provide a more accurate picture of the impact of management decisions
5. policyholder reporting - provides information for risk-sharing arrangements, for government reporting, and for policyholders to complete their own financial reports
6. provider reporting (US only) - provides information for provider risk sharing arrangements and medical management reporting
7. Assuris (Canada only) - reporting is needed for this consumer protection plan, which indemnifies the policyholders of insolvent life insurers

Question 221

Conservative standards mandated in statutory reporting in the US

Answer 221

hint: NIN DELTA

1. certain items (such as agents’ balances) are NONADMITTED assets, meaning they are not allowed in determining solvency
2. Maximum INTEREST RATES to be used in setting reserves are specified
3. NAIC prescribes the asset values to be used (does not allow flexibility)
4. DEFERRED ACQUISITION COSTS are not allowed
5. recognition of EXPENSE ALLOWANCES in reserves is limited
6. only in specific circumstances can LAPSES be assumed in policy reserve calculations
7. minimum morbidity and mortality TABLES are required when determining reserves
8. Asset valuation reserves (AVR) and Interest Maintenance Reserves (IMR) are required in order to provide a cushion against investment losses and interest rate fluctuations

Question 222

Solvency safeguards in the Canadian Insurance Companies Act

Answer 222

hint: every child deserves school

1. the actuary is required to EXAMINE the current and future solvency position of the company
2. the actuary is required to report to the CEO and CFO matters the actuary believes may have material adverse effects on the financial position of the company and require rectification
3. A copy of this report is to be provided to the DIRECTORS
4. If the actuary believes suitable action is not being taken to rectify the matter, the actuary shall send a copy of the report of the SUPERINTENDENT

Question 223

Major modifications to US statutory reporting to produce GAAP results

Answer 223

hint: CALM DDR

1. removal of some of the CONSERVATISM in reserving assumptions
2. removal of the AVR and IMR
3. recognition of LAPSES in reserves
4. recognition of the MARKET VALUE of most assets
5. recognition of DEFERRED TAXES
6. capitalization of DEFERRED ACQUISITION COSTS
7. recognition of all RECEIVABLES AND ALLOWANCES

Question 224

Items included in the Canadian annual statement actuarial report

Answer 224

hint: ASA COCO

1. a description and justification for all ASSUMPTIONS
2. a signed STATEMENT affirming compliance with Canadian actuarial standards of practice
3. a description of any APPROXIMATIONS used
4. any CHANGES in the assumptions and the effect thereof
5. a signed copy of the OPINION of the actuary
6. a description of how the actuary is COMPENSATED and signed statement that the actuary has performed his duties without regard to personal considerations
7. any OTHER information that the Superintendent may require

Question 225

Modifications to US statutory reporting to produce tax reporting results

Answer 225

hint: musical dancing goats

1. use of minimum interest rates for tax reserves
2. use of the DAC tax to delay recognition of certain expenses. This tax is not related to any real expense, but is instead a specified percentage of inforce premium
3. group carriers must reduce provisions for refunds and unearned premiums by 20%

Question 226

Modifications to Canadian statutory reporting to produce tax reporting results

Answer 226

hint: AIDE

1. changes in actuarial reserves
2. reserves for incurred but unreported claims
3. provisions for deferred policy acquisition costs
4. provisions for experience rating refunds

Question 227

Adjustments needed when preparing the same-size-income statement

Answer 227

hint: RICA

1. reinsurance - should count reinsurance premiums paid as health expenses, and reinsurance recoveries as offsets to health care costs
2. investment income - count as non-operating income
3. commissions - count as an administrative expense
4. ASO products - look at financial reports separately for each product type

Question 228

FAS 60 accounting requirements

Answer 228

hint: up did far

1. liabilities for UNPAID CLAIMS and claim adjustment expenses - shall be accrued when insured events occur
2. PREMIUMS
   a. for short-duration contracts, premiums are recognized as revenue over the period in proportion to the amount of insurance protection provided
   b. for long-duration contracts, premiums shall be recognized as revenue when due from policyholders
3. premium DEFICIENCIES
4. costs related to INVESTMENTS, general admission, and policy maintenance - shall be charged to expense as they are incurred
5. policyholder DIVIDENDS- shall be accrued using an estimate of the amount to be paid
6. liabilities for FUTURE POLICY BENEFITS for long-duration contracts = PV of estimated future policy benefits and related expenses - PV of estimated future net premiums. accrued as premiums is recognized
7. ACQUISITION costs - shall be capitalized and charged to expense in proportion to premium revenue recognized
8. REINSURANCE- in the income statement, claims, recoveries, ceded premiums, and unearned premiums, and unearned premiums

Question 229

Responsibilities of actuaries related to audits or examinations of financial statements

Answer 229

hint: Russians don’t seem mesmerized by every dying child. Perhaps dignity can rise.

1. Responsibilities of the responding actuary - reply to reasonable requests, which may include
   a. discussion of the data used, the source of prescribed assumptions (if any), the methods used, and the basis for assumptions that are not prescribed
   b. discussion of environmental considerations that affected the preparation of the financial statement (such as changes in operations or in the entity’s methods, policies, or procedures)
   c. requests for data and sample calculations
2. responsibilities of the reviewing actuary
   a. planning - discuss the project’s scope with the auditor, inform the responding actuary about the expected timing, and request the information needed
   b. documentation of the procedures planned and followed, the items subject to review, and the results of the review
   c. preserve the confidentiality of any information received
3. both actuaries should disclose any relationships with the entity whose financial statement is being audited
4. both actuaries shoudl comply with ASOP 41 in communicating findings and documenting work

Question 230

The “triple aim” (three goals) of health policy

Answer 230

1. Better care for individuals - the Institute of of Medicine lists six characteristics of quality health care: safe, effective, patient- centered, timely, efficient, and equitable
2. Better health for populations - public helath initiatives should address the upstream causes of poor helath
3. Lower per-capita costs

Question 231

Causes of poor health and public initiatives to address them

Answer 231

hint: purchase vaseline for wounds and lungs

1. environmental factors that contribute to poor population health
   a. unsanitized water
   b. pollution (air and water)
   c. violence (domestic and street)
   d. unhealthy living environment
   e. food-borne illness
   f. lack of access to fresh, healthy foods
2. community disease prevention - initiatives include childhood immunizations requirements and free flu shots and preventive screenings
3. lifestyle (eg obesity epidemic) - initiatives include healthy school lunch programs, safe pedestrian walkways, and taxes on unhealthy foods
4. smoking and substance abuse - anti-smoking laws have been effective
5. socioeconomic factors - income is related to poor health. social programs such as Medicaid try to address this.
6. wellness and disease management solutions - include programs around disease preventions, smoking, diet, fitness, or weight loss

Question 232

ACA individual and group market reforms

Answer 232

hint: BEER TIMG

1. BENEFIT and coverage requirements
2. EMPLOYER mandate - beginning in 2014, employers with 50 or more full-time employees must offer coverage or pay a fee. The fee = 2000 x (full-time employees - 30), but is adjusted based on the number of employees who receive a premium tax credit
3. ESSENTIAL benefit package - required to be offered by all qualified health benefits plans beginning in 2014. Will provide a comprehensive set of services, cover preventive services without cost sharing, cover at least 60% of the actuarial value of the covered benefits, and limit annual cost sharing to the current law HSA limits.
4. rating REQUIREMENTS
5. benefit TIERS- all new plans must be either platinum, gold, silver, or bronze. insurers may offer a catastrophic plan to enrollees under age 30 and those who are exempt from the individual mandate.
6. INDIVIDUAL mandate
7. MEDICAL loss ratio - starting in 2011, plans must provide rebates to consumers if the MLR is below 85% for large groups (101 or more employees) or 80% for small group and individual plans
8. GRANDFATHERING of existing plans - plans in existence on March 23, 2010, are exempt from many ACA requirements. But most of the benefit and covearge requirements do still apply.

Question 233

ACA benefit and coverage requirements effective in 2010

Answer 233

hint: don’t push little rugrats please

1. all individual and group plans must cover DEPENDENT children up to age 26
2. PRE-EXISTING condition exclusions for children are prohibited
3. no individual or group plans may impose LIFETIME LIMITS. and plans may impose annual limits only for non-essential health benefits
4. RECISSIONS of insurance coverage are prohibited except in cases of fraud
5. Services rated A or B by the US PREVENTIVE Task Force must be covered at 100%.

Question 234

ACA rating requirements effective in 2014

Answer 234

hint: Glinda - pastries, waffles, and very glittery fruit tarts

1. individual and small group plans must be offered on a GUARANTEED ISSUE and renewal basis
2. plans may not impose PRE-EXISTING condition exclusions
3. WAITING PERIODS for coverage must not exceed 90 days
4. rating VARIATION is only allowed based on:
   a. AGE (limited to a 3 to 1 ratio)
   b. GEOGRAPHIC rating area
   c. TOBACCO use (limited 1.5 to 1 ratio)
   d. FAMILY composition

Question 235

Provisions of ACA health insurance exchanges

Answer 235

hint: CEO TRQS

1. each state will have an American Health Benefit Exchange for individuals and a Small Business Health Options Program (SHOP) Exchange for businesses with up to 100 employees
2. plans in the exchanges must cover essential health benefits, have an OOP limit at or below tiers
3. risk pooling - insurers must pool all individual market plans (other than grandfathered plans) into a single risk pool. similarly, all small group plans must be pooled together.
4. participating insurers must meet many qualification requirements such as networks marketing, reporting, and consumer assistance
5. Exchanges may also offer consumer operated and oriented plans (CO-OPs), which are nonprofit, member-run health insurance companies

Question 236

Other ACA provisions

Answer 236

hint: Tatay - chicken, milkshake, mashed potatoes
2. small business TAX credits

1. premium CREDITS and cost sharing subsidies for those with low incomes (effective in 2014)
   a. premium credits for qualified individuals and families with incomes between 133% and 400% of FPL for coverage purchased through the exchanges
   b. cost sharing subsidies for those enrolled at the silver level in an exchange with incomes between 100% and 400% of FPL
2. MEDICARE provisions
   a. Medicare Advantage plans can receive bonuses or reallocations of rebates based on quality. beginning in 2014, plans are subject to MLR requirements
   b. Medicare Part D - beneficiary coinsurance in the coverage gap will be phased down from 100% to 25% by 2020. retiree drug subsidy payments lost their tax exempt status beginning in 2013.
3. MEDICAID - expanded to all non-Medicare eligible individuals with incomes up to 133% of FPL. Due to Supreme Court ruling, federal government can’t withhold original Medicaid funding from states who do not expand.
4. Revenue PROVISIONS
   a. new health insurer tax will collect $8 billion in 2014, grading up to $14,3 billion in 2018, and indexed thereafter
   b. excise tax for high-cost health plans
   c. limitations to tax-favored allowances for FSAs and HSAs
   d. new taxes on certain medical devices

Question 237

Potential problems in an unregulated insurance market

Answer 237

hint: PM dirt

1. a dishonest company could gain a competitive edge via
   a. misleading marketing materials
   b. unfair price (only appears to be a good value)
   c. inadequate reserves
2. customers do not have the time or expertise to determine which firms are dishonest
3. companies could become insolvent with no warning, leaving policyholder without coverage

Question 238

Goals of insurance regulation

Answer 238

hint: PIC SECT

1. eliminate policies not PROVIDING the benefits expected
2. prevent INSOLVENCY
3. maintain fair COMPETITION
4. SOLVE minor consumer problems
5. ELIMINATE policies that provide poor value
6. promote SOCIAL goals
7. raise TAX money

Question 239

The steps of regulation

Answer 239

hint: I REAL

1. licensing - the firm agrees to be regulated. agents may also be required to get a license
2. Prior approval of policy language, premium rates, reinsurance arrangements, dividends, mergers, and investments
3. enforcement - includes penalties such as fines, legal action and/ or license removal
4. receivership - may initially track financial condition, or may take over an insolvent companies

Question 240

Actions commonly taken by state regulators to help prevent insolvency

Answer 240

hint: can get raises

1. capital requirements - protect against adverse deviations in experience
2. guaranty funds - all companies are assessed to create a fund to protect the insureds of insolvent companies
3. reserve requirements - for claim reserves and liabilities, contract reserves, provider liabilities, and premium deficiency reserves

Question 241

Types of consumer protection regulation in the US

Answer 241

hint: FDR

1. disclosure - must disclose to a potential customer the key features of the insurance policy. This may include a shopper’s guide, outline of coverage, summary of benefits, or illustration.
2. reasonableness - includes mandated benefits and prohibited exclusions. premiums must be reasonable in relation to benefits (loss ratio requirements)
3. fairness - includes prohibitions on discrimination even through data may support it (e.g. unisex rates)

Question 242

Responsibilities of the insurance commissioner

Answer 242

hint: floral beps

6. review form and rate FILINGS - some states require that the commissioner approve the forms and rates prior to use
7. interpret insurance LAWS
8. oversee the OPERATION of the insurance department
9. make REGULATIONS implementing insurance laws
10. regulate ADVERTISING - to protect consumers from unfair, inaccurate, deceptive, and misleading advertisements
11. LICENSE insurance companies, agents, brokers, and consultants
12. regulate BUSINESS practices - such as underwriting and claims practices
13. conduct EXAMINATIONS of licensed insurers, and assesses penalties for violations of laws
14. enforce PROMPT PAY laws
15. regulate insurer SOLVENCY- this is the most important duty of the commissioner

Question 243

Reasons for an insurance commissioner to assume an insurer’s assets

Answer 243

hint: ecoli c

1. non-cooperation with EXAMINERS
2. CHARTER violations
3. refusing to remove questionable OFFICERS
4. state LAW violations
5. technical INSOLVENCY
6. endangered CAPITAL surplus

Question 244

Standard group contract provisions required by most state insurance laws

Answer 244

hint: BIC GAME

1. BENEFITS and eligibility - the policy must state the benefits and to whom they are payable, and include specific terms of eligibility for coverage
2. INCONTESTABILITY - the validity of the policy cannot be contested after the policy has been in force for two years
3. CERTIFICATES - the insurer must issue certificates to the policyholder for delivery to each insured
4. GRACE PERIOD - there must be a 31 day grace period for the payment of premium
5. APPLICATION and statements - the application has to be made part of the policy, and statements made by the insured and are considered representations
6. MISSTATEMENT OF AGE provision - a policy must state how premiums or benefits will be adjusted due to misstatement of age
7. EVIDENCE OF INSURABILITY - the policy must state when evidence of insurability is required

Question 245

Additional contract provisions for group health plans

Answer 245

hint: PPL

1. preexisting conditions - this provision describes the exclusions or limitations that apply to preexisting conditions
2. notice of proof of claims - establishes a time limit for notifying the insurer of a loss
3. legal actions - this provision specifies the time period when a legal action may not be brought on a claim

Question 246

Additional contract provisions for group life plans

Answer 246

hint: don’t do cocaine, boys

1. DEATH during the conversion period - if a person dies within the conversion period, the amount available to be converted will be paid as a claim
2. DISABILITY continuance - active employees that become totally disabled can continue coverage for up to six months by paying the premium
3. CONVERSION rights - this provision allows the policy to be converted to an individual policy (in certain situations)
4. there must be a provision identifying the designated BENEFICIARY

Question 247

Provider protections related to preferred provider arrangements

Answer 247

hint: all pandas need attention

1. any-willing-provider laws - require insurers to accept any provider that meets the insurer’s terms for participation
2. limitations on benefit differentials between PREFERRED and non-preferred providers - to limit how much extra coinsurance the member must pay for using a non-preferred provider
3. coverage of NON-PREFERRED providers - effectively precludes exclusive provider arrangements
4. requirements that ALLIED medical practitioners (such as chiropractors, dentists, and optometrists) be included in PPOs - these requirements are not common

Question 248

Consumer protections related to preferred provider arrangements

Answer 248

hint: raptors - quail eggs

1. insurers must assure REASONABLE ACCESS to covered services and an adequate number of providers
2. some states have tried to regulate QUALITY assurance (measuring quality is difficult)
3. requirements that patients receiving EMERGENCY care will have costs reimbursed as though treated by a preferred provider

Question 249

Requirements for an HMO to obtain a certificate of authority

Answer 249

hint: Queen Cleopatra - persian falafel, caramelized oranges, infused grapes

1. QUALITY ASSURANCE program - details of the program for credentialing providers, evaluating care, initiating correction, and reevauating deficiencies
2. COVERAGE agreements - including copies of individual and group contracts and evidence of coverage forms
3. PROVIDER information - including a description of the geographic service area, and a list of all providers
4. FINANCIAL information - including financial statements and a financial feasibility plan
5. CONTRACTS with providers - including copies of contracts between providers, third-party administrators, and other third-party vendors
6. a description of the HMO’s ORGANIZATION, governance, and management
7. INSOLVENCY protection measures - must satisfy minimum net worth requirements, and a deposit of cash or securities is usually required
8. GRIEVANCE procedure - a description of the HMO’s procedure for handling grievances

Question 250

Advantages of federal qualification for HMOs

Answer 250

hint: MEEP

1. the HMO is allowed to contract as a MEDICARE OR MEDICAID carrier
2. the EQUAL CONTRIBUTION requirement - employers that offer a federally-qualified HMO cannot financially discriminate against a person enrolling in that HMO
3. federally-qualified HMOs may be automatically deemed to comply with ERISA’s claim appeal requirements
4. the federal HMO Act PREEMPTS all state laws that would prevent the HMO from acting in accordance with the federal HMO Act

Question 251

Disadvantages of federal qualification for HMOs

Answer 251

hint: SCNR

1. the HMO must establish a SEPARATE LINE OF BUSINESS for any non-qualified HMO business
2. minimum COVERAGE requirements of federally-qualified HMOs
3. restriction on the use of anything more than “NOMINAL” copayments
4. federal restrictions on rating may be more RESTRICTIVE than state requirements

Question 252

HIPAA reforms related to portability and availability

Answer 252

hint: pure girls rarely dance

1. PRE-EXISTING condition exclusions - may not be imposed except in certain situations
2. health status UNDERWRITING - eligibility cannot be based on health, and evidence of insurability cannot be required
3. health status RATING- higher premiums cannot be charged on the basis of health status
4. special ENROLLMENT periods - to permit eligible individuals who lost other coverage to enroll
5. GUARANTEED issue - small group carriers must accept all small employer groups and all eligible individuals in those groups
6. with certain limited expectations, insurers must RENEW or continue inforce coverage for all groups
7. multi-employer health plans may not DENY a participating employer continued coverage except for nonpayment of contributions, fraud, or noncomplicance with plan provisions

Question 253

Administrative functions that health benefit exchanges must provide

Answer 253

hint: SEE IQ

1. certifying and assigning quality ratings to plans
2. presenting benefits information in a standardized format
3. providing consumers with eligibility determination
4. providing certifications for people who are exempt from the individual mandate
5. ensuring that all participating health plans satisfy the exchange’s requirements

Question 254

Key decisions states must make related to health benefit exchanges

Answer 254

hint: EGG, BIB, CLAM, FPV

1. should the state ESTABLISH an exchange? if a state does not, the federal government will set one up for it
2. GOVERNANCE STRUCTURES - the exchange could be established within an existing state agency
3. should GROUPS with 51-100 employees be allowed to join the exchange in 2014?
4. should CARRIERS be required to participate in the HBE?
5. influencing the LEVEL OF PARTICIPATION - e.g. by making the HBE attractive and available to more customers
6. controlling ANTISELECTION- e.g. by implementing a risk adjustment system
7. should the state MERGE the individual and small group rating pools?
8. standardized BENEFIT PACKAGES - should the state require specific benefit packages at each plan level?
9. INTRA-STATE exchanges - should regional exchanges be set up?
10. should a basic health plan (BHP) be established (which would be outside the exchange)? -BHPs are for residents under 200% of FPL who are not eligible for Medicaid and lack affordable access to comprehensive employer coverage
11. how will the exchange FUND administration costs - e.g. through premium taxes, carrier assessments, and provider assessments
12. how should the state control which carriers PARTICIPATE in the exchange?
13. what VALUE-ADDED SERVICES should the exchange provide? e.g. it should enhance the required online comparison tool

Question 255

Approaches for the state to control which carriers participate in the exchange

Answer 255

hint: OSCA

1. open market - allowing all plans that meet minimum ACA requirements
2. setting additional standards for qualified plans
3. selective contracting agent - selecting plans based on comparative value
4. active purchaser - negotiating premiums with insurer

Question 256

Major federal laws governing group health plans

Answer 256

hint: ECHA

1. ERISA - applies to benefit plans sponsored by private sector employers. Includes provisions related to reporting and disclosure, fiduciary standards, civil enforcement and preemption, and claim procedures
2. COBRA - provides enrollees of an employer-sponsored group health plan the opportunity to keep that coverage for a period of time after employment ends, or after certain other qualifying events
3. HIPAA - limits the ability of group health plans to impose pre-existing condition exclusions and prevents plans from basing eligibility or premiums on:
   a. health status
   b. medical condition
   c. claims experience
   d. receipt of health care
   e. medical history
   f. genetic information
   g. evidence of insurability
   h. disability
4. ACA - amended HIPAA rules to prohibit pre-existing condition exclusions. Requires large employers to provide adequate and affordable coverage or pay a financial penalty.

Question 257

Taxation of major group insurance benefits

Answer 257

hint: little dogs have guns
1. LTC insurance - proceeds under a qualified plan are deemed to be health insurance and receive the same tax-favored treatment

2. disability insurance
   a. employer’s expenses are deductible as they are paid
   b. if the value of the coverage is taxed, the proceeds paid to disabled individuals are not taxable
   c. but if the value of the coverage is not taxed, then the proceeds are taxable
3. health (medical, dental, vision, and prescription drugs)
   a. employer receives a current tax deduction for its expenses. (from GHC-801-13; for post-retirement plans, this deduction is only allowed if certain pre-funding rules are followed.)
   b. the benefit value for the employee and dependents is free from income and employment taxes (includes employer’s contribution to provide coverage and the insurance proceeds).
   c. no limits on the amount of tax-favored benefits
4. group term life
   a. employer receives a current tax deduction for its expenses
   b. the benefit value for the employee (but not dependents) is free from income and employment taxes
   c. tax-free coverage is limited to a $50K death benefit

Question 258

Major small group rating requirements from the NAIC model law

Answer 258

hint: bubbles in water interest children

1. certain case characteristics are recognized as allowable rating factors. This means they are not subject to the following premium range in limitation tests.
2. Index rate
   a. the average of the base premium rate (the lowest rate that could be charged) and the corresponding highest premium rate
   b. calculated only after all rates have been adjusted for all allowable case characteristics and benefit design variations
3. rating restrictions between classes - the rating differential between classes is limited to 20% between the lowest and highest class index rates
4. rating restrictions within a class of business - the premium rates charged to different groups within a given class of business cannot vary from that class’ index rate by more than 25%
5. Rate increase limit for a given group - the increase is limited to the sum of the following
   a. the percentage change in the new business rate from the prior to the new rating period
   b. 15% annually for experience
   c. adjustment due to change in coverage or case characteristics

Question 259

Allowable case characteristics

Answer 259

hint: SAG IF GO

1. group SIZE (maximum of 20% from highest to lowest)
2. age
3. gender
4. industry (maximum of 15% from highest to lowest)
5. family composition
6. geographic area
7. other characteristics, with commissioner’s prior approval

Question 260

Information needed for reviewing and certifying small group rates

Answer 260

SCRAP FLC MUSU LR

1. the small group rate manuals used during the rating period being reviewed
2. the small group rate manuals used during the prior period
3. the policy and certificate forms used for the business
4. listing of groups in force during the testing period, and the following for each group:
   a. rates charged in the current and prior period
   b. group size
   c. the value of allowable case characteristics
   d. the value of any change in benefit from the previous year
5. depending on the type of certification required, may also need:
   a. loss ratio and claim experience reports
   b. sales brochures and other solicitation materials
   c. description of the underwriting procedures
   d. underwriting results for each new group
   e. marketing materials
   f. underwriting materials

Question 261

Types of coverage and nondiscrimination tests for cafeteria plans

Answer 261

hint: ECK

1. eligibility test - this test is designed to measure whether the plan discriminates in favor of highly-compensated individuals. Includes a length-of-services test and a facts and circumstances determination.
   a. highly-compensated individuals are officers, 5% owners, highly-compensated employees, and the spouses and dependents of these individuals
2. contributions and benefits test - this test involves mathematical testing as well as general nondiscrimination with respect to benefits
3. key employee concentration test - nontaxable benefits provided to key employees cannot exceed 25% of the aggregate benefits provided to all employees
   a. key employees are officers with annual pay of more than $160K, 5% owners, and 1% owners with annual pay of more than $150K

Question 262

Advantages and disadvantages of pre-tax qualified benefits

Answer 262

hint: attention Trojan soldiers: don’t carry (in) equestrians. don’t question

Advantages

1. the benefits are not taxable
2. the benefits are a subsitute for taxable wages

Disadvantages

1. funds for medical care reimbursements cannot be carried over from one plan year to the next
2. the plan must comply with many qualification rules
3. elections must be made before the plan year begins (with some exceptions, such as a family status change)
4. the plan may not discriminate in favor of highly compensated individuals

Question 263

Special state funds to solve health insurance problems

Answer 263

hint: special state health

1. solvency funds - solvent companies are assessed for losses arising from insurer insolvencies
2. high-risk pools - cover individuals who have difficulty qualifying for underwritten coverage. Pools charge premiums, but they are inadequate, so carriers are assessed for the shortfall.
3. Small group pools - many states require insurers to offer 2 plans (basic and standard) on a guaranteed basis to individuals who were rejected for other coverage

Question 264

Terminology used in health reform

Answer 264

hint: VV PEC

1. actuarial value - refers to the average share of medical spending that is paid for the plan (rather than the insureds)
2. actuarially equivalent - plans with the same actuarial value are referred to as actuarially equivalent
3. comparative effectiveness research - compares new treatments and technologies to those that already exist, with the intent of refocusing care delivery on the value of care received
4. pay-for-performance - incentive programs that reward providers for meeting certain performance-based measures related to quality, safety, and efficiency
5. value-based insurance design - this type of plan design varies cost sharing in a way that encourages the use of medical services with evidence of clinical benefit and discourages the use of services with little or no evidence of benefit

Question 265

ACA indivdiual mandate tax penalties

Answer 265

all individuals with few exceptions must have health insurance coverage or pay a tax penalty, which is the greater of

1. a dollar amount ($95 in 2014, increases after)
2. a percentage of taxable income (1% in 2014, 2% in 2015, and 2.5% in 2016 and beyond)

Question 266

ACA risk sharing mechanisms

Answer 266

hint: ARC
1. risk adjustment - permanent program beginning in 2014. applies to all non-grandfathered individual and small group plans. redistributes payments across health plans to account for the relative risk of those who enroll.
2. reinsurance - program to be in effect from 2014 to 2016. payments will be made to non-grandfathered individual market plans that cover high-risk individuals

3. risk corridors - mechanisms to be in effect from 2014 to 2016 for individual and small group plans in the exchanges. payments on the plan’s target amount (total premiums minus administrative costs).
   a. if actual costs (net of risk adjustment and reinsurance payments) vary from the target by more than 3%, the government shares in the gains or losses
   b. the government bears 50% of the spending between 3% and 8% of the target and 80% of the spending beyond 8% of the target

Question 267

Recommended practices for actuaries preparing health filings

Answer 267

hint: FLAB, FRED, BRA, APA

1. state the purpose of the filing- including the regulatory requirements that the filing intends to comply with
2. understand any applicable laws
3. decide what assumptions are needed and select appropriate assumptions
4. review the formulas used to calculate premium rates and determine whether they are appropriate
5. understand the business plan, and consider its assumptions when setting rate filing assumptions
6. for projecting future results, use past experience that is properly adjusted
7. be familiar with rating factors and regulatory requirements for those factors
8. consider available data relevant to new plans or benefits
9. projections of future capital and surplus should account for any future actions that are likely to have a material effect on capital or surplus
10. projections done to compare future results with a regulatory benchmark should be based on appropriate available information
11. assumptions must be reasonable in the aggregate, and for each assumption individually
12. when relying on data or other information supplied by others, refer to ASOP 23
13. prepare and maintain documentation in compliance with ASOP 41

Question 268

Assumptions that may be needed for a rate filing

Answer 268

hint: CRIME TRP CP

1. premium levels and expectations for future rate changes
2. projections of covered lives
3. levels and trends in morbidity, mortality, and lapsation
4. non-benefit expenses, including administrative
5. investment earnings and time value of money
6. health cost trends - when projecting medical expense trends, consider detail by service category or service setting, separated by cost and utilization, also consider leveraging and changes in benefit provisions and provider contracting
7. expected financial results - consider appropriate methods and assumptions for calculating profit margin
8. expected impact of known contractual arrangements with health care providers and administrators
9. expected impact of reinsurance and other financial arrangements
10. provisions for adverse deviation - consider whether the provisions are sufficient to cover anticipated costs under moderately adverse experience

Question 269

When using past experience to project future results, adjust for material changes in:

Answer 269

hint: SCRAP, BEDS, PC, TMC

1. selection of risks
2. demographic and risk characteristics of insured population
3. policy provisions
4. business operations
5. provider contracts
6. premium rates, claim payments, expenses, and taxes
7. seasonality in incurred claims
8. trends in mortality, morbidity, and lapse
9. catastrophic claim variability
10. administrative procedures
11. federal or state regulations
12. medical practice
13. cost containment procedures or quality improvement initiatives
14. economic conditions

Question 270

Documentation needed to support the actuarial certification of compliance with small group rating methods

Answer 270

1. materials that have been reviewed to certify compliance with requirements for rating methods and underwriting practices, including:
   a. a description of the carrier’s rating methods and underwriting practices
   b. the rating manual and formuals for calculating rates from the manual
   c. some test calculations to verify that the charged are in accordance with the rating manual
2. a written demonstration that the rates are in compliance with applicability regulatory requirements. Should explain how classes of business, average rates, rating bands, and rate increases comply with rating constraints.
3. a written demonstration supporting the determination of compliance with actuarial soundness.

Question 271

Items to include in an actuarial certification of compliance with small group rating methods

Answer 271

hint: CS PACTS

1. CERTIFICATION that all practices required to be in the certification are in compliance with applicable regulatory requirements
2. a description of any SUBSEQUENT EVENTS that could materially affect current or future certifications
3. a listing of PRACTICES that are covered in the certification
4. where a qualified certification is given, any ACTIONS that are being taken to bring the carrier into compliance
5. CHANGES in rating methods and other practices that have occurred during the time period covered that affect compliance
6. identification of the TIME PERIOD covered
7. where a limited certification is given, any SECTIONS of the regulatory requirements that are not addressed

Question 272

Disclosures required in an actuarial report

Answer 272

hint: USA CD, CLICS

1. the intended users of the report
2. the scope and intended purpose of the assignment
3. the acknowledgement of qualification as specified in the Qualification Standards
4. Any cautions about risk and uncertainty
5. any limitations or constraints on the use or applicability of the findings
6. any conflict of interest
7. any information on which the actuary relied that has a material impact on the findings and for which the actuary does not assume responsibility
8. the information date (date through which data and other information has been considered)
9. subsequent events (may have a material effect on the actuarial findings)
10. if appropriate, the documents comprising the actuarial report

Question 273

Disclosure requirements for assumptions and methods used in an actuarial report

Answer 273

hint: APA

1. the communication should identify the party responsible for each material assumption and method
2. if the assumption or method is prescribed by law, disclose the applicable law, the assumption or methods affected, and that the report was prepared in accordance with the law
3. if a material assumption or method is selected by another party, the actuary has three choices
   a. if it does not conflict with the actuary’s professional judgement, no disclosure is needed
   b. if it significantly conflicts with the actuary’s professional judgment, then disclose this fact
   c. if the actuary is unable or not qualified to judge its reasonableness, then disclose this fact

in the case of either b or c, also disclose the affected assumption or method, the party who set it, and the reason it was set by this party, rather than by the actuary

Question 274

Reasons for offering a retiree group benefit plan

Answer 274

hint: SNUG TV C

1. retiree group benefits are a TAX-effective means of providing retirement financial security
2. retiree benefits are a VALUABLE benefit for those currently receiving the coverage or who are soon to retire
3. providing ongoing health care coverage is a SOCIAL RESPONSIBILITY of the employer
4. the current cash costs are NOMINAL relative to the total spending on benefits
5. retiree benefits are often at the top of the list of UNION demands
6. the benefits can support workforce planning and GROWTH opportunities for employees
7. retiree health care benefits help provide a COMPETITIVE package of total compensation

Question 275

Recent plan design changes to control retiree medical plan costs

Answer 275

hint: FA ASS

1. setting the employer subsidy as a FIXED DOLLAR AMOUNT rather than as a percentage of plan costs
2. providing an ACCOUNT-BASED EMPLOYER SUBSIDY (e.g. the employee earns a set amount for his account for each year of service)
3. adjusting retiree contributions based on the employee’s AGE at retirement (i.e. early retirement reductions)
4. making eligibility requirements more STRINGENT
5. introducing SERVICE-RELATED benefits (i.e. varying the employer cost share based on length of service)

Question 276

Characteristics of the ideal vehicle for prefunding retiree benefits

Answer 276

hint: P DISBAR

1. company tax DEDUCTIONS- for contributions that adequately fund retiree health benefits
2. tax-sheltered INVESTMENT EARNINGS
3. tax-free or tax-deferred SAVINGS MECHANISM for employees
4. tax-free BENEFITS for retirees
5. funds are counted as an ASSET under FAS 106
6. assets are REVOCABLE if the obligation to the plan changes
7. There is no impact on plan design PROVISIONS

Question 277

Vehicles used to prefund retiree benefit

Answer 277

hint: WIGS 4 R

1. WELFARE benefit funds - such as VEBAs or continuance funds held by an insurance company
2. INCIDENTAL account in a profit sharing plan
3. employee-purchased GROUP ANNUITIES
4. employee STOCK OWNERSHIP PLANS with a money purchase plan account
5. 401h funding in a qualified pension trust
6. qualified RETIREMENT trust funds - pension plan or 401K profit sharing plan

Question 278

FAS 106 attribution of costs

Answer 278

hint: AAA financial equity

1. expected future benefit payments must be ACCRUED while each employee is working (pay as you go accounting is no longer allowed)
2. The period when benefits are accrued is called the ATTRIBUTION PERIOD, and usually begins at hire and ends at full eligibility (which is normally shorter than the full working lifetime)
3. The net periodic postretirement benefit cost is the amount attributed to a specific financial accounting period
4. The expected postretirement benefit obligation (EPBO) is the actuarial PV of all expected future postretirement benefit payments for the individual
   a. The EPBO is allocated among the amounts attributable to service before the measurement date (APBO), service in the current year (service cost), and future service
   5 APBO = accumulated postretirement benefit obligation
   a. Expected APBO = (current APBO + service cost)(1+d) - (benefit payments)(1 + d/2)

Question 279

Components of the FAS 106 net periodic postretirement benefit cost

Answer 279

hint: Simon is an egotistical nitwit

cost = service cost + interest cost - expected return on assets + amortizations

1. service cost - the cost of benefits accruing in the current period
2. interest cost - interest on the APBO, the service cost (if not at end of year), and minus the interest on benefit payments (assumed to be paid uniformly throughout the year) all at the discount rate = (APBO + SC)d - BPd/2
3. expected return on plan assets = assets * i - BP*i/2
4. amortization of net transition obligation or asset
   a. the net transition obligation is the difference between the APBO and plan assets when FAS 106 was first adopted
   b. amortization is straight line to expected retirement date (can use 20 years if the calculated amortization period was less than 20 years)
5. net amortization and deferral
   a. amortization of gains and losses - a gain or loss is the change in APBO resulting from a change in assumptions, or experience that is different than assumed. Can defer recognition until the amount exceeds 10% of the greater of the APBO or the plan assets. amortize to expected retirement, or use another method with faster amortization
   b. prior service cost (plan amendment) - the change in the APBO due to a plan amendment. amortize over the expected future service to full eligibility date of active employees

Question 280

Footnote disclosures for FAS 106

Answer 280

hint: D BRAT

1. DISCOUNT RATE
2. BREAKDOWN by component of annual cost
3. RECONCILIATION of assets and APBO balances
4. a description of any ALTERNATIVE METHODS used
5. assumed health care TREND rate

Question 281

Plans covered by FAS 106

Answer 281

hint: MM SIN

1. single employer plan - sponsored by one employer for a group of employees, retirees, and dependents
2. multiemployer plan - subject to collective bargaining and involves two or more unrelated employers. accounted for an a “pay as you go” accounting basis
3. multiple employer plan - groups of single employer plans are combined to reduce administration costs and broaden risk distribution (considered a single employer plan by FAS 106)
4. individual contracts - these contracts are not covered under FAS 106. But FAS 106 may apply if the employer has multiple individual contracts with identical terms.
5. Non-US plans - FAS 106 applies to retiree plans that an employer sponsors in its non-US subsidiaries

Question 282

Accounting for FAS 106 settlements and curtailments

Answer 282

1. a settlement is an irrevocable transaction which relieves the employer of the benefit obligation
   a. the maximum recognized gain/ loss is the unrecognized gain or loss, plus any remaining net transition asset
   b. the maximum gain or loss is prorated, depending on the fraction of the APBO settled
   c. gains are first used to reduce any unrecognized transition obligation, then any remaining gain is taken into earnings. losses are taken into earnings
2. a curtailment is an event which significantly reduces the expected service of plan participants or eliminates defined benefit accruals for a significant number of active participants
   a. the gain or loss equals the sum of:
   i. the change in the APBO netted against any previously unrecognized net gains or losses
   ii. a special loss equal to the portion of the prior service cost and unrecognized transition obligation that is attributable to future years of service that are eliminated
   b. gains are taken when employees are terminated or the amendment is adopted. losses are taken when the curtailment is probable and can be reasonably estimated

Question 283

Accounting standards for employee benefit programs

Answer 283

1. FAS 106
2. IAS 19 from the International Accounitng Standards Board (IASB)
3. Section 3461 from the Handbook of the Canadian Institute of Chartered Accountants (CICA) - designed to mirror US standards
4. Statements 43 and 45 of the Government Accounting Standards Board (GASB) - for the financial reporting of state and local governments in the US
5. FASAB 5 from the Federal Accounitng Standards Advisory Board (FASAB) - for for federal government plans in the US

Question 284

The tasks of the actuary under IAS 19

Answer 284

hint: AAVI

1. allocating expected benefits between past and future years of unemployment
2. making assumptions about future experience in areas such as economics and demographics
3. performing actuarial valuations to calculate the service cost and the defined benefit obligation
4. preparing all information needed for the IAS 19 footnote disclosures

Question 285

Actuarial assumptions needed for calculating the IAS 19 benefit expense

Answer 285

hint: DDD SRPT BR

1. discount rate - should be based on market yields on high quality corporate bonds
2. expected rate of return on assets
3. salary increases
4. benefit increase - if benefits increase over time, then an assumption must be made about benefit increases after the employee has left employement
5. pre-retirement mortality - rates are typically derived from standard tables based on nationwide experience
6. termination - assumptions are usually based on an employer’s own history and industry norms
7. disability - standard tables are generally used
8. retirement age - this assumption should reflect the richness of early retirement benefits and the availability of medical benefits to early retirees
9. duration of benefit payments - a mortality assumption will be needed for benefits that are paid until death

Question 286

Options for handling the transition obligation resulting from Canadian Section 3461

Answer 286

hint: please remove masks

1. prospective application - amortized over the expected average remaining service lifetime of the employee group
2. retrospective application - taken as a one-time charge to the opening retained earnings
3. match US figures - initial values were allowed to equal values from US accounting rules, so employers can use one set of numbers for both Canadian and US purposes

Question 287

Significant differences between Canadian Section 3461 and US accounting standards

Answer 287

hint: LM

1. Canadian standards place a limit on the accrued pension asset that can be recognized on the balance sheet
2. Canadian pension standards do not require poorly funded pension plans to recognize a minimum liability on the balance sheet

Question 288

Types of other postemployment benefits (OPEB) plans

Answer 288

hint: SAC

1. single-employer plan
2. agent plan - a plan that services multiple employers, and where separate actuarial valuations are done to determine each participating employer’s required contributions
3. cost-sharing plan - a plan that serves multiple employers, but only one actuarial valuation is done for all employers combined

Question 289

GASB standards for employers sponsoring OPEB plans

Answer 289

hint: scare CCD shitless

1. standards for employers in single and agent OPEB plans
   a. the OPEB cost and the Net OPEB obligation must be calculated and included in the employer’s financial statements
   b. required disclosures are the Notes to the financial statements, schedule of funding progress, and Schedule of employer contributions
2. Standards for employers in cost-sharing OPEB plans
   a. the required contribution to the cost-sharing plan is reported as the OPEB expense
   b. the OPEB liability is calculated as the difference between the required contributions and the contributions actually made
3. standards for OPEB plans - the same disclosures as listed above for employers are required here, plus a Statement of net plan assets and Statement of changes in net plan assets

Question 290

Assumptions needed for the valuation of pension plans

Answer 290

hint: E-diss D- don’t take my remote

1. economic assumptions
   a. inflation
   b. discount rate
   c. salary increase
   d. social security benefit increase
2. demographic assumptions
   a. termination rate
   b. mortality rate
   c. disability rate
   d. retirement rate

Question 291

Additional assumptions needed for the valuation of retiree life and health plans

Answer 291

hint:
eat - peanut butter and chocolate truffle cake
drink - cold peppermint and pepsi soda

1. economic assumptions
   a. current retiree plan costs - the starting point for projecting future benefit costs
   b. current retiree contributions - the starting point for projecting future contributions
   c. health care cost trend - should represent expected long-term trends. trend rates should grade down over time to a lower level than today’s trends (such as GDP plus one percentage point)
   d. Medicare Part B premium rate increase - employers who pay this premium for the retiree need an assumption for future increases
   e. retiree contribution rate increase - should reflect the current and expected future policies regarding retiree contributions to the plan
2. demographic assumptions
   a. plan participation - needed if a retiree contribution is required
   b. spouse plan continuation after death of retiree - needed if a contribution is required
   c. dependent children plan termination - since dependents’ ages are normally not recorded, an assumption is needed for when the limiting age is reached
   d. plan design change - a valuation may account for future plan design changes if changes are expected

Question 292

Common problems in setting assumptions for retiree group benefit plan valuations

Answer 292

hint: DUC SODA

1. missing DATA - some claims data may be missing
2. UNDER AGE 65 premium - determining the costs for under age 65 participants is difficult because their experience is blended with active employees
3. COMPOSITE PREMIUMS - current rates may be on a per employee basis, rather than having separate rates for retirees, spouses, and children
4. SPOUSE/ dependent premium - data for dependents may be based on the age of the retiree, rather than the age of the dependent
5. OLD PREMIUM STRUCTURE - the current premium differences between activities and retirees may be based on outdated studies
6. DIFFERENT plans - costs developed for current retirees may not be applicable for future retirees due to different plan provisions
7. costs by AGE- few plan sponsors will have enough retirees to develop the needed costs by age

Question 293

Modified pension methods to use for the valuation of retiree life and health plans

Answer 293

hint: FAC
1. modified projection unit credit (required attribution method under FAS 106) - benefit must be accrued by the full eligibility date (as opposed to the expected retirement date used for pension funding)
2. Delayed funding eligibility (can be used with any actuarial method) - include only participants that are most likely to get benefits (those meeting certain age and service requirements)
3. modified entry age (used for welfare benefit fund calculations) - uses standard entry age normal method with entry age at later of the hire date and the date the benefit fund was adopted

Question 294

Steps in measuring retiree group benefit obligations

Answer 294

hint: my dad and aunt own trucks
1. develop a MODEL that represents the plan provisions, the covered population, and the current and projected benefit costs
2. evaluate the quality and consistency of DATA used in construction of the model, and make appropriate adjustments
3. identify ADMINISTRATIVE inconsistencies and make appropriate adjustments
4. select projection ASSUMPTIONS
5. measure the OBLIGATIONS and, when necessary, allocate costs to time periods
6. review and TEST the results of the calculations

Question 295

Factors that impact health care trend

Answer 295

hint: EMU CLAP

1. general ECONOMIC inflation
2. MEDICAL inflation
3. UTILIZATION of services
4. definition of COVERED CHARGES
5. LEVERAGING caused by plan design features such as fixed-dollar copays
6. the AGING of the covered population
7. PARTICIPATION - anti-selection may occur if a lower percentage of eligible individuals elect coverage

Question 296

Reasons plans requested federal qualification

Answer 296

1. represented the equivalent of a “Seal of Approval”, which is helpful for marketing
2. dual-choice requirements ensured access to the employer market
3. Override of state laws - important in some states but not others - applied only to federally qualified HMOs
4. Federal qualification was required for the receipt of federal grants and loans that were available during the early years of the Act

Question 297

Factors that result in more and more uninsured due to factors

Answer 297

1. Fewer small employers offering coverage
2. Decline in number of manufacturing jobs
3. Increase in the number of individuals who declined employer-based coverage because of increasing payroll deductions
4. People unable to get coverage because of medical conditions or increasingly high premiums

Question 298

What do Plan K and Plan L do?

Answer 298

Plan K pays 100% of all core benefits and of the Part B copays on preventive services, and then pays 50% of Part A deductible, SNF copays, hospice care, and blood.

Plan L is identical to Plan K, except that payments start at 75% instead of 50% and OOP is 2000.

Question 299

Benefits director must be proficient in these competencies

Answer 299

1. benefits plan design
2. benefits plan delivery
3. benefits policy formulation
4. communications
5. applying technology
6. cost management and resource controls
7. management reporting
8. legal and regulatory compliance
9. monitoring external environment

Question 300

Events that qualify for making a mid-year change of election in a participant’s medical account

Answer 300

1. changes in legal marital status
2. changes in the number of dependents
3. changes in employment status
4. changes in place of work or residence
5. significant change in the participant’s or the spouse’s health coverage as a result of the spouse’s employment status
6. dependent satisfies or ceases to satisfy the dependent eligibility requirements for a particular benefit

Question 301

Events that qualify for making a mid-year change of election in or termination of a participant’s dependent care account

Answer 301

1. change in legal married status
2. changes in number of dependents
3. change in the work schedule of the participant or the participant’s spouse
4. termination or commencement of employment of the participant’s spouse
5. unpaid leave of absence taken by either the participant or the participant’s spouse

Question 302

Items for disclosure regarding investments

Answer 302

1. description of investment alternatives
2. identification of any designated investment managers
3. explanation of how to give investment instructions
4. description of transaction fees
5. description of procedures established to provide for confidentiality to participants regarding transactions in those securities
6. shareholder information, subsequent to a specific investment
7. copy of the most recent prospectus must be provided to participants immediately after they have made an initial purchase of an investment that is subject to the Securities Act of 1933
8. Description of materials available only upon request and identification of the person responsible for providing that information

Question 303

Reasons to avoid risk-based pricing

Answer 303

1. could raise administration cost and complexity
2. employer may currently be using same rate for all employees, and introducing new system would significantly increase cost for some
3. risk of misrepresenting smoker status may be too high a price for the employer to pay, because insurance company many not pay benefit
4. group life premiums that are different for males and females may be prohibited
5. some employers feel an employee is an employee and entire group should be treated equally and should be charged the same rates

Question 304

Items not included in the true OOP cost

Answer 304

1. monthly premiums
2. most third-party payment arrangements
3. payments for drugs purchased outside the US, OTC drugs, drugs not on plan’s formulary, and drugs not covered by law
4. sources of insurance payments not applied to TrOOP: employer’ retiree group health plans, TRICARE, black lung, Veterans Administration, Workers’ compensation, automobile/ no-fault/ liability insurance, and supplemental benefit portions of PDP or MA-PD

Question 305

MInimum level of MTM services

Answer 305

1. interventions for both beneficiaries and prescribers
2. annual comprehensive medication review for the beneficiary
3. quarterly targeted medication reviews

Question 306

Facilities providing LTC pharmacy services

Answer 306

1. Medicare and Medicaid certified skilled nursing facilities
2. immediate-care facilities for the mentally handicapped
3. assisted living facilities
4. board and care homes
5. prisons, jails, and hospice settings

Question 307

What does the CMS Contractor for Oversight of COB coordinate

Answer 307

1. various questionnaires sent to beneficiaries, employers, providers, and insurers
2. voluntary data sharing agreements among CMS and employers and insurers
3. COBs between CMS and supplemental health insurers
4. Sharing of drug enrollment data by
   a. facilitating calculation of TrOOP by Part D plans
   b. facilitating billing in the appropriate order at the pharmacy point of sale
   c. ensuring that SPAPs have the information they need to develop their benefit structures
   d. ensuring that Medicaid agencies know which beneficiaries are dual eligible
   e. simplifying exchange of enrollment files for employers claiming the employer subsidy

Question 308

How may basic health plan options help improve the continuity of care?

Answer 308

1. offering the same or a subset of plans and/ or provider networks offered to Medicaid and CHIP employees
2. reducing “churn” between Medicaid and the exchange as incomes fluctuate
3. allowing families to enroll in the same plan program
4. offering a low or no-cost option

Question 309

What do CMS savings vary by?

Answer 309

1. population included under demonstration
   a. seniors not eligible for nursing homes
   b. nursing home eligibles only
   c. dual-eligible enrollees under age of 65
2. services covered under deonstration and other program structure benefits
3. penetration of manged care prior to the implementation of the demonstration program
4. historical acute care and long-term care utilization patterns of the targeted population

Question 310

Financial reporting includes:

Answer 310

1. Financial statements
2. Conference calls with analysts
3. Responses to queries from rule-makers
4. Supplementary information provided to investors
5. Press releases

Question 311

Reasons to produce a managerial report

Answer 311

1. to measure financial results in alternative ways, such as by product, by cost center, or by strategic business unit
2. to relate financial results to pricing methods
3. to improve communication of results to management
4. to include projections of future experience, in order to determine the true “value” added by management during a reporting period

Question 312

What do the following ratios describe:

Total asset turnover
Profit Margin
ROA
Total leverage ratio

Answer 312

Total asset turnover - how much total investment is required to meet the requirements of this business

Profit margin - for every dollar of sales, what percent does this enterprise earn as profit

ROA - what is the level of profits, expressed as a percent, that can be earned on the assets of the enterprise as a whole

Total leverage ratio - to what degree can the enterprise be operated using other peoples’ money

Question 313

Alternative approaches to adjustments involving capitation

Answer 313

1. remove capitated services from administrative expense and health benefits
2. consolidate the economics of the capitated entity
3. when a subset of the members is subject to global capitation, one might perform the administrative and health benefit ratios only for the members not subject to capitation

Question 314

Quality programs include

Answer 314

1. Agency for Healthcare Research and Quality (AHRQ), part of HHS
2. National Quality Forum (NQF) is nonprofit that builds consensus among health care stakeholders
3. NCQA is a nonprofit that assesses and measures health care organizations through accredidation and recognition programs

Question 315

Purposes of information gathering

Answer 315

1. Monitoring financial soundness of companies
2. confirming compliance with regulatory requirements
3. providing information to consumers
4. designating new regulatory requirements

Question 316

HMO practices that are condoned:

Answer 316

1. acting as third party administrator in collection of premiums and processing and paying of claims
2. providing pre-admission certification, continued stay review, and other utilization management services
3. providing and maintaining a panel of providers to serve as preferred providers for insured or self-insured health care plans

Question 317

Group term life insurance coverage test:

Answer 317

1. plan must benefit at least 70% of employees
2. plan must benefit a group of employees of which at least 85% are not key employees
3. plan must benefit a nondiscriminatory classification of employees as determined by the IRS
4. if the plan is part of a cafeteria plan, cafeteria plan must meet all the nondiscrimination rules with respect to cafeteria plans

Question 318

Unfunded retiree health benefits may be aggregated under two conditions:

Answer 318

1. plans provide different benefits to same group of employees or
2. plans provide same benefit to different groups of employees

Question 319

IASB rules identifies 4 categories of employee benefit programs:

Answer 319

1. short-term employee benefits like salaries and bonuses
2. post-employment benefits such as retirement benefits and medical care
3. other long-term employee benefits such as jubilee benefits, sabbatical leave, long-term disability
4. termination benefits

Question 320

GASB allows 6 main actuarial methods:

Answer 320

1. entry age
2. attained age
3. frozen entry age
4. frozen attained age
5. projected unit credit
6. aggregate

Question 321

How to deal with administrative inconsistencies:

Answer 321

1. discuss inconsistency with plan sponsor or administrator
2. adjust the model appropriately
3. document resulting steps taken by the actuary in developing the model
4. disclose any significant unresolved inconsistency

Question 322

Assumptions not covered by ASOP 27:

Answer 322

1. health care cost trend rate - consider inflation, medical inflation, definition of covered charges, frequency of services, leveraging caused by plan design features not explicitly modeled, plan participation
2. other cost change rates - cost of life insurance and LTC
3. Participant contribution changes
4. Adverse selection and changing participation. Effects of decreasing population.

Question 323

Benefit payment provisions

Answer 323

1. benefits are payable to the beneficiary designated by the insured
2. employer may not be named as beneficiary
3. settlement options: include a lump sum, monthly installment, or a money market-like account
4. accelerated benefits provisions: allows a limited payout of the death benefit prior to death if the insured becomes terminally ill
5. viatical assignment: certificate holder sells ownership in the group coverage to a 3rd party. 3rd party pays the certificate holder the actuarially discounted value of the specified face amount

Question 324

Advantages of disabled individual receiving SS benefits

Answer 324

1. reduces cost of the insurance program for the employer
2. EE receives higher replacement of income since SS benefits aren’t fully taxed
3. allows contined SS credits for the disabled individual
4. qualifies the disabled person for Medicare benefits

Question 325

How to prepare a same-size income statement:

Answer 325

show all elements as a percent of total revenue

include the following:
total revenue, premium, other revenue, health benefit expenses, admin expenses, total expenses, operating profit, investment income, interest expense, pre-tax income, taxes, net income

Question 326

What is recoverability testing?

Answer 326

Recoverability testing is performed to determine if DPAC is recoverable from future premiums. If testing fails, DPAC is written down to offset losses. If DPAC is written down to 0 and testing still fails, a PDR (premium deficiency reserve) is established.

test: loss ratio + maintenance expense % + acquisition expense % <= 100%

Question 327

Family credits method

Answer 327

All get credits of the highest-cost employee with family plan, scaled down by taking into account ee cost sharing

Question 328

Average credits method

Answer 328

All get credits reflecting the weighted average cost of all employees to the employer, scaled down for ee cost sharing

Question 329

Buy-back pricing

Answer 329

Singles get credits reflecting the average cost of singles to the er. Families get credits reflecting the average cost of families to the er

Question 330

Describe components of net post-retirement benefit cost

Answer 330

service cost - cost of benefits that accrue during the statement period

interest cost - interest on APBO, service cost, and benefit
payments using discount rate assumed. int cost = (APBO + service cost) x d - benefits paid x d/2

expected return on plan assets - based on after-tax rate of return . expected ROR on assets = ROR x assets - benefits paid x ROR / 2

amortization of transition obligation = APBO when FAS 106 was adopted / years left to amortize when FAS 106 was adopted.

net amortization and deferral - amortization of gains and losses and prior service cost

amortized cumulative losses = [ max (0, actual APBO - expected APBO) - 10% x actual APBO ] / remaining years

Question 331

How to be classified as a key employee

Answer 331

Be at least one of these:

Pay > $160,000
5% owner
1% owner and paid more than $150,000

Question 332

Legal framework for insurance regulation

Answer 332

1. laws range from simple to complex
2. simplicity in laws will be effective where regulation can rely on other standards and there is a general understanding and agreement on the standards
3. complex laws are needed where markets are complex and simplicity has not worked in preventing problems

Question 333

Levels of legal requirements in insurance regulation

Answer 333

1. constitutions and laws are usually fairly simple
2. regulation is detailed and complex
3. administrative directives and bulletins address very specific and timely issues

Question 334

Enforcement regarding insurance regulation

Answer 334

1. licensing - the firm agrees to be regulated. agents may also be required to get a license.
2. info gathering - purpose is to monitor financial soundness, confirm compliance, provide customer information, and design new regulatory requirements
3. prior approval of policy language, premium rates, reinsurance arrangements, dividends, mergers, and investments
4. enforcement - includes penalties such as fines, legal action, and/ or license removal
5. receivership - may initially track financial condition, or may take over an insolvent company

Question 335

Consequences of too much growth

Answer 335

1. inadequate capital
2. inadequate reserves
3. deterioration/ worsening service quality
4. inadequate internal system and distribution channel
5. can’t ensure quality and efficiency
6. management can’t catch up

Question 336

Design considerations for Canadian health spending accounts

Answer 336

1. These non-taxable accounts may cover any health care expenses that would be tax deductible under the Income Tax Act, as long as they are not already covered by the provincial plan or other private insurance
2. Employer must decide whether to offer an HSA
3. Consider how the presence of the account will impact other benefit choices
4. Funding considerations - decide if contributions tot he accounts will be monthly or annually
5. Limits on how much the employee can allocate to the flexible account
6. How to handle changes during the year such as family status changes, termination, and retirement
7. Disposition of funds at year end - depends on rollover approach used

Question 337

Describe the purpose and goals of the rate formula

Answer 337

The rate formula provides the mechanism to adjust the base rate to a group-specific manual rate
-the group rate should be based on demographics, area, group size, industry, and other characteristics allowed by law

The formula should:

• recognize all health plan costs
• be easy to apply in most situations
• result in an appropriate premium rate

Question 338

Definition of the functional approach

Answer 338

• An organized system for classifying and analyzing the risks and needs of active employees and their dependents into logical categories of exposures to loss and employee needs
• A method of analyzing the entire employee benefits package
• A systematic approach to ensure that benefits are integrated with other benefits
• It evaluates the program as a whole to assess its effectiveness at covering employee risks and exposures and addressing overlaps and gaps in coverage

Question 339

List the trust funds used to pay for Medicare services

Answer 339

1. Hospital Insurance (HI) trust fund - pays primarily for hospital services (Medicare Part A)
2. Supplementary Medical Insurance (SMI) trust fund - includes accounts for Medicare Part B (physician and OP hospital services) and Part D (prescription drugs)

Question 340

Benefit payment provisions for survivor income benefits

Answer 340

1. guaranteed minimum period
2. maximum benefit period
3. remarriage provision: benefits may or may not cease upon remarriage
4. dowry provision: lump sum benefit payable on remarriage to reduce incentive not to remarry
5. social security offset
6. last survivor provision: benefits may be defined by the composition of the remaining eligible survivor

Question 341

Mandated state disability insurance (SDI)

Answer 341

1. California, New Jersey, New York, Rhode Island, and Hawaii have STD programs for workers in their state
2. Insurers either offer longer EP for LTD or reduce STD benefit so that the sum of STD + SDI match the benefit desired by the ER
3. For all states except Rhode Island, the ER can elect to cover the mandated benefits under a private program

Question 342

Drugs excluded from most Canadian plans

Answer 342

1. Salt
2. Sugar or milk
3. Dietary products
4. vitamins
5. proteins
6. minerals
7. hormones
8. cosmetics
9. soaps
10. shampoos
11. antacids
12. laxatives
13. “natural” products
14. vaccines
15. contraceptives other than oral

Question 343

Preventive and diagnostic dental procedures

Answer 343

Diagnostic:

1. oral exams
2. x-rays
3. diagnostic tests
4. laboratory exams
5. emergency treatment

Preventive:

1. cleanings
2. flouride
3. sealants
4. space maintainers

Question 344

Advantages and disadvantages of the disability or cash model

Answer 344

Advantage: administrative savings because bills and receipts do not need to be processed

Disadvantages:

1. additional benefit utilization and faster payout make the premium higher than those for the other 2 models
2. more susceptible to anti-selection and claim fraud

Question 345

Individual LTC compared to Group LTC

Answer 345

1. larger market
2. more consultative one-on-one sales process
3. higher initial commissions
4. fully underwritten with long form questionnaires
5. target market is older

Question 346

Characteristics of Consumer Operated and Oriented Plans (CO-OPs)

Answer 346

1. ACA calls for CO-OPs to offer coverage to small groups and individuals through the state exchanges
2. Can’t be run by a state or local government
3. Can’t have been a health insurance issuer on July 16, 2009
4. It will need to be licensed by the state and comply with all state insurance laws
5. a CO-OP must be governed by a board that is subject ot the majority vote of its members

Question 347

Advantages and disadvantages of policy year vs. calendar year

Answer 347

1. advantage of policy year basis simplicity - no partial year calculations are necessary
2. downside is to translate into calendar year financial forecasts, partial year calculations must be made in aggregate
3. calendar year approach has advantage of greater rigor regarding premium modes, frequency of policy issue

Question 348

Limitations with data when developing a manual claim table

Answer 348

1. treatment of disability
2. completeness of accidental death experience
3. combined male and female data
4. experience only on single employer groups
5. improvements in mortality

Question 349

Reasons that mortality in general population is higher than with group plans

Answer 349

1. flow of healthy individuals into group, while aged and impaired drop out
2. employees pass physical exam at many companies
3. actively-at-work and waiting periods are required
4. individual medical underwriting required for certain risks

Question 350

Miscellaneous factors affecting LTD claim costs

Answer 350

1. economic cycle
   - during economic downturn, lower claim termination rates and increased claim incidence rates
   - overall rate adjustment factor to change all manual rates simultaneously, to reflect changes due to economic cycle
   - many insureds avoid overreacting to cyclical swings
   - tightening of underwriting a more flexible response
2. distribution system
   - groups covered under association programs experience greater adverse selection than under single employer cases
3. terrorism risks
   - since 2001, cost of catastrophe reinsurance has increased significantly, need to consider explicitly in pricing of disability insurance

Question 351

Requirements for rate increases state that the sum of accumulated past incurred claims and PV of future incurred claims will not be less than the sum of:

Answer 351

1. accumulated value of initial earned premium x 58%
2. 85% of the accumulated value for prior premium rate increases
3. PV of future initial earned premium x 58%
4. 85% of PV of future projected premiums in excess of initial premiums

Question 352

A group may wish to transfer carriers when the following fall outside of target performance levels:

Answer 352

1. claim experience
2. enrollment penetration
3. return on investment
4. admin expenses
5. customer service

Question 353

Generic formula for claims charged

Answer 353

claims charged = claims paid + increase in claim reserves - pooled claims + pooling charges + conversion charges + claim margins

Question 354

Actuary should select credibility procedures that:

Answer 354

1. produce results that are reasonable
2. do not bias the results in any material way
3. are practical to implement
4. consider the need to balance responsiveness and stability

Question 355

Conclusions from CDHP studies

Answer 355

1. CDHP participants did not forego necessary care
2. Significantly higher use of preventive services for CDHP participants
3. Participants received the same or higher levels of care compared with traditional plan for chronic conditions such as diabetes and hypertension
4. Greater use of generic drugs by CDHP members, higher drug utilization but lower costs per prescription, higher prescription costs and utilization for second year CDHP participants

Question 356

Benefits design is affected by these things

Answer 356

1. cost considerations
2. culture of the organization
3. employee needs
4. historical development of benefit programs
5. industry trends and competition
6. local market considerations concerning service providers
7. collective bargaining agreements
8. design changes that are negotiated between union and management

Question 357

Safe harbor rules

Answer 357

1. permits the electronic delivery of plan info beyond the workplace
2. specifies conditions to protect individuals
   a. administrator must take measures to ensure that the documents were actually received by participants
   b. protect the confidentiality of personal information
   c. electronically delivered documents must be consistent with the style, format, and content requirements applicable to the disclosure
   d. notify each participant and beneficiary of the disclosure requirements that are furnished electronically and the significance of documents
   e. must notify the individuals of their right to a paper copy of each document
3. safe harbor explicitly state that it is not acceptable to merely make documents available in a place frequented by participants
   a. it is acceptable to use a company’s website to furnish disclosures
   b. an insert into a company publication is permissible

Question 358

SPD must contain information on

Answer 358

1. plan adminsitration
2. eligibility requirements
3. summary of benefits, rights, and obligations
4. pension benefit guarnaty corporation for pension plans
5. claims and appeals processes
6. ERISA rights

Question 359

Communications to retirees should:

Answer 359

1. state clearly what has not changed
2. be specific ahow a change will affect the recipient
3. include personalized materials
4. give step by step instructions on actions to take and by when
5. use short sentences
6. avoid jargon
7. refrain from using passive voice
8. materials should be tested with subset of the group
9. phone number should be prominently displayed to facilitate inquiries

Question 360

Eligible expenses for health spending accounts

Answer 360

1. deductible and copay benefits exceeding the maximum limits
2. medical practitioners’ fees
3. dental expense
4. health care facilities
5. medical devices and supplies
6. ambulance service and seeing-eye dogs
7. payment of premiums to other insurers
8. payment of premiums to Quebec and Nova Scotia for provincial drug coverage

Question 361

Employer objectives of perquisite accounts

Answer 361

1. executive can choose perquisites of most value to him or her
2. employer’s cost is limited
3. administration reduced
4. executives can maximize tax-effectiveness
5. communicating the value of perquisites
6. treating executives in similar roles equally

Question 362

Eligible expenses for perquisite accounts

Answer 362

1. automobile
2. business attire
3. business-class air travel
4. cellular phone
5. charitable contributions
6. child care
7. club memberships
8. elder care
9. entertainment expense
10. financial counseling
11. health/ fitness club
12. home computer
13. home security
14. legal counseling
15. newspaper/ magazine subscriptions
16. optional life insurance
17. retirement counseling
18. school fees
19. spouse travel if business related
20. vacation travel

Question 363

Reasons why claims experience will likely change

Answer 363

1. medical/ dental inflation - general increases in the cost of health care services are to be expected
2. technological improvements - expense of new technology to improve diagnosis and treatment
3. plan changes - adjusting for any recent plan changes that affect benefit levels
4. adverse selection - if the probability of their needs is too predictable, adverse selection will result
5. shift in government benefits - many provinces have ceased to cover services such as routine eye exams and paramedical practitioners, further increasing the cost of private medical plans
6. smarter consumers - in communicating a flexible benefit program, many employees learn for the first time how much their benefit programs cost. how their spending directly affects the cost of the plan. As a result, first-year price tags are often overstated. Not generally anticipated in first-year pricing.

Question 364

How is Medicare financed?

Answer 364

1. HI program is financed through payroll taxes
2. SMI is financed through contributions from the general fund of the treasury (75%) and beneficiary premiums (25%)
3. Part D is financed through a separate account within the SMI trust fund
4. Board of trustees must report to congress on financial status of the trust each year

Question 365

What is RBRVS?

Answer 365

Resource based relative value scale used for physician services reimbursement. It is based on the following elements:

1. nationwide conversion factor
2. units for the procedure
   a. work value
   b. practice expense
   c. malpractice value
3. geographic area

Question 366

What is the gross test?

Answer 366

Examines whether the plan provides coverage that is at least as rich as standard Part D coverage.

a. test must be performed separately for each benefit option within a group health plan.
b. The gross test includes all Part D covered drugs.
c. the ACA enhanced the standard Part D benefit by gradually eliminating the coverage gap between initial coverage limit and OOP
d. the gross value test is tested against hte Part D benefits with no coverage between the ICL and OOP

Question 367

Actuaries are encouraged to use their retirees’ experience to extent reasonable. Adjustments to this experience includes:

Answer 367

1. benefit design and premium changes
2. expected pharmacy or pharmacy benefit manager (PBM)
3. expected drug cost trends
4. expected utilization trends
5. financial impact of drug rebates
6. expiration of patents on high cost drugs
7. expected utilization shifts from generic to new brand drugs
8. release of new drugs
9. the impact of the experience’s underlying benefit levels on utilization
10. formulary changes
11. drug utilization review modifications
12. medication therapy management modifications

Question 368

Which beneficiaries will have the greatest benefit from Part D

Answer 368

1. patients with no current drug insurance
2. patients who qualify for low-income subsidies
3. patients in Medicare Advantage (MA) plans with no drug coverage
4. Patients who spend $800+ per year on prescription drugs

Question 369

What are the different kinds of EGWP (employer group waiver plan):

Answer 369

1. direct contract EGWP - employers and unions contract directly with CMS to provide plan benefits and receive payments directly from the government
2. The 800 series EGWP - employers and unions contract with CMS using third-party Part D sponsor who holds contract between ER and CMS and performs administrative and financial functions removing burden from ER
   a. the ER and union group hav eno direct covenant with CMS
   b. the low premium results in greater cost savings (up to 25 percent)
   c. there are no compliance or regulatory burdens
3. compared with RDS, this program has less administrative burden
4. Plans can be designed to the individual group’s needs
5. Third-party Part D sponsor bears the total risk
6. Their relationships with CMS make the third party Part D sponsors familiar with the regulatory requirements of CMS

Question 370

Beyond drug spending by the beneficiary, other payments can count toward TrOOP. These include payments from

Answer 370

1. another individual such as family member or friend
2. a state pharmaceutical assistance program (SPAP)
3. a charity
4. a personal health savings vehicle such as a flexible spending account, health savings account or medical savings account

Question 371

The following beneficiary costs are not included in the TrOOP

Answer 371

1. premiums
2. most third party payment arrangements
3. payments for drugs purchased outside of the US, OTC drugs, drugs not on the plan’s formulary, drugs not covered by law

Question 372

Fackler formula

Answer 372

(BR at time t-1 + NP)*(1 + i) = (BR at time t x (1 - q) + claim cost * (1 - q)

BR = benefit reserve
NP = net premium

Question 373

How to do recoverability test

Answer 373

1. All new business issued in a year is considered together, although sometimes blocks examined separately.
2. One method is gross premium valuation (GPV)
3. Simpler method is net-to-gross premium ratio using valuation assumptions
   a. overhead and non-deferrable acquisition expenses are not included
   b. if net > gross, remove some or all of PAD
   c. if net still > gross with all PAD removed, DAC must be reduced
   d. if net still > gross, PDR must be established

Question 374

Components of claim reserves

Answer 374

1. reported but unpaid
2. IBNR
3. Open
4. Hold liability for denied claims being disputed

Question 375

DI riders

Answer 375

1. residual disability benefits - allow policyholder to return to work part-time without completely losing benefits under the policy.
2. partial disability riders - allow payment of partial benefits without condition of prior total disability
3. cost of living adjustment (COLA) - similar to a benefit increase rider
4. social security supplement

Question 376

Estimates required for depreciation

Answer 376

1. asset’s useful life
2. salvage value
3. method of allocation

Question 377

DCAT presentation to board of directors and senior management includes:

Answer 377

1. analysis of projections made under various stress conditions
2. history of company’s progress in capital ratios
3. discussion of the company’s condition
4. test of management reaction under significant scenarios
5. recommendations and progresses on past recommendations

Question 378

Pooling preserves 5 principles:

Answer 378

1. availability
2. affordability
3. transferability
4. viability
5. competition

Question 379

Essential health benefits package will provide:

Answer 379

1. comprehensive set of services
2. preventive services wihtout cost-sharing
3. cover at least 60% of actuarial value of covered benefits
4. Limit annual cost-sharing to the current law HSA limts

Question 380

Common mandated benefits

Answer 380

1. mental disorders
2. alcoholism and drug dependency
3. well-child care
4. handicapped children beyond their normal termination age
5. mammography
6. recognition of a variety of health care practitioners
7. coverage of children under policies covering non-custodial parents

Question 381

Three basic principles of HMOs

Answer 381

1. provides provision of health care services; insurers simply reimburse HMOs, combine delivery and financing of health care; relationships with providers may either be direct (employing providers) or indirect (independent contractor arrangements)
2. make available all health services enrollee might reasonably require; entity providing less than all “Basic health care services” not an HMO; HMO promotes health and the prevention of illness
3. payments only on a prepaid basis whether by enrollees, employer groups, Medicare or Medicaid

Question 382

What does MLR calculation include?

Answer 382

Health care improvement expenses, certain reserves, taxes, regulatory fees, assessments, and credibility

Question 383

A nonpublic entity may disclose an abbreviated list of disclosures:

Answer 383

1. The APBO, fair value of assets, and the funded status of the plans
2. employer contributions, participant contributions and benefits paid
3. the total recognized accrued or prepaid expense
4. the net periodic postretirement benefit cost
5. weighted average discount rate, the salary increase rate, and the assumed rate of return on plan assets
6. assumed health care trend for next year and description of future trend rates
7. employer securities included in plan assets, future benefits covered by insurance contracts issued by the employer, and transactions between the employer and plan during the year
8. any significant nonroutine events, plan changes, combinations, divestitures, curtailments, and settlements

Question 384

What is the attribution period?

Answer 384

Portion of employee’s service over which EPBO for that employee is allocated

Beginning is generally the date of hire and end of period is the date employee attains full eligibility

Question 385

Methods for recognizing net liability or asset on balance sheet

Answer 385

1. reconciliation of the funded status
   a. funded status DBO reduced by plan assets
   b. net asset or liability is difference between funded status and unrecognized amounts on the balance sheet due
2. reconciliation of net liability or asset
   a. net liability or asset on previous year’s balance sheet, increased with benefit expense (including curtailments or settlements) and reduced by contribution to the plan paid during the year
   b. if the plan is unfunded then contributions equal benefit payments made by the company

Question 386

Limitations of normative databases

Answer 386

1. databases lose relevancy over time
2. may not be appropriate for the particular situation at hand
3. many databases have not been subject to rigorous review

Question 387

Sources of potential savings from Medicare-Medicaid Financial Alignment demonstrations

Answer 387

Acute

• coordinate treatment of multiple chronic conditions
• provide care in most appropriate setting, emphasizing community-based case
• reduce or eliminate unnecessary tests or procedures
• better mange ambulatory sensitive admissions to reduce avoidable emergency room visits and IP admissions or readmissions

Behavioral health
-improve coordination between Medicare and Medicaid with emphasis on community-based care

Long-term care

• delay members entry in to nursing homes by use of HCBS waiver services
• discourage unnecessary hospital admissions from nursing homes

Admin

• increase enrollment in order to help spread fixed costs
• reduce marketing costs
• integrate Medicare and Medicaid appeals process

Question 388

Describe differences between simple cafeteria plans and traditional cafeteria plans - Established

Answer 388

Established:
Simple - by ACA for plan years starting in 2011
Traditional - by Revenue Act of 1978

Question 389

Describe differences between simple cafeteria plans and traditional cafeteria plans - Eligibility

Answer 389

Eligibility:
Simple - all employees who were credited with at least 1000 hours of service for the preceding year

Traditional - present or former employees

retirees are not permitted to pay for medical coverage on a pre-tax basis through a cafeteria plan using qualified retirement plan contributions

no outside directors and no employees of marketing partners or any other company not within the controlled group can participate unless the cafeteria plan is structured as a multiple employer welfare plan

Question 390

Describe differences between simple cafeteria plans and traditional cafeteria plans - Exclusions

Answer 390

Simple: can exclude certain classes of employees (eg those under age 21 before the close the plan year, those who are covered under collective bargaining, nonresident aliens working outside the US)

Traditional: can exclude employees who have not completed three years of employment and may be excluded as long as participation begins no later than the first day of the plan year beginning after the three-year requirement has been satisfied

can exclude other categories of empllyees, as long as it does not discriminate in favor of a prohibited group of employees that includes owners and highly paid individuals

Question 391

Describe differences between simple cafeteria plans and traditional cafeteria plans - Exclusion application

Answer 391

simple: applied throughout the year
traditional: met before initioal plan year of participation

Question 392

Describe differences between simple cafeteria plans and traditional cafeteria plans - employer contribution

Answer 392

simple: required whether or not the participant enters in to a salary deferral election
traditional: not required

Question 393

Describe differences between simple cafeteria plans and traditional cafeteria plans - contribution minimum

Answer 393

simple: percentage >=2% of each qualified employee’s compensation or amount equal to lesser of 6% of qualified employee’s salary or twice the salary-reduction contribution of each qualified employee
traditional: no minimum required

Question 394

Describe differences between simple cafeteria plans and traditional cafeteria plans - discrimination testing

Answer 394

simple: if passes eligibility and contribution requirements, there is a safe harbor and doesn’t have to do Section 125 eligibility, contribution, benefits, and key employee contribution tests; also means satisfies Section 79 group term life insurance, Section 105 self-insured medical expense reimbursement plan and dependent care assistance requirements
traditional: an eligibility test, including a classification test, a length of services test, a participation test, a facts and circumstances determination - cannot discriminate in favor of highly compensated in terms of eligibility

a contributions and benefits test - cannot discriminate in favor of highly compensated in terms of availability and utilization

the key employee concentration test - cannot provide benefits to key employees that are worth more than 25% of the aggregate benefits provided all employees

Question 395

Relation of UPR to GAAP reporting for group insurance

Answer 395

Unearned premium reserve is a reserve held for premiums in advance of their due date

It is treated as a liability equal to the premiums received, but not recognized

Since group contracts are generally short induration, straight-line depreciation is used in calcuated UPR

Question 396

Relation of DPAC to GAAP reporting for group insurance

Answer 396

Deferred policy acquisition costs is an asset that is equal associated with unearned premiums

It should be recognized/ timed similarly to that unearned premium

DPAC is generally relatively low for group coverage

It should only be held up to the point of recoverability

Recoverability is demonstrated when: loss ratio + total expense ratio <= 100%

DPAC = written down acquisition expense x unearned premium

Question 397

Relation of PDR to GAAP reporting for group insurance

Answer 397

Premium deficiency reserve is a reserve held if a loss is projected in advance

It can be established if:
loss ratio + maintenance expense > 100%

It applies to the entire premium guarantee period, even if the period extends beyond the current contract year
Investment income may be used to determine recoverability

Question 398

Key differences between US stat and GAAP reporting for group health insurers

Differences between Canada stat and GAAP reporting

Answer 398

1. GAAP reporting attemps to match the incidence of revenue and expenses, while statutory reporting tends to accelerate recognition of expenses and defer recognition of revenue
2. Statutory reporting attempts to determine the value of the insurance company if it were to liquidate, while GAAP looks at the insurance company as a going concern
3. Many of the conservative assumptions require for statutory reporting can be replaced by a much less conservative margin for adverse deviation in GAAP
4. Stat doesn’t allow DAC
5. Stat only partially recognizes deferred taxes
6. Statutory requires AVR and IMR, which serve as cushions

In Canada, stat = GAAP

Question 399

Reasons why insuring an STD plan may be more efficient than small companies self-insuring th erisk

Answer 399

1. the cost is not expensive when intelligently designed
2. it takes the employer out of the role of having to deal with privacy issues and claim adjudication
3. just one claim per year could pay for the cost of the annual premium

Question 400

Similarities and differences between PCMH and HMOs

Answer 400

Similarities

• recognizes team of physicians, medical assistants, RNs, etc. aligned around a PCP
• enhanced focus on quality monitoring and improvement (NCQA)

Differences

• value of patient engagement in decision making
• role of patient not always clear under gatekeeper/closed panel HMO
• PCMH mechanism for patients to be more engaged in how/ when treated

Question 401

Characteristics which set pricing GLTC apart from other group product pricing

Answer 401

Issue age rated
offered as optional coverage
unique set of eligible insureds
married persons claims lower with built-in caregiver
shared pool of benefits available for spousal coverage
restoration of benefits option
non-forefeiture or contingent non-forfeiture
voluntary lapses lower than other coverages

Question 402

Pricing considerations for group LTC which aren’t considered in other group pricing

Answer 402

certification for initial rate filings

• rate schedule is sufficient to cover anticipated cost under moderately adverse experience
• statement that policy design and coverage have been taken into consideration
• statement that underwriting and claims adjudication have been reviewed and taken into consideration
• a complete description of basis for contract reserves

LTC policies are typically in effect for much longer than other group coverages, with longer payment patterns

There is much lower participation in GLTC than other products. 5-10% is considered high participation

Claim costs oftern have very steep slope, requiring pricing projections that last a long time

LTC is a young industry with long payment periods, so emerging experience is often not fully credible

Morbidity shifts over time, including morbidity improvement, have been more pronounced in LTC products

GLTC often has higher start-up expenses as compared to other group coverages

Question 403

Similarities and differences between Health Savings Accounts and Health Spending Accounts

Answer 403

Similarities

• both can be used for eligible medical expenses
• both have tax advantages such as tax free distribution for qualified expenses, as well as tax penalties for misuse
• both have states/ provinces that dictate tax treatments of accounts

Differences

• spending accounts do not need to be tied to a HDHP
• eligible expense broader for Spending Accounts than Savings Accounts
• Spending accounts have only one annual election unless life event. Savings accounts can change elections throughout the year
• spending accounts have time-limiting rollover/ forfeiture characteristics. savings accounts do not have limits
• savings accounts are owned by the employee (portable), whereas spending accounts are not.

Question 404

Tax issues with a personal account

Answer 404

1. personal accounts can cover may items, ranging from health-related items such as gym memberships to personal items sucha s gas or vacations
2. reimbursed items generally count as taxable income to the employee
3. employers tax the account based on the allocations rather than the reimbursements
4. balance remaining in account at year end can be rolled over indefinitely

Question 405

ACA provisions that help control anti-selection against the Exchange

Answer 405

Encourage as much enrollment on the exchange as possible

1. individual mandate requires individuals to purchase healthcare insurance or pay a penalty
2. premium subsidies, cost sharing subsidies, tax credits for lower income individuals make insurance more affordable and those are only available on the exchange

Describe features that level the playing field on and off the exchange

1. must cover essential health benefits both on and off
2. must be one of the metal plans or catastrophic plan
3. single risk pool on and off exchange
4. pre-existing exclusions, no lifetime/ annual maximums, rating restrictions same on and off exchange

Question 406

Describe state provisions that help mitigate the risk of anti-selection for health care reform

Answer 406

1. allow every carrier that applies to be on the exchange to participate
2. require all carriers to be on the exchange
3. require all carriers to offer the same plans on and off the exchange
4. require all carriers to offer all 4 plans
5. place additional restrictions on plans offered outside the exchange
6. actively managed the rate review process
7. don’t let carriers in/ out of the exchange at will - must stay out of exchange for x years if they leave; or accept new carriers every other year
8. ensure risk adjustment is effective and timely, or administer own risk adjustment
9. provide additional tax credits/ subsidies
10. continue reinsurance beyond 2016 or set up additional reinsurance
11. expand Medicaid - reduces anti-selection on the individual market
12. choose not to establish basic health care plan to increase exchange participation
13. combine individual and small group on the exchange
14. expand definition of large group to 100

Question 407

Requirements for offering prescription drug benefits to retirees via an employer group waiver plan

Answer 407

group specific benefits must be on average at least as rich as Part D
plan deductible no greater than Part D deductible
catastrophic coverage at least as rich as Part D catastrophic coverage

Question 408

Requirements for offering prescription drug benefits to retirees via a retiree drug subsidy

Answer 408

Apply for retiree drug subsidy and report actual experience to CMS

pass gross value test, which tests that coverage on average as rich as part D coverage

pass net value test, which tests whether portion of plan covered by subsidy is at least as rich as that offered by Part D

Question 409

Define:

long-duration contract
short-duration contract
long-term benefits
short-term benefits

Answer 409

a long-duration contract’s premium is recognized when due from policyholders; liability recognized as present value of future expense minus present value of future premium

a short-duration contract’s premium is recognized in proportion to protection provided; liability recognized as incurred, including estimates for IBNR

long term benefits may provide benefits to the policyholder over many years, like a long-term disability plan

short-term benefits provide benefits for a short period of time or an acute episode, like a major medical or dental plan

Question 410

How do PBMs add value

Answer 410

1. negotiating contracts and developing pharmacy networks
2. negotiating better AWP discounts
3. giving advice on formulary design
4. providing MAC lists for generics

Question 411

Why has pharmacy cost growth slowed in recent years

Answer 411

1. wave of patent expirations: additional generics have been able to come on the market as patents have expired on brand drugs
2. economy: economic recession has led to decreased spending in several areas, including pharmaceuticals
3. lower overall spending in importantn therapeutic classes, such as LIpitor, and increased use of generics

Question 412

Strategies to help control Rx cost increases

Answer 412

1. formularies
2. tiered benefit designs
3. value-based plan designs
4. limits on usage, which could include step therapy, and other utilition control mechanisms

Question 413

Plan provisions common to both LTC and LTD

Answer 413

1. both have benefit triggers
   - LTD: inability to perform material and substantial occupation duties
   - LTC: inability to perform ADLs
2. both have elimination periods
   - Typical LTD elimination period is 3 or 6 months
   - Typical LTC is usually expressed in days and varies from zero to 365 days. The most common waiting periods are 30, 60, 90, and 100 days.
3. both have optional inflation protection
4. both have spousal benefits
5. both have death benefits
6. both have exclusions/ limitations

Question 414

Things to consider when doing loss ratio comparisons

Answer 414

1. plans/ products, geographical footprint, and benefit designs
2. financial arrangements such as non-refunding and refunding as their loss ratios can present very different results
3. how expenses are treated; for example, managed care organizations and commerical insurer treatment of medical care expenses as claims
4. the effect of combining/ pooling cells in order to achieve credibility
5. reinsurance transactions
6. presence of conservatism in pricing and IBNR, particularly for new business or markets

Question 415

Purpose of dual eligible SNP plan vs Medicare-Medicaid financial alignment

Answer 415

Dual eligible-SNP plan: provide coordinated provider network and schedule of benefits across Medicare and Medicaid to dual eligibles; level of integration varies across states

Medicare-Medicaid Financial alignment: fully coordinated care for dual eligibles. health plan is fully responsible for providing integrated Medicare and Medicaid benefits. plans receive separate caps for Medicare A/B, Medicaid, and Medicare Part D.

Question 416

Services covered and role of managed care in dual eligible-SNP plan vs. Medicare-Medicaid financial alignment

Answer 416

SNP: provide coordinated provider network and schedule of benefits across Medicare and Medicaid to dual eligibles; health play may or may not be at risk for Medicaid-covered services under separate contract witht he state; Medicare and Medicaid revenue streamsa re kept separate;

a. beneficiaries access hospitals, physicians through Medicare
b. Medicaid responsible for Medicaid benefits outside of the Medicare benefit set, Medicare cost-share, and LTC

Medicare-Medicaid financial alignment:
capitated model - three way contract between plan, state, and CMS
Medicare and Medicaid revenues are combined and savings are shared between state and federal government.
Manged FFS model - state is responsible for coordinating care for dual eligibles; in return, state will share in overall Federal savings on a retrospective basis

Question 417

Payment mechanism for dual eligible SNP plan vs. Medicare-Medicaid Financial Alignment

Answer 417

SNP: prospective payments based on plan’s bid

Medicare-Medicaid financial alignment: prospective payments that anticipate savings

Question 418

Taxation of ee contributions for different health accounts

Answer 418

HSA: deductible
HRA: ees can’t contribute
FSA: pre-tax, salary reduction basis

Question 419

Taxation of er contributions for different health accounts

Answer 419

excluded from gross income and not subject to FICA

Question 420

Contribution limits for different health accounts

Answer 420

HSA: 3300 for individual, 6550 for families
HRA: none
FSA: 2500

Question 421

benefits covered by private health plans in Canada

Answer 421

1. pharmacy
2. out of Canada emergency services
3. hospital
4. health practitioner
5. miscellaneous like x-rays and labwork