Group Health Insurance

Question 1

Which statement regarding group LTC insurance is NOT correct?
A. Employers may offer group LTC insurance as an employee benefit.
B. Group LTC policies are similar to high-end individual LTC policies in terms of coverage and benefits.
C. Generally, group LTC policies are more expensive than individual LTC policies.
D. After an employee’s termination, LTC coverage may be continued on a direct-pay basis

Answer 1

C

group LTC policies are less expensive than individual LTC policies.

Question 2

Traditional Insurance Company Contract (“Fully Insured”)

Answer 2

Type of group benefit plan

Employer pays premiums to insurance company, and insurance company, administers the policy and is responsible for claims procedures and payments.

Insurance company assumes the risk of claims exceeding premiums

Question 3

Self-Funded (“Self-Insured,” “Uninsured”) Plan

Answer 3

Claims generally paid directly by employer from current cash flow. Employer must weigh potential risk of extraordinary claims against the expected savings from administering the policy directly.

Question 4

benefits are common components of self-funded plans?

Answer 4

Medical and short-term disability

Due to their relative predictability;
life insurance and long-term disability benefits are LESS often self-funded.

Question 5

Stop-loss provisions

Answer 5

Paying for insurance above a certain amount, such as $100,000

This is typically included in self-funded plans to protect employer.

Ex: the employer may self-insure each employee up to $100,000 in health care expenses and pay for an insurance policy to cover any expenses above $100,000.

Question 6

Employee Retirement Income Security Act of 1974 (ERISA)

Answer 6

Provided some motivation for firms to consider, if not adopt, self-funded plans.

Places self-funded plans under the jurisdiction of the federal Department of Labor.

Question 7

Specific stop loss

Answer 7

individual participant (i.e., employee or dependent) and limits the plan’s liability for any individual’s health care costs. Generally, if an individual reaches the specific stop loss, the carrier reimburses the plan for 100% of any health care costs that exceed the attachment point.

EX: Ajax Corporation has a $10,000 specific stop loss. Harvey Simon, one of
the employees, required a heart transplant. After the plan had paid $10,000, the carrier began to reimburse the plan for any expenses in excess of the $10,000.

Question 8

ERISA-exempt

Answer 8

Plans that are exempt from state regulation. There are several reasons exempt plans are more appealing.

Question 9

Aggregate stop loss

Answer 9

Based upon figures for the single participants and a different figure for family units.

Calculated at end of year. The attachment point is calculated based on # of single participants and family units that were covered. If the total claims exceed the attachment point, the carrier reimburses the plan.

Question 10

minimum premium plans

Answer 10

carrier reimburses the plan during the year when benefit payments have exceeded a predetermined level.

Question 11

Cafeteria Plan

Answer 11

Allows employees to participate only in those benefits they find useful. (PICK FROM A MENU)

Question 12

Section 125 require cafeteria plan to offer..

Answer 12

1. a cash benefit taxable to the employee as compensation
2. one or more qualified benefits that are not taxable to the employee.

Question 13

Cafeteria plans most feasible number of employees for employers to offer.

Answer 13

Cafeteria plans are most feasible for employers with more than 20 employees; however, employers with as few as 5 employees have used them.

Question 14

Prohibited from cafeteria plans are..

Answer 14

educational assistance programs, LTC insurance, employee discounts, noncash fringe benefits, and commuter benefits.

Only cash or “qualified benefits,” as defined in IRC Section 125, can be offered.

Question 15

Flexible Spending Arrangements (FSAs)

Answer 15

(“use it or lose it”). carry over up to $550

Employee allocates a dollar amount of salary reduction for the coming year to a specific benefit or a specified period.

Question 16

Health savings accounts (HSAs)

Answer 16

tax-exempt trust or custodial account established with a qualified HSA trustee or custodian.

**A qualified trustee or custodian is an insurance company, bank, or anyone else approved by the IRS to be a trustee or custodian of an IRA.

Question 17

HSA Eligibility

Answer 17

Covered by a high-deductible health plan (HDHP),
Not covered by any other non-HDHP, Not covered by Medicare,
Not claimed as a dependent on another person’s tax filing, and
Not have any other health coverage

Question 18

health reimbursement arrangements (HRAs).

Answer 18

Designed to limit the health plan costs of an employer.

Self-insured plan funded solely by employer contributions and reimburses employees for unreimbursed medical expenses.

Question 19

If the employer contributes to the HSA on behalf of the employee, is the contribution taxable to the employee?

Answer 19

No, it is not taxable to the employee.

Question 20

Key differences between an HRA and an FSA

Answer 20

An HRA is employer funded, FSA is funded by employee salary reduction contributions.

HRA reimbursements are limited by contributions into the HRA, whereas FSA reimbursements are not.

An HRA allows for carryover of any unused funds up to the maximum dollar amount specified in the plan. Retirees and former employees can also carry over unused/accrued funds prior to employment termination. FSAs, however, utilize a use-it-or-lose-it rule.

Employers are not required to fund HRAs until the employee draws on their account. FSAs are funded on a continuous basis using salary reduction contributions.

Question 21

Excepted Benefit Health Reimbursement Arrangement (EBHRA)

Answer 21

Allows employers to offer employees up to $1,950 per year (2023) for qualified medical expenses such as dental, vision, and short-term limited-duration insurance (no employee contributions allowed).

Question 22

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)

Answer 22

allows eligible employers to reimburse or pay employees for qualified medical expenses up to certain limits.

Question 23

Voluntary Employees’ Beneficiary Associations (VEBAs)

Answer 23

enable employers to fund a trust nonretirement benefits, but take an immediate tax deduction. Trusts are expensive to establish and maintain but may be appropriate if the employer wants to provide employees with the security of a prefunded plan
Exempt from income tax on earnings,

Question 24

VEBAs may not offer

Answer 24

retirement benefits
commuting benefits
miscellaneous fringe benefits

Question 25

Health insurance premiums paid by the employer through an employer-paid group plan are

A. a deductible business expense to the employer, and the benefits are included in the employees’ gross incomes.
B. a deductible business expense to the employer, and the benefits are not included in the employees’ gross incomes.
C. a nondeductible business expense to the employer, and the benefits are included in the employees’ gross incomes.
D. a nondeductible business expense to the employer, and the benefits are not included in the employees’ gross incomes.

Answer 25

B

Health insurance premiums are a deductible business expense to the employer, and the benefits are not included in the employees’ gross incomes.

Question 26

Income from a Voluntary Employees’ Benefit Association (VEBA) is

A. exempt from regular income tax if certain requirements are met.
B. always exempt from regular income tax.
C. subject to capital gains taxes.
D. considered unrelated business income.

Answer 26

A

A VEBA is a type of organization (trust or corporation) established by an employer or through a collective bargaining agreement to hold funds used to pay benefits under an employee benefit plan. Income is exempt from regular income tax if the VEBA meets the requirements of Section 501(c)(9). Unrelated business income is income from a trade or business that is not substantially related to a nonprofit organization’s tax-exempt purpose and that is regularly carried on by the organization.

Question 27

In which of these circumstances is the implementation of a cafeteria plan appropriate?

I. When employee benefit needs vary within the employee group
II. When employees want to choose the benefits package most suited to their individual needs
III. When some employees prefer to receive cash in lieu of noncash benefits of equal value

A. III only
B. I and II
C. II and III
D. I, II, and III

Answer 27

D

A cafeteria plan is appropriate when employee benefit needs vary and employees want to choose the benefits package most suited to their individual needs. A cafeteria plan must allow employees to elect a cash option in lieu of noncash benefits of equal value

Question 28

Which statement describing the features of an HSA is CORRECT?

A. Contributions are not tax deductible.
B. A person can establish an HSA regardless of age.
C. Distributions used to pay qualified medical expenses are tax free.
D. A person can establish an HSA regardless of the type of existing health coverage in force.

Answer 28

C

Distributions from an HSA are tax free if used to pay qualified medical expenses. Contributions are tax deductible. A person who has reached age 65 can no longer establish an HSA, and a person must be covered by an HDHP to be eligible for an HSA

Question 29

All of the following statements about an HSA are correct EXCEPT

A. contributions to an HSA are not tax deductible.
B. inside the HSA, earnings are tax deferred.
C. HSA distributions are tax free if used to pay for qualified medical expenses.
D. individuals are eligible for an HSA if they cannot be claimed as a dependent on another person’s tax return.

Answer 29

A

Contributions to an HSA are tax deductible.

Question 30

Employee Retirement Income Security Act of 1974 (ERISA)

Answer 30

protect the interests of participants in employee benefit plans and their beneficiaries.

Question 31

Health Insurance Portability and Accountability Act of 1996 (HIPAA

Answer 31

Address the issue of pre-existing medical conditions when switching jobs.

Question 32

HIPAA provided that there could not be enforcement of a pre-existing medical condition clause if

Answer 32

an employee was covered by the prior employer’s health insurance plan for at least 12 months, and

Fewer than 63 days have elapsed since the loss of coverage under the prior employer’s plan

Question 33

Tax implications of premiums paid by the employer for health and disability insurance are

Answer 33

deductible business expenses for the employer as long as the benefits are payable to the employee and the premiums can be considered additional reasonable compensation.

Question 34

Tax implications of employer-paid premiums

Answer 34

They do not result in taxable income to the employee.

Question 35

Tax implications to employer who contributes to a self-funded plan

Answer 35

No business deduction is available until benefit reimbursements are paid to employees.

Question 36

Tax implications to employer contributions to a VEBA trust

Answer 36

deductible when made

Question 37

Tax implications to employer and employee for qualified group LTC insurance, premium payments are…

Answer 37

Deductible to the employer
Not taxable to the employee.

Question 38

Tax implications for employee for indemnity plans are

Answer 38

Any benefits received by a covered employee are tax free up to specified inflation-indexed limits for indemnity plans.

Question 39

Self-employed persons are allowed to deduct what percentage of the amount they pay for health insurance?

A. 25%
B. 50%
C. 75%
D. 100%

Answer 39

D

Self-employed persons are allowed to deduct 100% of what they pay for health insurance (including qualified long-term care insurance) from their gross income.

Question 40

Which of the followings statements describing a Voluntary Employees’ Beneficiary Association (VEBA) is CORRECT?

A. If structured properly, a VEBA permits an acceleration of the employer’s tax deduction in funding future benefits.
B. Vacation pay cannot be a benefit included in a VEBA.
C. A VEBA is a taxable welfare benefit trust.
D. A VEBA is a useful vehicle for retirement benefits.

Answer 40

A

If structured properly, a VEBA permits for a prefunding of employee benefits and accelerates the employer’s tax deduction for the same. A VEBA is a useful vehicle for non-retirement benefits.

Question 41

Which of the following statements describe circumstances that result in an employee’s medical expense reimbursements from a group medical insurance policy being taxable income to the employee?

I. Medical expense reimbursements are taxable to the employee, to the extent they exceed the expenses incurred.
II. Medical expense reimbursements are taxable to the employee if the employer paid the premiums for coverage.

A. Neither I nor II
B. II only
C. Both I and II
D. I only

Answer 41

D

Question 42

Which of the following are characteristics of cafeteria plans?

I. Each employee has a certain number of dollars or credits that can be spent on a variety of benefits.
II. One type of cafeteria plan, a flexible spending account (FSA), consists of various tax-free benefits that are funded through salary reductions elected by employees each year.
III. Qualified benefits, which exclude the cash option, are an exception to the constructive receipt rules of income taxation.

A. II and III
B. I and III
C. I, II, and III
D. I and II

Answer 42

C

Under a cafeteria plan, employees may, within limits, choose the form of employee benefits from options provided by their employer. Such a plan must include a cash option that is taxable as ordinary income.

Qualified benefits, which exclude the cash option, are an exception to the constructive receipt rules of income taxation.

A cafeteria plan that is funded entirely through employee salary reductions (with no employer contribution) is known as an FSA.

Question 43

Which one of the following statements regarding health savings accounts (HSAs) and is CORRECT?

I. HSAs are portable, meaning the plan can be taken intact by the individual when terminating employment.
II. Distributions are tax free if used to pay qualified medical expenses.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

Answer 43

C

Question 44

Which of the following statements about a health maintenance organization (HMO) are CORRECT?

A. HMOs are fee-for-service entities.
B. HMOs operate on a prepaid plan approach.
C. HMOs prevent the under-utilization of their services by physicians with the gatekeeper concept.
D. HMO subscribers are free to choose any doctor they wish.

Answer 44

B

PPOs operate on a fee-for-service basis. Subscribers to the HMO pay their fees in advance. HMOs control the overutilization of their services with a gatekeeper.

Question 45

Greg, 61, is covered by a health savings account (HSA) provided by his employer. His marginal federal income tax rate is 24%. This year, he takes a $5,000 distribution from the HSA but fails to apply it to qualified medical expenses. Which of the following statements regarding the income tax consequences of this distribution is CORRECT?

A. Greg owes no tax and no penalty.
B. Greg owes tax of $1,200 and a penalty of $1,000.
C. Greg owes tax of $1,200 and a penalty of $500.
D. Greg owes tax of $1,200 but no penalty.

Answer 45

B

A distribution from an HSA that is not used for qualified medical expenses is taxable and, if made before age 65, is subject to an additional 20% penalty.

Question 46

Until what age do applicable 2010 Patient Protection and Affordable Care Act plans provide protection for dependent adult children?

A. 26
B. 21
C. 19
D. 25

Answer 46

A

Question 47

Emmitt works for XYZ Co., which has a self-funded health insurance plan. XYZ Co. has a total of 20 employees, of which, only 15 are covered by the health plan. Emmitt is a covered employee. If he is involuntarily terminated (fired, not due to gross misconduct) by XYZ Co., which of the following correctly describes his COBRA rights?

A. Emmitt is not covered because COBRA does not apply to employees who are fired from their jobs.
B. Emmitt is not covered because XYZ Co. covers fewer than 20 employees.
C. Emmitt may elect to continue health insurance coverage for 18 months at up to 102% of the employer premium.
D. Emmitt is not covered because COBRA does not apply to employers who self-fund health insurance coverage.

Answer 47

C

As long as an employer has at least 20 employees, COBRA continuation coverage must be provided (the number of covered employees is irrelevant). In addition, COBRA rights must be accorded to involuntarily terminated employees. The only exception to this rule is for employees who are fired as a result of gross misconduct (as defined by the courts). Finally, employers who self-fund their insurance programs are also subject to COBRA.

Question 48

Which of these statements regarding flexible spending plans (FSAs) in 2023 is CORRECT?

A plan may offer either the rolling over of up to $610 of expenses to the next year, or allowing expenses to be claimed for the first 2½ months of the following year.

Flexible spending plans are exempt from federal, state, and FICA taxes.

Any amount remaining in the plan at the “lose-it-or-lose-it” date, other than the rollover, is forfeited to the employer.

A) I and II
B) I only
C) I, II, and III
D) II and III

Answer 48

C

Question 49

Which of the following benefits may NOT be included in a Section 125 cafeteria plan?

I Scholarships and fellowships
II Educational assistance
III Employee discounts
IV Nonqualified plan benefits

A. I only
B. II, III, and IV
C. I, II, III, and IV
D. II and III

Answer 49

D

None of the benefits listed may be included in a Section 125 plan.

Question 50

The premiums paid by a company for group medical for its employees are

A. not tax deductible to either the company or the business.
B. tax deductible by the company and considered taxable income to the employees.
C. tax deductible to the employees and the company.
D. tax deductible by the company and not considered taxable income to the employees.

Answer 50

D

The premiums paid by a company for group medical for its employees are tax deductible by the company and not considered taxable income to the employees

Question 51

Which of the following is the definition of copayments in a group health insurance policy?

A. A flat amount that is paid per service, such as for doctor visits or emergency room visits
B. The most the insured will have to pay in any given year before the insurance company pays 100% of claims
C. The percentage of medical expenses that are paid by the insurance company once the deductible has been met
D. The premium paid in order to obtain coverage

Answer 51

A

Copayments are a flat amount that is paid per service, such as for doctor visits or emergency room visits. Copayments are not premiums. Coinsurance is a percentage of the expenses that are paid by the insurance company once the deductible has been met for covered services.

Question 52

Which of the following statements regarding Voluntary Employees’ Beneficiary Associations (VEBAs) are CORRECT?

I. VEBAs permit an acceleration of the employer’s tax deduction in funding future benefits.
II. Income from VEBAs may be tax exempt to the employer.

A. II only
B. I only
C. Both I and II
D. Neither I nor II

Answer 52

C

If structured properly, a VEBA accelerates the employer’s tax deduction for providing these benefits. Income from the VEBA may be tax exempt to the employer.

Question 53

All of these are key differences between an HRA and FSA, except

A. an HRA is funded through salary reductions, whereas an FSA is solely employer funded.
B. HRA reimbursements are limited by contributions into the HRA, whereas FSA reimbursements are not.
C. an HRA allows for the carryover of unused funds, whereas FSAs contain a “use-it-or-lose-it” provision.
D. HRAs are generally not funded until the employee draws on their account, whereas FSAs are funded on a continuous basis through salary reduction contributions.

Answer 53

A

An HRA is funded solely through employer contributions; no employee contributions are allowed.

FSAs, however, are funded through employee salary reduction contributions. All other statements are true.

Question 54

Which of the following regarding cafeteria plans is CORRECT?

I. The plan may not include a cash option.
II. Each employee has a certain number of dollars or credits that can be spent on a variety of benefits.
III. A flexible spending account is a cafeteria plan consisting of various tax-free benefits that are funded through salary reductions elected by employees each year.

A. II and III
B. II only
C. I and III
D. I, II, and III

Answer 54

A

Cafeteria plans must include a cash option.

Question 55

Rollie voluntarily resigns from International Shipping Co. to go on an extended missionary trip. The International Shipping Co. group health plan is subject to the COBRA continuation requirements. Which of the following statements regarding Rollie’s COBRA rights under the health plan is CORRECT?

A. Rollie is not eligible for continuation coverage because his termination of employment was voluntary.
B. Rollie is eligible for up to 36 months of continuation coverage.
C. Rollie is eligible for continuation coverage for up to 29 months.
D. Rollie is eligible for continuation coverage for up to 18 months.

Answer 55

D

Termination of employment is a qualifying event under COBRA, regardless of whether it is voluntary or involuntary. The maximum period of continuation coverage following a termination of employment is 18 months for the employee and covered dependents.

Question 56

Employer-paid group medical and dental health insurance benefits are tax free, and the premiums are

A. deductible to the employer.
B. deductible to both the employee and employer.
C. deductible to the employee.
D. not deductible.

Answer 56

A

If the employer pays the premiums, they are entitled to the deduction. **KEYWORD Employer-Paid

Question 57

In which of the following circumstances would an employee’s medical expense reimbursements from a group medical insurance policy be taxable?

I. Medical expense reimbursements are taxable to the employee if the employer paid the premiums for coverage.
II. Medical expense reimbursements are taxable to the employee, to the extent they equal the expenses incurred.

A) I only
B) Neither I nor II
C) II only
D) Both I and II

Answer 57

B

Medical expense reimbursements are not taxable to the employee if the employer paid the premiums for coverage.

Medical expense reimbursements are taxable to the employee, to the extent they exceed the expenses incurred. NOT EQUAL

Question 58

Which of the following statements regarding Flexible Savings Accounts (FSAs) is correct?

I. Employee deferrals into an FSA are free of payroll (Social Security) taxes.
II. The employee commits to allocating a dollar amount of salary reduction for the coming year.

A) II only
B) Both I and II
C) Neither I nor II
D) I only

Answer 58

B

Question 59

Which of the following describes a characteristic of a self-funded plan?

A) The insurance company assumes the risk and administrative burden.
B) Life and long-term disability insurance are less common in self-funded plans.
C) The employer pays the premium, communicates information regarding coverage, and collects any employee contributions.
D) Medical and short-term disability insurance are less common in self-funded plans.

Answer 59

B

It is uncommon for life or long-term disability plans to be self-funded plans. An insurance company assumes the risk and administrative burden in a traditional plan. Employers pay the premium in a traditional plan. Self-funded plans are normally medical or short-term disability coverage because of their relative predictability.

Question 60

Which of the following statements regarding individual medical expense insurance is CORRECT?

I. The Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) requires that group health plans allow employees and certain beneficiaries to elect to have their current health insurance coverage extended at group rates for up to 36 months following a qualifying event that results in the loss of coverage for a qualified beneficiary.
II. COBRA applies to all employers that maintain group health plans.

A. Both I and II
B. II only
C. I only
D. Neither I nor II

Answer 60

C

COBRA applies only to employers with 20 or more employees. A part-time employee counts as half an employee for purposes of the 20-employee rule.

Question 61

Which of the following statements regarding a flexible spending account (FSA) is CORRECT?

I. An FSA is a cafeteria plan consisting of various tax-free benefits funded through employee salary reductions.
II. There is no maximum amount of salary reduction that can be elected to fund an FSA.
III. Employee salary reductions applied to qualified nontaxable benefits under the plan are subject to income tax and payroll (FICA) tax.

A. III only
B. I, II, and III
C. I only
D. I and II

Answer 61

C

Employee salary reductions applied to the nontaxable benefits offered under the account are not subject to either income tax or payroll (FICA) tax.

An FSA is indeed a cafeteria plan consisting of various tax-free benefits funded through employee salary reductions. However, there is a maximum amount of salary reduction that can be elected to fund an FSA, and employee salary reductions applied to qualified nontaxable benefits are not subject to income tax or payroll (FICA) tax.

Question 62

Which of the following is true of PPO plans regarding their benefit structure?

A) A PPO gives participants incentives to see network providers.
B) Employees must choose doctors or other health care providers from members of the PPO network; these providers often are salaried employees of the PPO.
C) A PPO provides the same benefits payments to network and non-network providers.
D) A PPO uses the prepaid approach of health care to restrain the increasing cost of health care.

Answer 62

A

Under a PPO, a participant who sees a network physician may have a copayment of $10, while a participant who sees a provider outside of the network may have to pay a deductible and 20% of the cost.

Question 63

Which of the following are the common benefits afforded to employees in a Voluntary Employees’ Beneficiary Association (VEBA)?

I. Severance pay
II. Vacation benefits
III. Sabbatical benefits

A. I only
B. Both I and II
C. Neither I nor II
D. II and III

Answer 63

B

Question 64

Today, most dental plans are offered through

A. self-insurance.
B. preferred provider organizations (PPOs).
C. health maintenance organizations (HMOs).
D. government insurance.

Answer 64

B

Most dental expense plans are offered through PPOs, which have contracted with particular dentists to provide services for agreed-upon fees.

Question 65

Which of the following statements regarding voluntary employees’ beneficiary associations (VEBAs) is CORRECT?

I. The income cannot be used to provide employee vacation benefits.
II. The income from VEBAs may be tax exempt.
III. They permit an acceleration of the employer’s tax deduction in funding future benefits.

A. II only
B. I, II, and III
C. II and III
D. I only

Answer 65

C

VEBAs can be used to provide vacation benefits, as well as severance benefits. If structured properly, a VEBA accelerates the employer’s tax deduction for providing these benefits. Income from the VEBA may be tax exempt to the employer.

Question 66

CDE, Inc., has recently started paying for the long-term care policies for its 45 employees. How are the payments treated for federal income tax purposes if the policies are qualified policies?

A. Employer payments for group premiums are tax deductible to the employer and not taxable income to the employee.
B. Employer payments for group premiums are tax deductible to the employer but are taxable income to the employee on the basis of the coverage schedule.
C. Employer payments for the group premiums are not tax deductible to the employer but are taxable income to the employee on the basis of the coverage schedule.
D. Employer payments for the group premiums are not tax deductible to the employer and not taxable income to the employee.

Answer 66

A

The answer is employer payments for the group premiums are tax deductible to the employer and not taxable income to the employee.

Question 67

Which statement represents the main difference between traditional health insurance arrangements and health maintenance organizations (HMOs)?

A) HMOs provide both the health care service and the health care financing, but traditional health care insurance companies provide only the financing.

B) HMOs provide both the health care service and the health care financing, but traditional health care insurance companies provide only the service.

C) Traditional health care insurance companies provide both the health care service and the health care financing, but HMOs provide only the health care service.

D) Traditional health insurance companies provide both the health care service and the health care financing, but HMOs provide only the health care financing.

Question 68

Which of the following statements regarding group long-term care (LTC) insurance is CORRECT?

I. Generally, group LTC policies are more expensive than individual LTC policies.
II. Employers may offer group long-term care insurance as an employee benefit.
III. After an employee’s termination, LTC coverage may be continued on a direct pay basis.

A) I, II, and III
B) II and III
C) II only
D) III only