AHIP (Health Plan Finance and Risk Management) 4 — Questions and Answers
Question 1: Which of the following financial statements provides a snapshot of a health plan's assets, liabilities, and net worth at a specific point in time?
- Income statement
- Statement of cash flows
- Balance sheet (Correct answer)
- Statement of changes in equity
Correct answer: Balance sheet
The balance sheet (statement of financial position) shows a plan's assets, liabilities, and net worth at a single date.
Question 2: A health plan uses 'trend factors' in its actuarial rate setting primarily to account for:
- Changes in the plan's administrative staffing levels
- Expected increases in healthcare costs and utilization over the rating period (Correct answer)
- Investment returns on the plan's surplus funds
- Differences in benefit design between plan products
Correct answer: Expected increases in healthcare costs and utilization over the rating period
Trend factors project how medical costs and utilization will change over time due to inflation, new technologies, and shifting patterns of care.
Question 3: A health plan's 'operating margin' is best defined as:
- Net income divided by total assets
- Operating income divided by total revenue (Correct answer)
- Medical costs divided by earned premiums
- Total revenue minus total claims paid
Correct answer: Operating income divided by total revenue
Operating margin equals operating income (revenue minus operating expenses) divided by total revenue, measuring profitability from core operations.
Question 4: Under the ACA's 3Rs (risk adjustment, reinsurance, risk corridors), which program was permanent and which were temporary?
- Risk adjustment was temporary; reinsurance and risk corridors were permanent
- Risk corridors were permanent; risk adjustment and reinsurance were temporary
- Risk adjustment is permanent; reinsurance and risk corridors were temporary transitional programs (Correct answer)
- All three were permanent features of the ACA
Correct answer: Risk adjustment is permanent; reinsurance and risk corridors were temporary transitional programs
Risk adjustment is a permanent program, while the transitional reinsurance and risk corridor programs were designed for the first three years of ACA marketplace operation (2014–2016).
Question 5: When a health plan calculates its 'completion factors,' what is the purpose?
- To determine how many new members enrolled during the month
- To estimate the ultimate cost of claims by accounting for reporting lags (Correct answer)
- To measure physician productivity under capitation arrangements
- To project future premium revenue based on enrollment trends
Correct answer: To estimate the ultimate cost of claims by accounting for reporting lags
Completion factors adjust paid claims data to estimate the total (ultimate) cost, accounting for the fact that not all incurred claims have been received and processed yet.
Question 6: A health plan's 'days cash on hand' metric measures:
- How many days the plan can cover operating expenses with available liquid assets (Correct answer)
- The average number of days from claim submission to payment
- The number of days of premium revenue held in reserve
- How long it takes to convert investments to cash
Correct answer: How many days the plan can cover operating expenses with available liquid assets
Days cash on hand equals liquid assets divided by average daily operating expenses, indicating short-term financial resilience and liquidity.
Question 7: Which of the following risk management strategies involves a health plan sharing financial risk directly with providers through a performance-based payment arrangement?
- Stop-loss reinsurance
- Shared savings or shared risk contracts (Correct answer)
- Community rating
- Premium tax credits
Correct answer: Shared savings or shared risk contracts
Shared savings/risk contracts align provider incentives with cost efficiency by giving providers a portion of savings—or requiring them to share in losses—relative to a target spend.
AHIP (Health Plan Finance and Risk Management) 4
Which of the following financial statements provides a snapshot of a health plan's assets, liabilities, and net worth at a specific point in time?