AHIP (Health Plan Finance and Risk Management) 5 — Questions and Answers
Question 1: A health plan is evaluating a prospective provider network contract. Which financial metric most directly measures whether contracted rates will generate positive margin?
- Medical loss ratio by provider
- Cost per member per month (PMPM) relative to premium PMPM (Correct answer)
- Days in claims payable for contracted providers
- Administrative expense ratio for network management
Correct answer: Cost per member per month (PMPM) relative to premium PMPM
Comparing medical cost PMPM (driven by contracted rates and utilization) to premium PMPM directly shows whether the plan will earn a positive margin on that block of business.
Question 2: A health plan that enrolls a disproportionate share of high-cost, chronically ill members relative to its premium revenue is experiencing:
- Favorable selection
- Adverse selection (Correct answer)
- Moral hazard
- Risk corridors
Correct answer: Adverse selection
Adverse selection occurs when a plan's enrolled population has higher-than-average health risk, leading to higher claims costs than the premium base supports.
Question 3: Under the ACA's minimum value (MV) standard, employer-sponsored health plans must cover at least what percentage of the total allowed costs of benefits?
- 50%
- 60% (Correct answer)
- 70%
- 80%
Correct answer: 60%
ACA minimum value requires employer plans to cover at least 60% of expected total costs, equivalent to a bronze-level plan on the marketplace.
Question 4: Which of the following best describes 'capitation' as a provider payment method?
- Providers are paid a fixed fee per service rendered regardless of complexity
- Providers receive a fixed monthly payment per enrolled member regardless of services used (Correct answer)
- Payment is adjusted retrospectively based on actual costs incurred
- Providers are paid a percentage of the premium the plan collects
Correct answer: Providers receive a fixed monthly payment per enrolled member regardless of services used
Capitation pays providers a fixed per-member per-month (PMPM) amount in advance, transferring utilization risk from the payer to the provider.
Question 5: A health plan's 'claims lag triangle' is used primarily to:
- Track the age distribution of enrolled members over time
- Analyze historical claim payment patterns to project IBNR liabilities (Correct answer)
- Measure the time lag between premium collection and investment income
- Compare a plan's financial performance to industry benchmarks
Correct answer: Analyze historical claim payment patterns to project IBNR liabilities
A claims lag triangle arranges historical paid claims data by incurral period and payment period, enabling actuaries to identify patterns and project unpaid claim liabilities.
Question 6: When regulators review a health plan's 'statutory surplus,' they are assessing:
- The plan's total investment portfolio performance
- The financial cushion available to absorb unexpected losses under state insurance accounting rules (Correct answer)
- The plan's earned premiums minus claims paid for the current year
- The difference between GAAP and statutory accounting net income
Correct answer: The financial cushion available to absorb unexpected losses under state insurance accounting rules
Statutory surplus represents net assets under state insurance (statutory) accounting and serves as the primary buffer protecting policyholders from insolvency.
Question 7: A health plan discovers its medical cost trend is running 4 percentage points above what was assumed in its current year's premium rates. The most likely immediate financial impact is:
- An improvement in the plan's MLR, increasing rebate obligations
- Erosion of the plan's operating margin and potential underwriting loss (Correct answer)
- An increase in the plan's risk-based capital ratio
- Reduction in the plan's IBNR reserve requirements
Correct answer: Erosion of the plan's operating margin and potential underwriting loss
When actual medical trend exceeds the trend assumed in premium rates, claims costs rise faster than revenue, compressing or eliminating operating margin.
AHIP (Health Plan Finance and Risk Management) 5
A health plan is evaluating a prospective provider network contract.
Which financial metric most directly measures whether contracted rates will generate positive margin?