Core - past questions Flashcards

Question

Sources of credits for flexible benefits programs

Answer 1

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

Answer 2

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)

Answer 3

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

Answer 4

hint: cc chai 1. a high-deductible health plan 2. an individual health account to pay for expenses not covered by the HDHP 3. information and tools to provide health education and help find the highest-quality providers at the lowest cost 4. a communications program to encourage consumerism and healthy behaviors 5. a health coach or consultant to help individuals use available information and provide guidance on use of health care providers 6. for serious chronic conditions, a proactive medical professional to coordinate care for the patient

Answer 5

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

Answer 6

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.

Answer 7

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

Answer 8

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

Answer 9

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

Answer 10

1. no imputed income 2. premium paid by employer is tax deductible 3. benefits excluded from beneficiary's gross income as well

Answer 11

ROE = asset turnover x profit margin x leverage ratio

Answer 12

1. the sustainable growth rate represents the limit on a company's growth if there is no external source of capital 2. g = R x ROEbop R = earnings retention rate = 1 - dividends / earnings ROEbop = earnings/ equity at beginning of period 3 Since ROEbop = PAT, then G = PRAT P = profit margin A = asset turnover ratio T = financial leverage = assets to equity ratio Therefore, increase to g, one of P, R, A, or T must increase 4. Since ROA = profit margin x asset turnover ratio, g = RT x ROA

Answer 13

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

Answer 14

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

Answer 15

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

Answer 16

NPBC = service cost + interest cost - expected return on assets + amortization of transition obligation + amortization of loss + amortization of prior service cost

Answer 17

E(ROA) = (assets x ROR) - (ben pmts x ROR / 2)

Answer 18

loss = actual APBO - expected APBO

Answer 19

10% x maximum (APBO, assets)

Answer 20

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

Answer 21

If they result in a gain, they are recognized when ee is terminated or amendment is adopted. If they result in a loss, they are recognized as soon as the loss can be easily and accurately estimated.

Answer 22

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

Answer 23

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

Answer 24

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

Answer 25

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

Answer 26

Hint: AA cup 1. comprehensiveness - all medical-required hospital and physician services must be covered under the plan 2. universality - all legal residents of a province must be entitled to the plan's services on uniform terms and conditions 3. accessibility - reasonable access by residents to hospital and physician services must not be impeded by charges made to those residents 4. 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 5. public administration - the plan must be administered on a non-profit basis by a public authority

Answer 27

1. out of Canada claims 2. hospitals and facilities 3. physicians 4. miscellaneous coverages 5. prescription drugs 6. equipment 7. dental

Answer 28

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

Answer 29

- pharmacy - out of Canada ER facilities - hospital - health practitioner - miscellaneous (x-rays, lab)

Answer 30

If competitors offer different sets of metal plans, the provider with leaner set will attract, on average, younger and healthier people to spread their risks across

Answer 31

Large carriers that used underwriting before the ACA may start with a healthier book Subsidies on the exchange cause anti-selection because unhealthy people generally need more subsidies High risk employers may go to the exchange for cheaper rates

Answer 32

All provider plans must be at least 60% actuarial value Individual and employer mandate Premium subsidies encourage participation Essential health benefits must be covered both on and off the exchange

Answer 33

3Rs: Risk corridor – a temporary program from 2014-2016. Federal government shares the risk for loss ratio variances. Variances between 3-8% share 50% of gain/loss and 8%+ government covers 80% of gain/loss Risk Reinsurance also a temporary program from 2014-2016. All fully insured and self-funded plans pay into a reinsurance pool to pay for individual claims on the exchange exceeding a prescribed threshold. Risk adjustment is a permanent program where carriers will make or receive payments based on the risk profile of their members. Applies to both individual and small group risk pools. It is a zero sum program.

Answer 34

Any-willing-provider law Require all carriers to provide all metal plans Additional restrictions on plans offered off the exchange Don't let carriers in and out of the exchange at will Continue the reinsurance program past 2016 Expand Medicaid Expand the definition of large group to 100 employees

Answer 35

``` Guaranteed issue/ renewability No rating on health status Dependent coverage to age 26 No recissions No pre-existing rating -in 2010 for kids -in 2014 for adults Preventive care at 0% cost share No annual maximums Essential health benefits package OOP limits capped Waiting periods can't be more than 90 days MLR requirements Premium rate increase reviews Cost sharing subsidies ```

Answer 36

1. average deductible at least as rich as Part D 2. Deductible is less than or equal to Part D deductible 3. Catastrophic coverage is at least as rich as Part D

Answer 37

1. Provide actuarial attestation that coverage is at least as rich as Medicare Part D 2. Gross value test - coverage is at least as rich as Part D coverage 3. Net value test - portion of the plan covered is at least as rich as Part D. Net value = gross value - premium.

Answer 38

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. the benefits can support workforce planning and growth opportunities for employees 4. providing ongoing health care coverage is a social responsibility of the employer 5. retiree health care benefits help provide a competitive package of total compensation 6. the current cash costs are nominal relative to the total spending on benefits 7. retiree benefits are often at the top of the list of union demands

Answer 39

Allows continuation of group coverage after a qualifying event, such as termination of employment, divorce, child aging out Coverage can continue for up to 18 months (36 months in certain cases) Members pay the full premium plus up to a 2% administrative fee

Answer 40

Limits a group’s ability to impose pre-existing condition exclusions Allows conversion to a guarantee issue individual policy once COBRA coverage is exhausted Does not allow plan eligibility or premium payment to vary based on health status Requires special enrollment periods in the middle of the plan year under certain circumstances

Answer 41

Premium is recognized when due from policyholders. Liability is recognized as PV of future expense minus PV of future premium. Examples include individual LTD, individual LTC, individual major medical, and individual cancer insurance.

Answer 42

Premium is recognized in proportion to protection provided; liability is recognized as incurred, including estimates for IBNR. Examples include group LTD, group waiver of premium plan, group major medical, and group STD.

Answer 43

Benefits that are paid out for many years. Examples include individual and group LTD and LTC.

Answer 44

Benefits that are paid for a short time or for an acute episode. Examples include major medical, cancer, and STD.

Answer 45

Negotiating contracts and developing pharmacy networks Negotiating better AWP discounts Giving advice on formulary design Providing MAC lists for generics

Answer 46

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

Answer 47

Wave of patent expirations: Additional generics have been able to come on the market as patents have expired on brand drugs Economy: Economic recession has led to decreased spending in several areas, including pharmaceuticals Lower overall spending in important therapeutic classes, such as Lipitor, and increased use of generics

Answer 48

Formularies Tiered benefit designs Value-based plan designs Limits on usage, which could include step therapy, and other utilization control mechanisms

Answer 49

Eligibility - Full-time working minimum number of hours - Actively at work - Waiting period from hire date Continuity of coverage -Ability for insured to covert the group term insurance coverage to an individual life insurance policy upon termination of employment Disability - Waiver of premium for disability - Total and permanent disability - Extended death benefit Benefit payment provisions - Accelerated benefits - Beneficiary - Minimum participation

Answer 50

Market for LTC insurance in the U.S. is much more developed than the Canadian market because Canadian Medicare covers some long term care expenses The group LTC market in the U.S. is much smaller than the individual LTC market However, the group LTC insurance market has been growing at a rapid pace

Answer 51

Both LTD and LTC have benefit triggers - LTD: inability to perform material and substantial occupation duties - LTC: inability to perform ADLs Both have elimination periods i. Typical LTD elimination period is 3 or 6 months ii. 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. Both have optional inflation protection Both have spousal benefits Both have death benefits Both have exclusions/limitations

Answer 52

Change #1: Expands private insurance coverage by Requiring guaranteed issue Mandating coverage Making premium subsidies available to lower-income people Pricing Challenges: Predicting who will enter the exchange for various reasons: flux of previously uninsured, young/healthy may elect to pay the penalty, % of employers electing to stop providing coverage, etc. Change #2: Requires new benefit designs to be offered Including four “metal levels” corresponding to different levels of actuarial value for a benchmark package of essential health benefits Pricing Challenges: Benchmark plans are left to the states so there is uncertainty as to what the benefits will be; the potential for “rate shock” as the benefits will be richer for many as a result. Change #3: Eliminates premium differentials by health status and gender and restricts age variation to a 3-to-1 ratio. Pricing Challenges: Adverse selection may result when younger people see rates go up and older find coverage more affordable; Rules vary by state so selection effects are complicated. Change #4: Contains three risk mitigation strategies Temporary reinsurance Risk corridors Risk adjustment program Pricing Challenges: Full design parameters of these programs are unknown; limited data for actuaries to use to model expected impact. Change #5: Adherance to Minimum Loss Ratio >80% SG and Individual Pricing Challenges: Maintain admin and profitability while maintaining MLR. Additional administrative costs related to tracking MLR and paying rebates as necessary.

Answer 53

Measuring the financial performance of products By subgroup – individual vs. group, etc. ; Used to manage care provider groups Preparing business plans that project earnings - Can be used for applications for license for a new company or expansion to operate in a new jurisdiction Support filings for new or renewal rates and policy forms Reporting information concerning results to policyholders such as employer groups Used by them for budgeting purposes, monitoring experience, and/or understanding rate increases Setting incentive target earnings for management, employee, and provider compensation Agents and brokers may be compensated based on loss ratios Loss ratios may trigger payments to providers subject to profit sharing arrangements

Answer 54

hint: PREP RC PLANS/ PRODUCTS, geographical footprint, and benefit designs Financial arrangements such as non-refunding and REFUNDING as their loss ratios can present very different results How EXPENSES are treated; for example, managed care organizations and commercial insurer treatment of medical care expenses as claims The effect of combining/POOLING ‘cells’ in order to achieve credibility REINSURANCE transactions The presence of CONSERVATISM in pricing and IBNR, particularly for new business or markets

Answer 55

Prospective rate reviews - determining if premiums are reasonable in relation to claims Retrospective rate reviews – e.g. refund calculations As an indicator of the insurer profitability As an indicator of insurer solvency

Answer 56

1. Higher administration costs 2. Choice promotes adverse selection 3. Subject to non-discrimination testing 4. For FSA, funds must be available at any point in the year

Answer 57

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

Answer 58

Insurer studies Use company’s own LTD claims experience to conduct loss ratio studies and actual-to-expected incidence and termination rate studies TSA Reports – 1984 Reports Containing annual claim incidence rates per 1,000 by age group, gender and elimination period and ratios of actual to tabular incidence rates SOA 2000 Basic Experience Table Intercompany studies performed by the SOA Disability Experience committee 1987 Commissioners Group Disability Table Includes rates that vary by gender and elimination period

Answer 59

1. eliminate policies not providing the benefits expected 2. prevent insolvency 3. eliminate policies that provide poor value 4. solve minor consumer problems 5. maintain fair competition 6. raise tax money 7. promote social goals

Answer 60

1. Laws vary from simple to complex 2. Simplicity in the 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 will be needed where markets are complex and simplicity has not worked in preventing problems 4. Various levels of legal requirements include: a. constitutions and laws are usually fairly simple b. regulation is detailed and complex c. administrative directive and bulletins address very specific and timely issues

Answer 61

hint: LIP ER 1. licensing - the firm agrees to be regulated. Agents may also be required to get a license. 2. Information gathering - the purpose is to monitor financial soundness, confirm compliance, provide consumer 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

Answer 62

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

Answer 63

1. catastrophic claim pooling - forgive any amount over a certain limit 2. loss ratio or rate increase limits - accomplished in one of the following three equivalent ways: - setting an upper limit on the loss ratio which will be used in setting future rates - setting an upper limit on the percentage rate increase which a group will be charged - setting an upper limit on the aggregate claim dollars a group will be charged 3. Credibility weighting - incurred claims after pooling = C * incurred claims before pooling + (1-C)* expected incurred claims 4. Multi-year averaging - combine several years of experience in order to smooth out the statistical fluctuations. Weighted average pooled loss ratio in year Z = 5/9 x LR(year Z) + 3/9 x LR(year Z - 1) + 1/9 x LR(year Z - 2) 5. Combination of methods

Answer 64

1. Measuring the past 2. Evaluating and adapting the past to future 3. Using the past to project the future in order to determine needed rate levels

Answer 65

Rerating approach - rating based on existing experience Fundamental pricing approach - rating from other data sources, which are adjusted to apply to the current situation. Three methods - Tabular - existing table such as 1985 CIDA is used as the morbidity basis for pricing. Used for long term, non-inflation sensitive products - Buildup and density functions - A model is built to determine expected claims in the rating period. Buildup: each claim type has its own claim cost calculation (frequency x severity). Density: calculates a distribution of the expected total annual claims for an individual. - Simulation - existing claim distribution is projected into the rating period, using all known information about the claimants.

Answer 66

1. The market - competitor pricing sets expectations for consumers, so it limits options 2. Existing products - the company's existing products set expectations for future products 3. Distribution system structure, compensation system, and level of company control 4. Regulatory situation - impacts how rates are set and whether rate increases are allowed 5. Strategic plan and profit goals

Answer 67

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 Employer must decide whether to offer an HSA Consider how the presence of the account will impact other benefit choices Funding considerations - decide if contributions to the accounts will be monthly or annually Limits on how much the employee can allocate to the flexible account How to handle changes during the year (such as family status changes, termination, and retirement) Disposition of funds at year end - depends on rollover approach used

Answer 68

Advantages: Expand the types of benefits offered with little or no additional employer cost Add a new benefit without subsidizing an expensive coverage area Offer a benefit that might appeal to only a small segment of the employee population Contain costs by setting a defined contribution while providing employees with flexibility over how funds are spent Test the appeal of flexible benefits without committing to a full-choice program Deliver compensation tax effectively Encourage employees to self-insure predictable and budgetable expenses Soften the impact of higher employee cost sharing Replace existing coverage, allowing the employer to gain control of future cost increases Obtain the maximum value form health benefits under the Quebec tax system Disadvantages Administration costs may be too high Balance may be forfeited if unused at year end

Answer 69

Adequate - high enough to generate an acceptable return on equity Competitive - low enough to enroll enough members to meet volume and growth targets Equitable - to avoid an unreasonable amount of cross-subsidization among groups (which will improve persistency)

Answer 70

The rate formula provides the mechanism to adjust the base rate to a group-specific manual rate 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

Answer 71

1. develop the projection period base rate PMPM - based on historical medical costs trended forward, and reflects the average characteristics of the block of business 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 (employee only, family, etc.)

Answer 72

1. 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 2. A method of analyzing the entire employee benefits package 3. A systematic approach to ensure that benefits are integrated with other benefits 4. It evaluates the program as a whole to assess its effectiveness at covering employee risks and exposures and addressing overlaps and gaps in coverage

Answer 73

hint: open the closed gate so an old abandoned insider can return 1. Classify employee needs and OBJECTIVES into logical categories 2. Classify the TYPES OF PERSONS the employer wants to protect through the benefit plans. For example, current employees, dependents, past employees, etc. 3. Analyze CURRENT plan benefits in terms of the functional categories and who is being protected 4. Determine any GAPS or overlapping benefits in the plan 5. Estimate the costs or SAVINGS from the changes described above 6. Evaluate ALTERNATIVE methods of financing or securing new benefits and existing benefits 7. Consider OTHER cost-saving STRATEGIES in connection with the plan's proposed or existing benefits 8. Decide upon the APPROPRIATE BENEFITS, methods of financing, and sources of delivery based on this analysis 9. IMPLEMENT the changes 10. COMMUNICATE benefit changes to employees 11. Periodically REEVALUATE the employee benefit plan

Answer 74

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

Answer 75

1. Income to the HI trust fund is not adequate to fund the HI portion of Medicare benefits - this trust fund is projected to be depleted in 2024 - at that time, payroll tax revenues are projected to cover only 87% of program costs - using assumptions based on current law, the projected deficit over the next 75 years is 1.35% of taxable payroll. Eliminating this deficit would require an immediate 47% increase in payroll taxes or a 26% reduction in benefits - The situation is likely worse, since current law includes reductions in provider payments that are unlikely to occur 2. Increases in SMI costs increase pressure on beneficiary budgets and the federal budget - this 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 - under current law, SMI spending is projected to grow from 2% of GDP in 2011 to 3.1% in 2030 and 4.0% in 2085 3. Increases in total Medicare spending threaten the program's sustainability - total Medicare expenditure were 3.7% of GDP in 2011 - under current law projections, they are expected to grow to 6.7% of GDP in 2085

Answer 76

1. Reductions to provider payment updates - to reflect productivity improvements 2. Medicare Advantage plan payments will be reduced gradually relative to FFS costs 3. Health care payment and delivery system improvements - for example, initiatives on bundled payments and accountable-care organizations 4. Increases in Medicare revenues - increasing the payroll tax, Part B premiums, and Part D premiums for those with higher incomes 5. Creation of the Independent Payment Advisory Board - to recommend changes to provider payments if Medicare spending exceeds a target per capita growth rate

Answer 77

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

Answer 78

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

Answer 79

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

Answer 80

i. new employees - HR has developed communication tools that incorporate notification and disclosure requirements and present their benefits program with the most advantageous aspects. Common problems are misunderstandings about actual benefits offered, missing applications, vendor enrollment delays, and employee challenges to mandatory benefits. ii. annual open enrollment - open enrollment communications process requires a major commitment of HR resources. Much effort is devoted to updating and revising personal data reports, printed materials, and web-app programs. iii. Communications throughout the year - using the life events approach, the plan sponsor extracts from each its benefits plans applicable information for a specific events and then in one place the sponsor communicates step by step the options available and actions required iv. retirees - predominantly communication has been through print, but now web-based programs are becoming popular. Explain what hasn't changed and avoid jargon.

Answer 81

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

Answer 82

Expense Loadings: This is usually the largest part of retention, and is generally included as a number of separate charges. These would include salaries, administrative expenses, rent, taxes, etc. Pooling Charges: This spreads the cost of any pooled claims over all policy holders. May be included in retention or elsewhere in pricing. Profit Charge or Contribution to Free Reserves: This is the profit that the insurer chooses to include in its pricing formula. Non-profit insurers call this “contributions to free reserves.” Profit charges may be embedded in other assumptions, so it may or may not be an explicit retention loading. Investment Income: Some insurers provide for the crediting of investment income on reserves or other money held, and treats this income as an offset to other retention items. Explicit Margin: An insurer may include a specific margin in the retention calculation to reduce the insurer’s risk and increase the confidence in the pricing assumptions built into the rates. Deficit Recovery Charge: If a policyholder has caused incurred losses by the insurer in prior years, and those losses have not yet been recovered, the insurer may build in a deficit recovery charge intended to recoup past losses within a reasonable period of time. Termination Risk Charge: Occasionally, a policyholder in a deficit position will terminate its contract, leaving the insurer who has chosen a deficit recovery charge philosophy no means to recover the losses from that policyholder. A risk charge may therefore be made in advance on all policyholders in order to finance this business risk.

Answer 83

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

Answer 84

ACO stands for Accountable Care Organization Shared savings program using performance measures Written into ACA Approach to achieve more integrated and efficient care Local organizational accountability for quality and costs

Answer 85

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

Answer 86

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

Answer 87

hint: creep c 1. claim values - paid claims, incurred claims, claim reserves, claim adjustment expense reserves, and policy reserves 2. 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 3. revenue values - including premium, investment income, and explicit subsidies 4. expense targets - expense loadings may be very detailed. the cost of capital is sometimes treated as an expense 5. 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 6. capital values - must model the cost of the capital used by the line of business

Answer 88

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

Answer 89

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

Answer 90

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 High Deductible Health Plan Eligible expenses 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.

Answer 91

Personal accounts can cover many items, ranging from health-related items such as gym memberships to personal items such as gas or vacations. Reimbursed items generally count as taxable income to the employee Employers tax the account based on the allocations rather than the reimbursements Balance remaining in account at year end can be rolled over indefinitely

Answer 92

(i) This Act overturned the Supreme Court ruling that had previously given the federal government regulatory authority over interstate insurance transactions. It was significant in that it put virtually all health insurance regulation in the hands of the states. (ii) This Act was created to promote the growth of HMO’s. Federally qualified HMO’s were exempt from state laws that prevented them from acting as an HMO. This Act shifted regulatory power away from the states and back to the federal government. (iii) This Act imposed reporting and disclosure requirements (ex. Form 5500) on employers who sponsor welfare benefit plans. Other requirements include a plan fiduciary and Summary Plan Description. This Act shifted more regulatory power back to the federal government. (iv) This Act focused on three areas: 1) Insurance Portability and Availability, 2) Health Insurance Fraud and Abuse, and 3) Administrative Simplification. This Act allows federal regulations to govern when no state laws are present.

Answer 93

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

Answer 94

Health Insurer Tax o new tax of $8 billion in 2014 ($8 billion in 2014, increasing to $14.3 in 2018 and indexed thereafter) to be used to fund various ACA provisions o not-for-profits pay 50% of the assessment and certain plans pay 0% so we pay 100% o assessed across all health insurance sector but not assessed on ASO products so applies to individual and small group insured but not on large group ASO Excise Tax for High Cost Health Plans o New tax on rich plans equal to 40% of the excess costs over $10,200 single ($27,500 family) o Tax is to discourage overly rich coverage (as well as just a source of funds for other ACA provisions) o Tax doesn’t apply until 1/1/2018 so not applicable for any of the coverage for 2014 pricing Reinsurer Fee o Used to pay for high risk members in the individual products but funded assessed across all products, including ASO. o Covers 80% of the expense between $60K and $250K o So, all three products need to include an estimate of this fee in their retention but you should also factor in any expected recoveries on the individual product claims projections Patient Centered Outcomes Research Institute Assessment o Fee paid to cover the cost of this new not-for-profit institute on the clinical effectiveness of medical treatments o Assessed on health plans and employers so should be included in retention for all three products Health Benefit Exchange Fee o Amount paid to exchange for its services (marketing, enrollment, subsidy checking, etc.) o Since offering individual and small group products off and on the exchange, need to estimate % that will be sold on the exchange so that you can calculate the average amount to include in retention o Do not need to include in large group ASO retention since it is not sold on the exchange

Answer 95

D-SNPs o Provide coordinated provider network and schedule of benefits across Medicare and Medicaid to dual eligibles o But level of integration varies across states o Federal contract for Medicare benefits o Health plan may or may not be at risk for Medicaid-covered services under separate contract with the state o Medicare and Medicaid revenue streams are kept separate o Prospective payments based on plan’s bid Medicare Financial Alignment plans o Fully coordinated care for dual eligibles o Medicare and Medicaid revenues are combined and savings are shared between state and federal government o Capitated model – three way contract between plan, state, and CMS; prospective payments that anticipate savings; 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, quality withhold on Medicare A/B and Medicaid pieces Managed FFS Model – state is responsible for establishing program to coordinate care for duals; in return state will be eligible for share of savings based on retrospective measurement as long as quality thresholds are met

Answer 96

Savings sources Acute o Coordinate treatment of multiple chronic conditions o Provide care in most appropriate setting, emphasizing community-based care o Reduce or eliminate unnecessary tests or procedures o Better manage ambulatory sensitive admissions to reduce avoidable emergency room visits and inpatient admissions or readmissions Behavioral Health o Improve coordination between Medicare and Medicaid with emphasis on community-based care Long-term care o Delay members entry in to nursing homes by use of HCBS waiver services o Discourage unnecessary hospital admissions from nursing homes Admin o Increase enrollment in order to help spread fixed costs o Reduce marketing costs o Integrate Medicare and Medicaid appeals process

Answer 97

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 demonstration 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

Answer 98

1. Simple plans were established by the ACA for plan years after 2010. Traditional plans were established by Revenue Act of 1978. 2. In simple plans, all employees who were credited with at least 1000 hours of service for the preceding year are eligible. For traditional plans, In traditional plans, present or former employees' include common law employees, leased employees, and fulltime life insurance salesmen are eligible. 3. In simple plans, can exclude certain classes of employees (e.g. those under age 21). In traditional plans, can exclude employees who have not completed three years of employment and may be excluded as long as participations begins no later than the first day of the first plan year beginning after the three-year requirement has been satisfied. 4. In simple plans, exclusion application is applied throughout the year. In traditional plans, exclusion application is met before initial plan year or participation. 5. In simple plans, employer contribution is required. In traditional plans, employer contributions are not required. 6. In simple plans, contribution minimum is 2% of each qualified employee's compensation or Amount equal to lesser of 6% of the qualified employee's salary twice the salary-reduction contribution of each qualified employee. In traditional plans, no minimum contribution minimum is required. 7. In simple plan, if it 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. Traditional plans are subject to an eligibility test, a contributions and benefits test, and key employee concentration test.

Answer 99

Can change the following: adoption coverage dependent/ spouse coverage group term life insurance accident and health coverage

Answer 100

Adult day care Respite care Personal Care Training of a caregiver

Answer 101

Waiver is no more costly than FFS | The program ensures that measures are taken to protect the health and welfare of consumers

Answer 102

hint: CRAB PIT PC Care Management – a team of providers makes a coordinated care plan that includes many types of providers and is culturally sensitive. Rates – Design reimbursement rates to encourage care in a community setting and to discourage use of more expensive institutional care. Authority – The waiver should have the authority to ensure adequate access to cost effective waiver services Benefits – cover all of Medicare and Medicaid at least. Program design – the program should demonstrate savings. Identification and Stratification. – Members are interviewed early in the process and are identified as high risk in order to make sure they are in a program that meets their needs. Transition Care – There is a care team to make sure that transitions from care settings are smooth and the member can stay in the community. Population – cover as broad a population as possible Comprehensive Care management – The care plan should go beyond regular medical benefits.

Answer 103

Risk adjustment: o A tool used to redistribute total payments across health plans to account for the relative risk of plan participants o Mitigate anti-selection among insurers; help ensure plans are appropriately compensated for risks they enroll o Applies to non-grandfathered small group and individual, on and off exchange o Permanent beginning in 2014 Reinsurance: o Protect individual market plans against financial losses from individuals with unusually high claims o Funds for those payments will be collected from all individual and group plans, including grandfathered plans and self-funded plans o Applies to non-grandfathered individual market plans, on and off exchange o Applies 2014 – 2016 Risk Corridor: o Temporary program to limit gains and losses for insurers o Applies to individual and small group plans on exchanges o Applies 2014 - 2016

Answer 104

Unearned premium reserve (UPR) UPR 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 in duration, straight-line depreciation is used in calculated UPR. Deferred policy acquisition costs (DPAC) DPAC 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% 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

Answer 105

GAAP reporting attempts to match the incidence of revenue and expenses, while statutory reporting tends to accelerate recognition of expenses and defer recognition of revenue 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 Many of the conservative assumptions require for statutory reporting can be replaced by a much less conservative margin for adverse deviation in GAAP

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