Principles of Risk Management and Insurance - Chapter 16

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Employee Benefits: Group Life and Health Insurance
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1

Which of the following statements about group insurance is true?

  1. A) Individual contracts are issued to each person covered under a group insurance plan.
  2. B) The cost of group insurance is usually higher on a per-person basis than the cost of individual insurance.
  3. C) The actual experience of a large group is a factor in determining the premium that is charged.
  4. D) Individual evidence of insurability is usually required.

Answer: C

2

Which of the following statements about group insurance underwriting principles is (are) true?

  1. If a plan is contributory, 100 percent of the eligible employees must be covered.
  2. Ideally, there should be a flow of older people into the group and younger people out of the group.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: D

3

Which of the following statements about group insurance underwriting principles is true?

  1. A) Employees should be required to remit premiums directly to the insurance company.
  2. B) The average age of the group should ideally increase over time.
  3. C) A group should be formed for the specific purpose of obtaining insurance.
  4. D) A flow of people through the group is desirable.

Answer: D

4

Reasons for having a minimum participation requirement before a group is eligible for insurance include which of the following?

  1. To lower the expense rate per unit of insurance
  2. To minimize the possibility of insuring a group which consists largely of unhealthy individuals
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

5

Which of the following statements about the eligibility requirements for group insurance is true?

  1. A) Most plans cover both full-time and part-time employees.
  2. B) An employee must be actively at work on the day the employee's group insurance becomes effective.
  3. C) An employee who signs-up for insurance during an eligibility period must furnish evidence of insurability.
  4. D) One purpose of a probationary period is to determine whether the employee is healthy enough to be covered under the group health insurance plan.

Answer: B

6

The period of time during which an employee can sign up for group insurance coverage without furnishing evidence of insurability is called a(n)

  1. A) probationary period.
  2. B) noninsurability window.
  3. C) waiting period.
  4. D) eligibility period.

Answer: D

7

Which of the following statements about group term life insurance is true?

  1. A) It usually is written in the form of 5-year level term insurance.
  2. B) An employee who leaves the group is usually not permitted to convert to individual coverage.
  3. C) Experience rating is used in group term life insurance plans.
  4. D) It represents only a small percentage of the group life insurance in force.

Answer: C

8

High deductible group health insurance plans have all of the following characteristics EXCEPT

  1. A) health savings accounts or health reimbursement arrangements.
  2. B) high dollar deductibles.
  3. C) low coverage limits.
  4. D) coinsurance.

Answer: C

9

Which of the following statements about group accidental death and dismemberment (AD&D) insurance is (are) true?

  1. The principal sum is paid if the employee dies in an accident.
  2. A percentage of the principal sum is paid for certain types of dismemberments.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

10

New employees at Jarvis Company cannot participate in the group term life insurance plan until they have worked at the company for three months. This initial period before a new employee can participate is called a(n)

  1. A) probationary period.
  2. B) elimination period.
  3. C) open enrollment period.
  4. D) eligibility period.

Answer: A

11

Which of the following statements about Blue Cross Plans is (are) true?

  1. They provide coverage for physicians’ and surgeons’ fees.
  2. They usually provide benefits for hospital charges.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: A

12

What is the purpose of stop-loss insurance that is used with self-insured group medical expense plans?

  1. A) to require employees to buy insurance for losses in excess of some specified amount
  2. B) to have a commercial insurer pay claims that exceed a specified limit
  3. C) to obtain administrative services from a commercial insurer
  4. D) to exempt self-insured plans from state insurance laws that require mandated benefits

Answer: B

13

All of the following are reasons why employers self-insure medical expense plans EXCEPT

  1. A) to reduce certain costs, such as premium taxes and commissions.
  2. B) to provide mandated state benefits.
  3. C) to retain funds until needed to pay claims.
  4. D) to eliminate the need to comply with separate state laws.

Answer: B

14

A key feature of group medical expense plans is the employee being required to pay a percentage of covered expenses in excess of the deductible. This feature is

  1. A) other insurance.
  2. B) coinsurance.
  3. C) pro-rated insurance.
  4. D) reinsurance.

Answer: B

15

Which of the following statements about recent developments in group medical coverage is (are) true?

  1. After increasing for many years, the premiums for group medical expense coverage have finally started to decline.
  2. A growing number of employers are offering plans with higher deductibles for employees.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

16

A deductible under which expenses are accumulated on an annual basis, and once a specified total is reached, the deductible is satisfied for the year is called a

  1. A) calendar-year deductible.
  2. B) prospective deductible.
  3. C) straight deductible.
  4. D) waiting period.

Answer: A

17

Which of the following is (are) characteristics of HMO managed care plans?

  1. Unlimited choice of physicians and hospitals
  2. Emphasis on controlling the cost of covered services
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

18

Which of the following statements about HMO managed care plans is (are) true?

  1. There is an emphasis on controlling costs.
  2. They provide narrow, limited, medical services to members.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: A

19

An HMO physician who determines if medical care from a specialist is necessary is called a(n)

  1. A) capitator.
  2. B) internist.
  3. C) network facilitator.
  4. D) gatekeeper.

Answer: D

20

An HMO that contracts with two or more independent group practices to provide medical services to covered members is called a(n)

  1. A) group model HMO.
  2. B) network model HMO.
  3. C) staff model HMO.
  4. D) individual practice association HMO.

Answer: B

21

Which of the following statements about preferred provider organization (PPO) health plans is (are) true?

  1. A PPO plan contracts with health care providers to provide medical services to members at reduced fees.
  2. Plan members are given a financial incentive to use PPO providers rather than other providers.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

22

Which of the following statements concerning managed care plans is true?

  1. Most employees are covered under some form of managed care plan.
  2. Managed care plans emphasize cost controls and preventative care.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

23

All of the following statements about HMOs are true EXCEPT

  1. A) They organize and deliver health care services.
  2. B) HMOs place a heavy emphasis on controlling the cost of covered services.
  3. C) HMO members pay nothing for medical care until care is provided, then they must pay high deductibles and large coinsurance payments.
  4. D) The selection of physicians is usually limited to physicians affiliated with the HMO.

Answer: C

24

Which of the following statements regarding group long-term disability income insurance plans is (are) true?

  1. These plans are usually limited to occupational disabilities.
  2. These plans typically use a more restrictive definition of disability after an initial period of disability, such as two years.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

25

Connors Company self-funds the medical expense benefits that it provides to its employees. Connors Company has a contract with a commercial health insurance company providing that the health insurance company will pay all claims in excess of $250,000. The arrangement with the health insurance company is called

  1. A) reinsurance.
  2. B) managed care.
  3. C) stop-loss insurance.
  4. D) coinsurance.

Answer: C

26

Some employers offer employees a choice of health care plans which are designed to make employees more sensitive to health care costs, to provide an incentive to avoid unneeded care, and to seek low-cost health care providers. Such plans are called

  1. A) employee assistance plans.
  2. B) consumer-directed health plans.
  3. C) cafeteria plans.
  4. D) preferred provider organization (PPO) plans.

Answer: B

27

Maria is covered under a group medical expense plan as an employee. She is also covered under her husband's plan as a dependent. If Maria is hospitalized, how will each plan respond to her medical bills if both plans have the typical coordination-of-benefits provision?

  1. A) Maria's plan is primary, and her husband's plan is excess.
  2. B) Her husband's plan is primary, and Maria's plan is excess.
  3. C) The primary plan is determined by which birthday, Maria's or her husband's, occurs first in the year.
  4. D) Both plans will pay benefits on a pro rata basis.

Answer: A

28

Under one type of HMO, the physicians are employees of the HMO and are paid a salary and sometimes an incentive bonus to hold down costs. This type of HMO is called a(n)

  1. A) individual practice association (IPA).
  2. B) staff model.
  3. C) group model.
  4. D) network model.

Answer: B

29

Which of the following statements about the continuation of group health insurance under the COBRA law is true?

  1. A) A continuation of coverage must be made available even if an employee voluntarily terminates employment.
  2. B) The length of the continuation of coverage is 90 days.
  3. C) The option to continue coverage applies to minor children only, not to adults.
  4. D) The employer must pay the entire cost of coverage during the continuation period.

Answer: A

30

All of the following statements about cost controls in dental insurance plans are true EXCEPT

  1. A) The coinsurance percentage used may vary by type of dental service.
  2. B) Cosmetic dental work is usually excluded.
  3. C) The limit on benefits may be expressed as an annual limit or as a lifetime limit for certain types of dental services.
  4. D) To eliminate small claims, there is no coverage for routine oral examinations, X-rays, or cleaning teeth.

Answer: D

31

Which of the following statements about group short-term disability income plans is true?

  1. A) Most plans pay benefits for a period of 3 to 5 years.
  2. B) Most plans cover occupational disabilities only.
  3. C) Most plans provide benefits for total disabilities only.
  4. D) Most plans have a 90-day elimination (waiting) period.

Answer: C

32

Which of the following statements about group short-term disability income plans is true?

  1. A) Most plans have a short elimination period for accidents but cover sickness from the first day of disability.
  2. B) Disability is usually defined in terms of a worker being unable to work in any substantial, gainful, employment.
  3. C) The amount of disability income benefits typically is equal to some percentage of a worker's normal earnings.
  4. D) Most short-term plans cover occupational disability only.

Answer: C

33

Which of the following statements about group long-term disability income plans is true?

  1. A) The definition of disability becomes less restrictive after a worker has been disabled for 2 years.
  2. B) Coverage is provided for both occupational and nonoccupational disabilities.
  3. C) Benefits are increased if a worker is eligible for Social Security or workers compensation benefits.
  4. D) Maximum monthly benefits under long-term disability income plans are significantly lower than the benefits paid under short-term disability income plans.

Answer: B

34

Which of the following statements about cafeteria plans is (are) true?

  1. Unspent flexible spending account balances are refunded to the employee, tax-free, at year-end.
  2. Cafeteria plans enable employees to select benefits that meet their specific needs.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

35

Advantages of cafeteria plans include all of the following EXCEPT

  1. A) simplicity of benefit administration.
  2. B) employees can select benefits that best match their needs.
  3. C) reduced taxes for employees.
  4. D) greater employer control over increasing benefit costs.

Answer: A

36

Which of the following statements is (are) true concerning high deductible health plans?

  1. An employee can withdraw money tax-free from a health savings account or health reimbursement arrangement to pay covered medical costs.
  2. There is a cap on an employee's out-of-pocket expenses under the plan.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: C

37

Tracy is covered by a group dental insurance plan at work. At her latest check-up, the dentist notes that she needed crowns on two teeth. Under her plan, if the cost of dental work will exceed $500, the dentist submits the treatment plan to the insurer to calculate what the plan will cover and what the employee will pay. This provision is known as a

  1. A) mandatory second opinion.
  2. B) underwriting review.
  3. C) predetermination of benefits.
  4. D) claims audit.

Answer: C

38

Most group health insurance plans have adopted the coordination-of-benefits rules developed by the National Association of Insurance Commissioners. Under these rules, if a dependent child is covered by both of the health insurance plans of the child's married parents, which health plan is primary for the child's medical expenses?

  1. A) always the mother's plan
  2. B) always the father's plan
  3. C) the plan of the parent whose birthday occurs first in the calendar year
  4. D) the plan of the parent who works for the larger employer, based on number of total employees

Answer: C

39

Turner Company self-insures its group health insurance plan. Turner entered into an agreement with ABC Insurance through which ABC handles the plan design, claims processing, and record keeping for Turner. The agreement between Turner and ABC is called a(n)

  1. A) preferred provider agreement.
  2. B) administrative services only contract.
  3. C) exclusive provider agreement.
  4. D) point-of-service contract.

Answer: B

40

Med Profs is a group of 18 doctors. These doctors work out of their own offices and treat patients on a fee-for-service basis. In addition, Med Profs doctors also agree to treat HMO members at reduced fees. The type of HMO that uses organizations like Med Profs is called a(n)

  1. A) group model plan.
  2. B) closed panel plan.
  3. C) individual practice association plan.
  4. D) network model plan.

Answer: C

41

Nancy's employer provides an interesting employee benefit plan. Each employee is given 250 employee benefit credits to spend. A wide array of benefits is available, and the employee uses benefit credits to select the benefits that he or she wants. This type of employee benefit plan is called a(n)

  1. A) defined benefit plan.
  2. B) cafeteria plan.
  3. C) employee selection plan.
  4. D) contributory plan.

Answer: B

42

Marv is covered by a group health insurance plan at work. His employer funds the entire cost of the group health insurance. Because of this characteristic, the group health insurance plan can be described as

  1. A) defined benefit.
  2. B) contributory.
  3. C) defined contribution.
  4. D) noncontributory.

Answer: D

43

Doris started a business 2 years ago. The business has been successful, and Doris is thinking about offering some employee benefits for her workers. She plans to offer a group term life insurance benefit. All of the following are usual eligibility requirements for participation in a group life insurance plan EXCEPT

  1. A) full-time employment.
  2. B) be actively at work when insurance becomes effective.
  3. C) apply for insurance during the eligibility period.
  4. D) satisfy a 2-year probationary period.

Answer: D

44

Which of the following statements is (are) true with regard to group life insurance?

  1. Most group life insurance is whole life coverage.
  2. Most group life insurance plans allow a modest amount of life insurance on the employee's spouse and dependent children.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: B

45

HMOs typically pay network physicians or medical groups a fixed annual or monthly payment for each member, regardless of the frequency or type of service provided. This payment is called a

  1. A) pro-rata charge.
  2. B) persistency bonus.
  3. C) capitation fee.
  4. D) corridor payment.

Answer: C

46

The Affordable Care Act requires employers with 100 or more employees to provide health insurance on the employees or pay a penalty if at least one employee receives a tax credit and coverage through the Health Insurance Marketplace. This requirement—providing insurance or paying a fine—is known as the

  1. A) single-payer solution.
  2. B) employer shared responsibility.
  3. C) essential benefit requirement.
  4. D) portability requirement.

Answer: B

47

Under older group medical expense plans, physicians were paid a fee for each covered service and were reimbursed on the basis of reasonable and customary charges, up to a maximum limit. These older group medical expense plans were called

  1. A) service medical plans.
  2. B) managed care plans.
  3. C) point-of-service plans.
  4. D) indemnity plans.

Answer: D

48

Which of the following is a characteristic of a health maintenance organization (HMO)?

  1. A) unlimited choice of health-care providers
  2. B) no premiums until care is provided
  3. C) narrow, limited, medical services provided
  4. D) emphasis on cost containment

Answer: D

49

Which of the following is a provision of the Affordable Care Act?

  1. A) strengthening the use of pre-existing conditions exclusions
  2. B) prohibition of harmful practices by insurers.
  3. C) introduction of annual and lifetime limits to control costs
  4. D) elimination of flexible spending accounts

Answer: B

50

The Affordable Care Act created program that enables small firms to offer health insurance to their employees. The program provides flexibility, choice, and the convenience of on-line account management. This program is called the

  1. A) Medical Advantage plan.
  2. B) Medicaid program.
  3. C) FAIR plan.
  4. D) SHOP Marketplace program.

Answer: D

51

An employer-funded plan with favorable tax advantages, which repays employees for medical care not covered by the employer's standard medical plan is a(n)

  1. A) 401(k) account.
  2. B) individual retirement account (IRA).
  3. C) health reimbursement arrangement (HRA).
  4. D) flexible spending account (FSA).

Answer: C

52

Which of the following statements regarding recent developments in employer-sponsored health plans is (are) true?

  1. Preferred provider organizations (PPOs) continue to dominate group health insurance markets.
  2. The number of employers offering medical benefits to workers who retire early has increased.
  3. A) I only
  4. B) II only
  5. C) both I and II
  6. D) neither I nor II

Answer: A

53

Under many cafeteria plans, employees make premium contributions with pre-tax dollars and a salary reduction that are used to purchase group health insurance or dental insurance. This type of cafeteria plan is called a

  1. A) health reimbursement arrangement plan.
  2. B) premium conversion plan.
  3. C) full-choice plan.
  4. D) flexible spending account plan.

Answer: B