CBC FINAL EXAM (2008)

MULTIPLE CHOICE QUESTIONS SECTION

Each Multiple Choice Answer is worth 2 POINTS

1. The principal objective of the McCarran-Ferguson Act was to establish primacy of states in regulating the industry due to
1. Jurisdiction of state and federal governments in regulating the business of insurance
2. Controversy of allowing insurers sharing information that maintains costs of doing business
3. Imposing penalties for fraud and other issues on the part of carriers
4. None of the above

ANSWER:

1. Managed health care was guided by Paul M. Ellwood to
1. Move forward with national health reform
2. Practice medicine with the thought of managed healthcare in mind
3. A and B
4. None of the above

ANSWER:

1. HMO’s caused controversy by becoming known as
1. Taking control of their clients health care destiny
2. Creating many claims to be accepted as necessary to control good health
3. Demonstrating the clear need to maintain socialized medicine
4. A, B and C

ANSWER:

1. Aggregate claims are
1. Combination of all employees and dependents within one group
2. Specific to only the employees
3. Combination of all groups and employees within the area pool of business
4. Apply only to one person at a time within the group

ANSWER:

1. Variable Costs mean:
1. The total cost of claims
2. The costs to insure and administer the plan
3. The annual point equated to a per employee cost
4. A and B only

ANSWER:

1. The following are not true about HRA plans except
1. Rollovers are allowed from year to year
2. HRA’s are a new benefit plan idea as of June 2002
3. HRA plans replaced MERP Plans
4. HRA can be used with an FSA only if the HRA pays first

ANSWER:

1. Which of the following are advantages of the HRA plans
1. The Spend Down feature can be implemented as a retirement benefit
2. If an employee terminates they cannot have continuation of the HRA
3. The HRA contribution for a new plan year can be reduced based on the rollover amount
4. A and C only

ANSWER:

1. Which is true about Flexible Spending Accounts
1. FSA can be beneficial for those who are educated about the plan and how to spend their monies
2. FSA can be designed by the employee to allow for an extension of time to incur claims as long as the extension is not more than 75 days after the plan year end
3. FSA can be incorporated with HRA plans as long as the FSA always pays first
4. A, B and C

ANSWER:

1. Which of the following is not true about HSA and HRA plans
1. You cannot have both along with a Medical FSA
2. There must be a reimbursement order rule of which will pay first when you have an HRA and an FSA
3. When you have an HSA with an HRA, the HSA deductible must be met before the HRA can reimburse

• An HRA does not have to be linked to insurance plans

ANSWER:

• The following is true when comparing HRA to Medical FSA except

               a)  Both have ‘Use it or Lose it ‘ rules

               b)  Both are initially governed under section 105 and 106 as benefit welfare plans

               c)  Both are subject to COBRA

• Medical FSA plans have maximum limits per plan year

ANSWER:

TEST CASE INFORMATION SECTION

Each Test Case Answer is worth 2 POINTS

The HRA will reimburse 80% after the first $250 deductible = $2200 for Single

The HRA will reimburse 80% after the dependent deductible $250 = $2200 for dependent . 

This means the HRA will reimburse $2200 per risk unit.

The shareholders cannot have a tax free HRA so there are 109 risk units for qualified employees.

                  Group A wants to look at changing their insurance plan to offer options to the employees and save premium dollars.  The plan should also be designed to attract and retain employees in the competitive market.  They are interested in an HRA and even setting up a dual choice option.  Currently the employer pays 65% of the total employee and dependent premiums.  They are an S Corp with 2 shareholders being family and 1 shareholder EE +  Spouse.  They have a Health FSA and there are 20 employees enrolled in it.

                  The current insurance plan for in network benefits:  $250 deductible (3 x family) then 80% coinsurance with $25 DOC and $15/$25/$50 Rx copays.  The Deductible and Coinsurance out of pocket is $1500 Single and does not include copays.  The family is 3x.  The Rate and Census:  35 EE only at $475 / 10 EE + Spouse at $845 / 15 EE + child at $750 / 15 EE + Family at $1250 (Currently there are 4 employees double insured)

                  The proposed insurance plan for in network benefits:  $3000 QHDHP deductible (2x family).  The coinsurance is 100% after the deductible.   The out of pocket maximum is $3000 single and $6000 family.  All prescriptions are applied to the deductible then 100% insured.  Preventive care is paid 100% by insurance not applicable to the deductible.  The premium rates are:  EE only $285 / EE + Spouse $500 / EE + Child $390 / Family $750

•  Assuming the census stays the same from the current plan to the proposed plan, how many employees are covered? __________   
• What is the total Premium for the Current Plan? $ ___________________
• What is the proposed Premium? _______________________
• How much premium savings will the employer have? ______________
• If you were to create an HRA program, what type of Health FSA would you have?
•  General Use
• Limited Use
• Daycare
• Post Deductible
•  Do you have to an order rule for the HRA and FSA as to which pays first?  A.Yes                 B. No
• Can the shareholders participate in the HRA tax free?  A.Yes        B. No
• If you create an HRA option that would reimburse 80% of the deductible after a $250 deductible how much HRA dollars are available for a single person? $_______________
• Can you create an HSA option for an employee to choose from if they do not want the HRA using the same insurance plan?  A.Yes                    B. No
• If the HSA option has employer contributions, must the contributions be paid right away in the beginning of the plan year?  A.Yes               B. No
• Do the HRA and employer HSA contribution have to match to keep the plan non discriminatory.  A.Yes                  B. No
• If the Shareholders have an HSA, do the employer contributions to the HSA have to match the HSA contributions offered to the employees in their HSA option?  A.Yes     B. No
• Is the maximum contribution for a family over age 55 $6,700 in 2008?                         A.Yes                    B. No

• Which is true - The HRA and HSA are:
•  Both subject to COBRA
• The HRA can work with the General FSA and the HSA can work with the Limited Use FSA
• Consumer Driven Health Plans
• B and C only
•  In the HSA option, can an employee elect to enroll in it and establish the HSA if their spouse is already enrolled in a General Use FSA but the employee is not enrolled in their group FSA?   A.Yes             B. No
• Can you create a combined option plan that includes an HRA and an HSA?  A.Yes     B. No
• If you have the combined option does the HSA deductible come before the HRA can reimburse expenses?   A.Yes                    B. No
• What would the minimum deductible be to keep the plan qualified for HSA in 2008?  Individual ____________     Family _____________
• The family deductible of the proposed plan is
•  Aggregate
• Embedded
• Neither a or b
• Any contribution the employer makes to the HSA is a fixed cost to the employer compared to the HRA which is a fixed liability to the employer.                    A.  True    B. False
• If an employee elects the HSA with a Limited Use FSA, they can change their HSA payroll deducted contributions within the Café Plan anytime during the plan year.     A.  True    B. False
• The employee (under age 55) is enrolled in the HSA as a single person and their spouse is insured on another plan.  What is the maximum HSA contribution limit for that employee in 2008?  _$_________
• That same employee can use their Limited Use FSA to reimburse the spouses prescription copays even if they have an HSA?        A.  True    B. False
• That same employee can use their HSA funds to reimburse medical expenses for their spouse and children.   A.  True    B. False
• The HRA option created in question #8 is
• Linked
• Non – Linked
• Neither a or b and does not matter

CASE STUDY ESSAYS SECTION – PRACTICAL APPLICATION

Each Case Study Essay answer is worth UP TO 10 POINTS

All three case studies must be submitted at the same time.  Place the your answer to each case study immediately below the scenario.  Being in your email window, the space allowed will expand.  Again, should you encounter any technical difficulties, call Art Widen before 9:00 p.m., seven days a week for technical support. (Central Standard Time)
 

            The three cases studies describe actual client/prospect situations.  You need to demonstrate, in your analysis and recommendations, a well rounded understanding of the CDHI options and the federal laws and/or rulings governing the plans you recommend.  Before you make your recommendation(s), list the information you need to know (ie. I will need to know how many claims exceeded $5,000 in the previous year, etc.).  Then, proceed with your recommendation(s) and cite the reasons for that/those recommendation(s) versus any other option you may have recommended (ie. I recommended the HRA vs the non-qualified MSA because)  Enter all information immediately below the case information as you had with the multiple choice section of this exam.  The space for your answer, of course, will expand to suit the length of your answers.  Please be very detailed in your answers.  Points will be added (up to 20 points per case study) for detailed explanations and creative approaches.

Case Study # 1

Available Information - You prospect into a 49-employee machine shop that is looking for group medical coverage.  Over half of the 49 employees have a difficult time speaking and understanding English.  Partly because of that and because the employees tend to want as much protection as they can get, the employer currently has a $500 deductible plan (twenty years ago, the employer had a $100 deductible and, as recently as five years ago, a $250 deductible plan) with 90/10 co-insurance to $5,000, a $20 per OV co-pay and an RX card with co-pays of $10 for generic and $25 for brand-name drugs.  The employer is furious about getting a 20% to 40% premium increase seemingly every year.  Consequently, the average lifespan of a group medical policy at his company has been about 1.5 years over the past ten years.  Due to the rising cost of his insurance, the employer has shifted more and more of the premium burden onto his employees to the point where he now worries about continuing to meet participation requirements.  HOW WOULD YOU DEAL WITH THIS SCENARIO?  IF YOU RECOMMEND SOME TYPE OF CONSUMER-DRIVEN HEALTH PLAN,  HOW WOULD YOU CONVINCE THE EMPLOYEES THAT THE EMPLOYER IS NOT TRYING TO RIP THEM OFF?

ANSWER for Case Study # 1 

Case Study # 2

Available Information -  An independent retail hardware store chain (12 stores) was established in 1962.  The chain covers three counties and is privately owned by two non-related partners.  Second generation family is now involved in the business as well.  They have grown by locating near developing community subdivisions, and have growing commercial accounts from builders and subcontractors.  They have experienced high turnover over the past two years and are concerned about that continuing.  The total number of full time employees working for the chain is 164. 
They have provided employees with a choice of three different HMO plans and have provided management with two different PPO plans.  Rates have been increasing faster than the firm's profit levels over the past two years and they are looking for ways to control this trend.  They are willing to consider other benefit plans to help control the turnover problem.  They need your help NOW and won't wait for the renewal of what they have in place to make the necessary changes.  

ANSWER for Case Study # 2 

Case Study # 3 

Ace Construction Company has been in business for more than 30 years.  The principles are two of the sons of the original owner.  The original owner retired several years ago.  There are 35 employees mostly construction workers.  It is a non-union operation and has one location.  However, the workers are living in various parts of one state with a few living out of state.  The jobs sites when working are scattered over 4 states.  There is office staff, laborers, experienced road crew workers and maintenance personnel who keep the equipment in good shape. 

Although the owners are not happy about the annual double-digit increases in the PPO plan, they are not interested in changing their plan. Their families like the low-co-pays under the current plan which is $10 to see a primary doctor, $20 to see a specialist and no co-pays for hospital stays.  They have a $6/$10 two tier drug card. 

Currently, the employees pay half of all premiums whether single or family.  This has caused a burden on the employees and several in recent years have waived coverage and gone on their spouse's plan.  There are now only 20 employees left on the plan.  The firm got a letter from the carrier that their participation is below requirements and that they need to increase participation within 60 days or the group will be terminated. 

You have been referred to this company by one of their suppliers to assist them with their problem.  Their current agent has simply encouraged them to contribute more in order to increase participation in the plan.

Since, the owners who are doing financially well and can handle the premium don't want to change their coverage and yet the employees are struggling to pay their share of the premiums what options would you suggest they explore?  What additional questions would you ask the benefit manager and owners about their situation?  How would you suggest they mitigate their participation problem and keep their premiums down?  What benefit improvements might you suggest?  

ANSWER for Case Study # 3 

THIS CONCLUDES THE FINAL EXAM