Deck 20: Employment-Based Risk Management General

Question 1

Employee premium contributions are tax deductible, except if they are allowed to be used in a cafeteria program under a premium conversion plan or flexible spending account (FSA).

Answer 1

False

Question 2

When small employers come together through a multiple-employee trust to purchase insurance, they have access to group underwriting treatment, products, and services that are significantly different to those available to large employers.

Answer 2

False

Question 3

Health Insurance Portability and Accountability Act provides portability of coverage.Portability means carrying the actual coverage of the old employer to the new one, not carrying forward the qualification for preexisting conditions.

Answer 3

False

Question 4

The Financial Accounting Standards Board (FASB 106) in 1993 phased in a requirement that employers recognize the pay-as-you-go system on the balance sheet during the employees' active working years rather than the present value of future retiree medical expense benefits.

Question 5

The catch with a flexibility spending account plan is that the employee can carry forward any balance in the account at year-end to the next year.

Question 6

Employee benefits are affected by the Age Discrimination in Employment Act because the law was amended to require that benefits must be continued for older workers.

Question 7

Employee benefits are regulated by the Department of Labor and the Internal Revenue Service (IRS).

Question 8

Purchase of an administrative services only (ASO) contract and stop-loss insurance gives the employer the potential cash flow and expense advantage of self-funding, while reducing the employer's administrative burden and potential for catastrophic risk.

Question 9

Group life and disability insurance plans are noncontributory, but they require the employees to contribute if other family members are covered.

Question 10

The potential for adverse selection can be greater with supplemental benefits than with nonsupplemental benefits.

Question 11

The employee has a valuable right with the Consolidated Omnibus Budget Reconciliation Act because continuation of insurance is provided without evidence of insurability.

Question 12

Although experience rating allows employer groups to benefit directly from their own good claims experience, it does not provide economic incentive for risk managers to control claims.

Question 13

If an employee receives disability benefits, the portion paid for by the employer is taxable to the employee.

Question 14

Higher administrative costs and adverse selection discourage employers from implementing cafeteria plans.

Question 15

The Americans with Disabilities Act is concerned with a person's ability to perform a specific job and not his or her ability to perform regular daily living activities.

Question 16

A modular cafeteria is more flexible than the core plus cafeteria plan, but requires more administrative cost.

Question 17

During group underwriting, large groups have to be rated based on the insurer's experience with groups of similar type and size, while small groups can be rated on their own experience.

Question 18

Cafeteria plans are included under Section 125 of the Internal Revenue Code.

Question 19

Under the Health Insurance Portability and Accountability Act, an employer can impose only up to twelve months preexisting conditions exclusions for regular enrollment and up to eighteen months for late enrollment.

Question 20

Employee benefits do not offer tax incentives.

Question 21

Which of the following statements is true about group underwriting?

A)The purchaser files an application and takes a medical examination.
B)On the basis of the medical examination conducted, the underwriter decides whether or not to issue insurance, and on what terms.
C)The merits of each application are decided individually.
D)It involves an application to the insurer by each participant.
E)The insurer makes an underwriting decision based on group characteristics.

Question 22

Most small employers have trouble finding an insurance carrier willing to service their group if one or more individuals are in ill health.These firms have access to group insurance by participating in this trust.The trust makes available to small employers, often in the same industry group and with as few as one or two employees each, benefits similar to those available to large groups.They are often organized for a trade association, union, or other sponsoring organization by an insurer or third-party administrator.Identify this trust.

A)Multiple-insurance trust
B)Multiple-employer trust
C)Aggregate reinsurance trust
D)Contributory insurance trust
E)Distributive reinsurance trust

Question 23

Identify the federal law that provides for continuing health care coverage when an employee leaves a job or a breadwinner dies.

A)Health Insurance Portability and Accountability Act
B)Sarbanes Oxley Act
C)Gramm Leach Bliley Act
D)Consolidated Omnibus Budget Reconciliation Act
E)Public Company Accounting Reform and Investor Protection Act

Question 24

Identify the correct statement about the administration of group insurance.

A)The insurer may be responsible for the record keeping of the contract, which is ordinarily done by the employer.
B)If employees are required to contribute toward the premium, the insurer is responsible for collection or payroll deduction of employee contributions.
C)The contract is made with the employer rather than with each individual.
D)The employer provides each insured employee with a master contract as evidence of participation.
E)Eligibility for these contracts involves proving individual insurability.

Question 25

In a group insurance contract, the employer, after receiving the contract from the insurer, provides each insured employee with a _____ as evidence of participation.

A)certification of worthiness
B)contract of duplication
C)master contract
D)certificate of insurance
E)registration contract

Question 26

Identify the stop-loss insurance contract in which a limit is set for the total claims in a year.

A)Participative stop loss
B)Aggregate stop loss
C)Distributive stop loss
D)Specific stop loss
E)Contributory stop loss

Question 27

Kevin is an underwriter who is currently under the process of underwriting a group insurance of a firm.He is currently analyzing past losses-the frequency, severity, and length of illnesses or disabilities-to calculate the appropriate premium for the insureds.Identify the key underwriting determinant characteristics of the group that Kevin is trying to deduce.

A)Financial stability of the employer
B)Stability of the group
C)Persistency of the group
D)Prior experience of the plan
E)Size of the group

Question 28

In group insurance, this contract is an arrangement under which an insurer or third-party administrator handles record keeping and claim payment functions for employers sponsoring self-insured group insurance plans, who pay 5 to 10 percent of the normal premium for these services.Identify this contract.

A)Administrative services only contract
B)Stop-loss contract
C)Third-party administrators contract
D)Negotiated administrative contract
E)Third-party contract of insurance

Question 29

In a group insurance contract, the employer receives a _____ from the insurer, which describes all the terms and conditions of the group policy.

A)contract of duplication
B)master contract
C)certificate of insurance
D)registration contract
E)certificate of worthiness

Question 30

Many large employers self-insure.In these situations, the _____ pay claims and bear the risk that actual claims will exceed expected claims.

A)insurer
B)employees
C)third-party administrator
D)insured
E)employer

Question 31

In contributory plans, where employees pay all or part of the premium amount, 75 percent of employees must participate.Identify the rationale for this rule.

A)It helps reduce the premiums for group insurance contracts.
B)It helps in gaining accurate information about insureds participating in the contract.
C)It helps protect the plan from adverse selection.
D)It helps the underwriter to acknowledge attribution error.
E)It helps the employer to take stop loss insurance and reinsurance contracts to limit losses.

Question 32

Which of the following statements is true about an individual insurance contract?

A)The pricing of the contract is based on the experience of the insurance company.
B)A master contract is provided to the employer or a trust.
C)The employee is issued a certificate of insurance.
D)The eligibility of the contract is related to the employment period.
E)The pricing of the contract is based on the experience of the employee group.

Question 33

When employers provide benefits in several international locations, they may use an international benefit network to cover employees across countries under one master insurance contract.

Question 34

Which of the following benefits receive the most favorable tax exemption of all employee benefit programs?

A)401(k) plans
B)Retirement benefits
C)Cafeteria facility
D)Legal assistance
E)Health benefits

Question 35

Employers are required under nondiscrimination laws to offer the same benefits package to all employees to avoid:

A)attribution error.
B)self-serving bias.
C)morale hazard.
D)demutualization.
E)adverse selection.

Question 36

Administration of group insurance differs from individual insurance because:

A)the risks involved are different.
B)each employee in a group insurance contract receives a master contract.
C)the employer of a large group can be responsible for the record keeping ordinarily done by the insurer.
D)group insurance does not involve the risk of adverse selection.
E)employers in a group insurance contract receive a certificate of insurance in recognition to the insurance provided to all or most of its employees.

Question 37

Identify the stop-loss insurance contract in which a limit is set per claim.

A)Participative stop loss
B)Aggregate stop loss
C)Distributive stop loss
D)Specific stop loss
E)Contributory stop loss

Question 38

Employers with self-insured plans can purchase this insurance from the same or another insurer through the third-party administrators for protection against unexpectedly high claims.This coverage is a form of reinsurance or excess insurance for self-insured plans.Identify it.

A)Specific third-party insurance
B)Aggregate administrators insurance
C)Stop-loss insurance
D)Third-party administrators insurance
E)Take-profit insurance

Question 39

Identify the federal law that enforces coverage for preexisting conditions when a person changes jobs.

A)Health Insurance Portability and Accountability Act
B)Sarbanes Oxley Act
C)Gramm Leach Bliley Act
D)Consolidated Omnibus Budget Reconciliation Act
E)Public Company Accounting Reform and Investor Protection Act

Question 40

In a stop loss insurance contract, the insurer reimburses the employer for claim amounts above the limit, also called the:

A)attachment point.
B)threshold point.
C)aggregate point.
D)contribution point.
E)distribution point.

Question 41

Describe cafeteria plans and its types.

Question 42

Following hiring or the probationary period, the employee's eligibility period usually extends for thirty-one days, during which employees may sign up for group insurance coverage.This period is called:

A)open enrollment.
B)nondiscrimation period.
C)supplemental period.
D)contributory enrollment.
E)distributive enrollment.

Question 43

Write a note on stop-loss insurance and its types.What are its advantages?

Question 44

Identify the correct statement about experience rating in group insurance.

A)It provides a direct economic incentive for risk managers to control claims.
B)The experience of smaller groups is considered sufficiently statistically credible or reliable to determine premiums completely.
C)The smaller the group, the more credit the group receives for its own claims experience.
D)Most small companies have experience-rated premiums in which the group's own claims experience affects the cost of coverage.
E)Final experience-rated premiums exclude administrative charges and fees.

Question 45

The first step in managing an effective employee benefits program is setting objectives.Objectives take into account the _____ of the employer.

Question 46

Which of the following statements is true about cafeteria plans?

A)Modular cafeteria plans are more flexible than the core plus cafeteria plans.
B)Long-term care is included in cafeteria plans, while a 401(k) plan is excluded.
C)If there are not enough credits, the employee can pay the additional cost through payroll deduction on a pretax basis using a modular conversion plan.
D)The flexible spending account is part of a cafeteria plan.
E)A core plus cafeteria plan requires less administrative cost than a modular cafeteria plan.

Question 47

Discuss the importance of setting objectives in an employee benefits program.List the several methods to set objectives for benefit plans.

Question 48

Some employers pay the entire cost of the group insurance premium.These are:

A)demutualized plans.
B)contributory plans.
C)supplemental plans.
D)noncontributory plans.
E)distributive plans.

Question 49

This plan usually involves five elements: flexible benefit credits, minimum levels of certain benefits, optional benefits, cash credits, and tax deferral.In this plan, the employer generally allows each employee to spend a specified number of flexible credits, usually expressed in dollar amounts.The options in this plan have to include a choice whether or not to take cash in lieu of benefits.The cash element is necessary in order for a plan to be considered this type of plan for tax purposes.Identify this plan.

A)Health benefit plan
B)Retirement plan
C)Legal assistance plan
D)401(k) plan
E)Cafeteria plan

Question 50

Group insurance is usually less expensive than individual insurance.Which of the following can be attributed as a reason?

A)With individual coverage, the insurer deals with one insured instead of many, streamlining marketing costs.
B)In group insurance, medical examinations are not needed because the employees are at least healthy enough to work.
C)In group insurance, the insurer has takes care of much of the administrative detail which reduces errors.
D)Commission scales on individual policies are lower than they are on group business.
E)In group insurance, the insurer has to collect premiums from every employee, making the process lengthy and complicated every time premiums have to be collected.

Question 51

Title I of this Act of 1996 protects employees who change jobs from having to start a new waiting period before a preexisting condition is covered.After the enactment of this Act, a person with diabetes could change jobs, and health insurance providers, without fear of losing coverage on that specific condition.Identify this Act.

A)Public Company Accounting Reform and Investor Protection Act
B)Sarbanes Oxley Act
C)Health Insurance Portability and Accountability Act
D)Consolidated Omnibus Budget Reconciliation Act
E)American Recovery and Reinvestment Act

Question 52

_____ are unaffiliated party contracted to administer self-funded group insurance plans.

Question 53

Employee benefits are a balance of tax incentives as long as employers do not violate _____ and act in good faith for the protection of the employees in their fiduciary capacity.

Question 54

This Act of 1986 directs that employers of more than twenty employees who maintain a group medical plan must allow certain minimum provisions for continuation of benefit coverage.The Act's continuation provisions require that former employees, their spouses, divorced spouses, and dependent children be allowed to continue coverage at the individual's own expense upon the occurrence of a qualifying event.Identify this Act.

A)Consolidated Omnibus Budget Reconciliation Act
B)Health Insurance Portability and Accountability Act
C)American Recovery and Reinvestment Act
D)Public Company Accounting Reform and Investor Protection Act
E)Gramm Leach Bliley Act

Question 55

Flexible benefit programs are also known as:

A)401(k) plans.
B)retirement plans.
C)cafeteria plans.
D)legal assistance plans.
E)health plans.

Question 56

What is the significant of the Health Insurance Portability and Accountability Act?

Question 57

Signed by President Barack Obama on February 17, 2009, this Act authorizes $787 billion in federal spending toward infrastructure, direct aid, and tax cuts as a stimulus for the U.S.economy in recession.Within the framework of that objective, it includes provisions affecting health care.Identify this Act.

A)Public Company Accounting Reform and Investor Protection Act
B)Sarbanes Oxley Act
C)Health Insurance Portability and Accountability Act
D)Consolidated Omnibus Budget Reconciliation Act
E)American Recovery and Reinvestment Act

Question 58

These accounts allow employees to pay for specified benefits with before-tax dollars.In the absence of a these account, the employee would have purchased the same services with after-tax dollars.They can either add flexibility to a cafeteria plan or can accompany traditional benefit plans with little other employee choice.Identify these accounts.

A)Modular plus accounts
B)Premium conversion accounts
C)Core plus accounts
D)Modular conversion accounts
E)Flexibility spending accounts

Question 59

If the employees do not have enough credits for a cafeteria plan, they can pay the additional cost through payroll deduction on a pretax basis using a(n):

A)core plus plan.
B)premium conversion plan.
C)modular cafeteria plan.
D)401(k) plan.
E)contributory modular plan.

Question 60

These plans give the employee the ability to choose from among an array of benefits or cash and benefits.Employers are attracted to these plans because, relative to traditional designs, they increase employee awareness of the cost and value of benefit plans and meet diverse employee economic security needs.Identify these plans.

A)401(k) plans
B)Retirement plans
C)Flexible benefit plans
D)Legal assistance plans
E)Health benefit plans

Question 61

The _____ Act was first passed in 1967 and is known primarily for eliminating mandatory retirement on the basis of age.That is, employees cannot be forced to retire at any age, with the exception of some executives who may be subject to compulsory retirement.

Question 62

_____ plans are specific, additional group insurance coverages and amount that employees can purchase on a fully contributory basis.

Question 63

Large employers are likely to have _____ premiums, in which the group's own claims experience affects the cost of coverage of the group insurance.

Question 64

In _____ plans, employees pay part of the group insurance premium.

Question 65

Most active, permanent, full-time employees are eligible for group coverage.Employers that offer group medical insurance are required to offer it to active workers over age sixty-five, under the Age Discrimination in Employment Act (ADEA).For these employees, _____ becomes a secondary payer.

Question 66

Cafeteria plans are vulnerable to _____ effects because an employee selects benefits that he or she is more likely to need.

Question 67

A(n) _____ period is a three- to six-month period through which a newly hired worker must be employed before becoming eligible for group benefits.

Question 68

The Department of Labor's _____ administers the Employee Retirement Income Security Act (ERISA) of 1974, which governs retirement and welfare plans.

Question 69

A(n) _____ plan uses loss experience to determine whether premium refunds or dividends should be paid at the end of each policy year.

Question 70

Flexible benefit plans are frequently called _____ because they allow selection of the types and amounts of desired benefits.

Question 71

Under the _____ Act, disabled employees must have equal access to the same health benefits as other employees with the same allowances for coverage limitations.The guidelines allow blanket preexisting conditions, but they do not include disability-based provisions.

Question 72

U.S.citizens working outside the United States are known as _____.

Question 73

_____ is the process of employees selecting group insurance coverage during the eligibility period.

Question 74

A(n) _____ cafeteria plan requires selection of basic employee benefits such as group life insurance and long-term disability, while giving the employee a choice among some health plans, additional disability coverage, dental coverage, and so forth.