CEBS GBA 2 - Module 1 Exam questions
2026 Exam Questions and verified
Answers
When comparing the provision of health care services with other forms of provided services, it is often
noted that health care services are unique. What are the distinguishing characteristics that make health
care unique? - CORRECT ANSWERS Compared with other services, the provision of health
care services is unique. First, often only a few providers of a particular service exist in a given area. Next,
it is often difficult to judge the quality and cost of competing services, although new tools aim to
facilitate service comparison. Then, the decision about which services to purchase is usually not made by
the consumer but by a physician or some other clinician. Also, full payment to the provider is not
normally made by the user of the services but by a health care insurer. Finally, for most individuals,
health insurance from third-party payers is paid for or subsidized by employers or government agencies,
so many patients are partially insulated from the costs of health care.
The four distinct characteristics of insurance. - CORRECT ANSWERS a. Pooling of losses
b. Payment only for random losses
c. Risk transfer
d. Indemnification
Define pooling of losses. - CORRECT ANSWERS The pooling, or sharing, of losses is the basis
of insurance. Pooling means that losses are spread over a large group of individuals, so that each
individual realizes the average loss of the pool (plus administrative expenses) rather than the actual loss
incurred. Pooling involves the grouping of a large number of homogeneous exposure units—people or
things having the same risk characteristics—so that the law of large numbers applies.
The law of large numbers states that as the size of the sample increases, the sample mean gets ever
closer to the population mean. Accordingly, pooling implies: (1) the sharing of losses by the entire group
and (2) the prediction of future losses with some accuracy.
Payment only for random losses - CORRECT ANSWERS A random loss is one that is
unforeseen and unexpected and occurs as a result of chance. With insurance, payments are made only
for random losses.
Risk transfer - CORRECT ANSWERS An insurance plan almost always involves risk transfer.
The sole exception to the element of risk transfer is self-insurance. Here, the assumption of a risk by a
business (or an individual) itself occurs rather than by an insurance company. Risk transfer is the transfer
of risk from an insured to an insurer. Typically the insurer is in a better financial position to bear the risk
than the insured because of the law of large numbers.
Define indemnification. - CORRECT ANSWERS Indemnification of losses means
reimbursement to the insured if a loss occurs. In theory, indemnification restores the individual to their
preexisting state had the loss not occurred.
Describe the concept of adverse selection and explain its progression in claims experience if left
unchecked without safeguards. - CORRECT ANSWERS Adverse selection occurs because
individuals and businesses that are more likely to have claims are more inclined to purchase insurance
, than those that are less likely to have claims. If this tendency toward adverse selection goes unchecked,
those who are most likely to become sick will seek health insurance, and the insurer will experience a
higher-than-expected amount of claims. This increase in claims will trigger a premium increase, which
will only worsen the problem, because the healthier members of the plan will seek insurance from other
firms at a lower cost or may totally forgo insurance.
The adverse selection problem exists because of asymmetric information, which occurs when individual
buyers of health insurance know more about their health status than do insurers.
Explain (a) the concept of moral hazard and (b) how insurers deal with it. - CORRECT ANSWERS
(a) Insurance is based on the premise that payments are made only for random losses. From this
premise stems the problem of moral hazard. Moral hazard is the problem faced by insurers because
individuals are more likely to use unneeded health services when they are not paying the full cost of
those services.
(b) The primary tool that insurers have to combat the moral hazard problem is coinsurance, which
requires insureds to pay a certain percentage of eligible medical expenses—say, 20%—in excess of the
deductible (the amount that individuals pay before their insurance plan starts to pay). Insurers also use
copayments, which are similar to coinsurance but are expressed as a dollar amount.
Define third-party payer. - CORRECT ANSWERS This is a generic term for any outside party,
typically an insurance company or a government program, which pays for part or all of a patient's health
care services. Health insurers can be categorized into two broad groupings—private insurers and public
programs.
Private Insurers - CORRECT ANSWERS The major private insurers include Blue Cross Blue
Shield, commercial insurers and self-insurers.
Describe the evolution of Blue Cross Blue Shield. - CORRECT ANSWERS Blue Cross Blue
Shield organizations trace their roots to the Great Depression, when both hospitals and physicians were
concerned about their patients' ability to pay health care bills. Blue Cross originated as a number of
separate insurance programs offered by individual hospitals. Hospitals agreed to provide a certain
amount of services to program members who made periodic payments of fixed amounts to hospitals,
whether services were used or not. These programs expanded from single-hospital programs to
community-wide, multi-hospital plans called hospital service plans. The Blue Cross name was officially
adopted by most of these plans in 1939.
Blue Shield plans developed in a manner similar to Blue Cross plans, except that the providers were
physicians instead of hospitals. Today, there are 36 Blue Cross Blue Shield organizations (referred to as
"the Blues"). The Blues are organized as independent corporations, including some for-profit entities,
but all belong to a single national association that sets standards that must be met to use the Blue Cross
Blue Shield name. Collectively, the Blues provide health care coverage for more than 106 million
individuals in all 50 states, the District of Columbia and Puerto Rico.
Describe the evolution of commercial insurers. - CORRECT ANSWERS Commercial health
insurance is issued by life insurance companies, casualty insurance companies and companies formed
exclusively to offer health care insurance. All commercial insurance companies are taxable (for-profit)
entities. Commercial insurers entered the health insurance market following World War II. Following the
war, the Internal Revenue Service ruled that employer-provided health insurance was not taxable, giving
2026 Exam Questions and verified
Answers
When comparing the provision of health care services with other forms of provided services, it is often
noted that health care services are unique. What are the distinguishing characteristics that make health
care unique? - CORRECT ANSWERS Compared with other services, the provision of health
care services is unique. First, often only a few providers of a particular service exist in a given area. Next,
it is often difficult to judge the quality and cost of competing services, although new tools aim to
facilitate service comparison. Then, the decision about which services to purchase is usually not made by
the consumer but by a physician or some other clinician. Also, full payment to the provider is not
normally made by the user of the services but by a health care insurer. Finally, for most individuals,
health insurance from third-party payers is paid for or subsidized by employers or government agencies,
so many patients are partially insulated from the costs of health care.
The four distinct characteristics of insurance. - CORRECT ANSWERS a. Pooling of losses
b. Payment only for random losses
c. Risk transfer
d. Indemnification
Define pooling of losses. - CORRECT ANSWERS The pooling, or sharing, of losses is the basis
of insurance. Pooling means that losses are spread over a large group of individuals, so that each
individual realizes the average loss of the pool (plus administrative expenses) rather than the actual loss
incurred. Pooling involves the grouping of a large number of homogeneous exposure units—people or
things having the same risk characteristics—so that the law of large numbers applies.
The law of large numbers states that as the size of the sample increases, the sample mean gets ever
closer to the population mean. Accordingly, pooling implies: (1) the sharing of losses by the entire group
and (2) the prediction of future losses with some accuracy.
Payment only for random losses - CORRECT ANSWERS A random loss is one that is
unforeseen and unexpected and occurs as a result of chance. With insurance, payments are made only
for random losses.
Risk transfer - CORRECT ANSWERS An insurance plan almost always involves risk transfer.
The sole exception to the element of risk transfer is self-insurance. Here, the assumption of a risk by a
business (or an individual) itself occurs rather than by an insurance company. Risk transfer is the transfer
of risk from an insured to an insurer. Typically the insurer is in a better financial position to bear the risk
than the insured because of the law of large numbers.
Define indemnification. - CORRECT ANSWERS Indemnification of losses means
reimbursement to the insured if a loss occurs. In theory, indemnification restores the individual to their
preexisting state had the loss not occurred.
Describe the concept of adverse selection and explain its progression in claims experience if left
unchecked without safeguards. - CORRECT ANSWERS Adverse selection occurs because
individuals and businesses that are more likely to have claims are more inclined to purchase insurance
, than those that are less likely to have claims. If this tendency toward adverse selection goes unchecked,
those who are most likely to become sick will seek health insurance, and the insurer will experience a
higher-than-expected amount of claims. This increase in claims will trigger a premium increase, which
will only worsen the problem, because the healthier members of the plan will seek insurance from other
firms at a lower cost or may totally forgo insurance.
The adverse selection problem exists because of asymmetric information, which occurs when individual
buyers of health insurance know more about their health status than do insurers.
Explain (a) the concept of moral hazard and (b) how insurers deal with it. - CORRECT ANSWERS
(a) Insurance is based on the premise that payments are made only for random losses. From this
premise stems the problem of moral hazard. Moral hazard is the problem faced by insurers because
individuals are more likely to use unneeded health services when they are not paying the full cost of
those services.
(b) The primary tool that insurers have to combat the moral hazard problem is coinsurance, which
requires insureds to pay a certain percentage of eligible medical expenses—say, 20%—in excess of the
deductible (the amount that individuals pay before their insurance plan starts to pay). Insurers also use
copayments, which are similar to coinsurance but are expressed as a dollar amount.
Define third-party payer. - CORRECT ANSWERS This is a generic term for any outside party,
typically an insurance company or a government program, which pays for part or all of a patient's health
care services. Health insurers can be categorized into two broad groupings—private insurers and public
programs.
Private Insurers - CORRECT ANSWERS The major private insurers include Blue Cross Blue
Shield, commercial insurers and self-insurers.
Describe the evolution of Blue Cross Blue Shield. - CORRECT ANSWERS Blue Cross Blue
Shield organizations trace their roots to the Great Depression, when both hospitals and physicians were
concerned about their patients' ability to pay health care bills. Blue Cross originated as a number of
separate insurance programs offered by individual hospitals. Hospitals agreed to provide a certain
amount of services to program members who made periodic payments of fixed amounts to hospitals,
whether services were used or not. These programs expanded from single-hospital programs to
community-wide, multi-hospital plans called hospital service plans. The Blue Cross name was officially
adopted by most of these plans in 1939.
Blue Shield plans developed in a manner similar to Blue Cross plans, except that the providers were
physicians instead of hospitals. Today, there are 36 Blue Cross Blue Shield organizations (referred to as
"the Blues"). The Blues are organized as independent corporations, including some for-profit entities,
but all belong to a single national association that sets standards that must be met to use the Blue Cross
Blue Shield name. Collectively, the Blues provide health care coverage for more than 106 million
individuals in all 50 states, the District of Columbia and Puerto Rico.
Describe the evolution of commercial insurers. - CORRECT ANSWERS Commercial health
insurance is issued by life insurance companies, casualty insurance companies and companies formed
exclusively to offer health care insurance. All commercial insurance companies are taxable (for-profit)
entities. Commercial insurers entered the health insurance market following World War II. Following the
war, the Internal Revenue Service ruled that employer-provided health insurance was not taxable, giving
