CEBS GBA 1 PRACTICE TIPS UPDATED QUESTIONS AND
ANSWERS GRADED A+
✔✔Transfer - ✔✔Shifts the burden to another party. Two forms are insurance and non-
insurance.
✔✔Insurance - ✔✔Common method of financing employee benefits. Premiums paid
into a fund, and in the event of a loss, reimbursement to the person suffering the loss is
made.
✔✔Advantages of Insurance - ✔✔Known premium cost, having an external
administrator, may be more economical for the company to use insurance
✔✔Disadvantages to Insurance - ✔✔Many costs involved (administrative, licensing,
commissions, taxes), insurer's ability to handle claims (processing times).
✔✔Insurable Risk - ✔✔A large number of homogeneous risks, loss should be verifiable
and measurable, loss should not be catastrophic in nature, premium should be
reasonable, loss should be accidental from the standpoint of the Insured are all
charecteristics of...
✔✔Adverse Selection - ✔✔Individuals who have a higher-than-average potential of
insurable risks 'select against' the insurer. (People who have a terminal illness or who
need surgery opt for insurance)
✔✔Result of Adverse Selection - ✔✔Dis-appropriate number of insureds incurring
losses.
✔✔Underwriting - ✔✔Method of controlling adverse behavior
✔✔Self-Funding - ✔✔Organization retains the risk
✔✔Indemnity Plans - ✔✔First type of employment-based medical plans. Covers
catastrophic losses (hospital). Paid 100% of emergency and 80% other types of
services. Deductible fees were generally under $500.
✔✔Managed Care - ✔✔This concept gave insurance providers a role in steering
healthcare services. Provided the inception of HMO's, led to alternative models of
medical insurance, and largely replaced traditional indemnity plans.
✔✔HMO (Health Maintenance Organization) - ✔✔Requires an individual to select a
primary care physician (PCP) from a network of providers. Aside from emergency care,
no benefits are available for outside this network. Expenses are generally a copay, and
there is no need to file claims for reimbursement.
, ✔✔PPO (Preferred Provider Organization) - ✔✔Allows for limited benefits outside the
preferred networks. Many of these types of plans have tiers within the preferred
network, each with a varying level of out of pocket expenses. Out of pocket costs can
be very expensive.
✔✔POS (Point of Service) - ✔✔Both in network and out of network benefits. No claim
reimbursement forms must be submitted, and the out of pocket expenses are a
percentage as opposed to a flat dollar amount. (Typically about 40%)
✔✔CDHP (Consumer-driven Health Plan, or High Deductible Plan) - ✔✔The cost-
savings model, this plan pays benefits after insured has incurred and paid considerable
out-of-pocket costs via a high deductible (which can cost thousands of dollars). The
plan gives the insured a higher stake in their health care decisions, and bears more rick
in cost than other models that use copays. These plans may be linked to a HAS (Health
Savings Account) to accumulate dollars to pay for services considering the large
deductible that must be paid for all services before the plan pays out.
✔✔FSA (Flexible Spending Account) - ✔✔Inception in the 1970's. Individuals select an
amount of money to allocate toward medical costs for the next calendar year.
Deductions are taken from a pre-taxed paycheck. The amount is limited by the IRS, and
per the IRS, these accounts are "use it or lose it". Both employees and employers can
make contributions.
✔✔HRA (Health Reimbursement Account) - ✔✔Arose in the early 2000's. These are
employer-funded accounts. Unused money can be rolled over, but do not have to be.
✔✔HSA (Health Savings Account) - ✔✔Linked to high-deductible plans. Account is
owned by the employee, but can also be funded by the employer with tax-free
contributions. Unused money can be rolled over. Money used for non-medical expenses
prior to age 65 are subject to a penalty.
✔✔Deductible - ✔✔Amount paid by the insured before the plan pays
✔✔Coinsurance - ✔✔Insured's cost share of the covered health care service.
✔✔Copay (Copayment) - ✔✔A fixed amount the insured pays when receiving a health
care service.
✔✔PCP (Primary Care Physician) - ✔✔Main physician that manages the care of the
insured. (Can be general, family, internal medicine, or OB/GYN doctor).
✔✔Referral - ✔✔PCP authorization to receive medical care from another provider -
generally a specialist.
ANSWERS GRADED A+
✔✔Transfer - ✔✔Shifts the burden to another party. Two forms are insurance and non-
insurance.
✔✔Insurance - ✔✔Common method of financing employee benefits. Premiums paid
into a fund, and in the event of a loss, reimbursement to the person suffering the loss is
made.
✔✔Advantages of Insurance - ✔✔Known premium cost, having an external
administrator, may be more economical for the company to use insurance
✔✔Disadvantages to Insurance - ✔✔Many costs involved (administrative, licensing,
commissions, taxes), insurer's ability to handle claims (processing times).
✔✔Insurable Risk - ✔✔A large number of homogeneous risks, loss should be verifiable
and measurable, loss should not be catastrophic in nature, premium should be
reasonable, loss should be accidental from the standpoint of the Insured are all
charecteristics of...
✔✔Adverse Selection - ✔✔Individuals who have a higher-than-average potential of
insurable risks 'select against' the insurer. (People who have a terminal illness or who
need surgery opt for insurance)
✔✔Result of Adverse Selection - ✔✔Dis-appropriate number of insureds incurring
losses.
✔✔Underwriting - ✔✔Method of controlling adverse behavior
✔✔Self-Funding - ✔✔Organization retains the risk
✔✔Indemnity Plans - ✔✔First type of employment-based medical plans. Covers
catastrophic losses (hospital). Paid 100% of emergency and 80% other types of
services. Deductible fees were generally under $500.
✔✔Managed Care - ✔✔This concept gave insurance providers a role in steering
healthcare services. Provided the inception of HMO's, led to alternative models of
medical insurance, and largely replaced traditional indemnity plans.
✔✔HMO (Health Maintenance Organization) - ✔✔Requires an individual to select a
primary care physician (PCP) from a network of providers. Aside from emergency care,
no benefits are available for outside this network. Expenses are generally a copay, and
there is no need to file claims for reimbursement.
, ✔✔PPO (Preferred Provider Organization) - ✔✔Allows for limited benefits outside the
preferred networks. Many of these types of plans have tiers within the preferred
network, each with a varying level of out of pocket expenses. Out of pocket costs can
be very expensive.
✔✔POS (Point of Service) - ✔✔Both in network and out of network benefits. No claim
reimbursement forms must be submitted, and the out of pocket expenses are a
percentage as opposed to a flat dollar amount. (Typically about 40%)
✔✔CDHP (Consumer-driven Health Plan, or High Deductible Plan) - ✔✔The cost-
savings model, this plan pays benefits after insured has incurred and paid considerable
out-of-pocket costs via a high deductible (which can cost thousands of dollars). The
plan gives the insured a higher stake in their health care decisions, and bears more rick
in cost than other models that use copays. These plans may be linked to a HAS (Health
Savings Account) to accumulate dollars to pay for services considering the large
deductible that must be paid for all services before the plan pays out.
✔✔FSA (Flexible Spending Account) - ✔✔Inception in the 1970's. Individuals select an
amount of money to allocate toward medical costs for the next calendar year.
Deductions are taken from a pre-taxed paycheck. The amount is limited by the IRS, and
per the IRS, these accounts are "use it or lose it". Both employees and employers can
make contributions.
✔✔HRA (Health Reimbursement Account) - ✔✔Arose in the early 2000's. These are
employer-funded accounts. Unused money can be rolled over, but do not have to be.
✔✔HSA (Health Savings Account) - ✔✔Linked to high-deductible plans. Account is
owned by the employee, but can also be funded by the employer with tax-free
contributions. Unused money can be rolled over. Money used for non-medical expenses
prior to age 65 are subject to a penalty.
✔✔Deductible - ✔✔Amount paid by the insured before the plan pays
✔✔Coinsurance - ✔✔Insured's cost share of the covered health care service.
✔✔Copay (Copayment) - ✔✔A fixed amount the insured pays when receiving a health
care service.
✔✔PCP (Primary Care Physician) - ✔✔Main physician that manages the care of the
insured. (Can be general, family, internal medicine, or OB/GYN doctor).
✔✔Referral - ✔✔PCP authorization to receive medical care from another provider -
generally a specialist.
