CEBS GBA 1 UPDATED EXAM SCRRIPT QUESTIONS AND
ANSWERS GRADED A+
✔✔Define physical hazard, moral hazard, morale hazard (Mod 2.1) - ✔✔Physical:
Physical Condition (Defective Wiring, No Fire Extinguisher), increases chance of loss
Moral: Dishonesty increases chance of loss (Arson)...b/c of Moral, premiums are higher
to all. Attempt to control by careful UW and provisions such as deductibles, waiting
periods, exclusions
Morale: Carelessness or Indifference by insureds since they have insurance (protected
from loss).
✔✔How does pure risk differ from speculative risk (Mod 2.2) - ✔✔Pure Risk: Situations
where two alternatives are possible - risk will happen (no loss) or it will happen and a
financial loss takes place. Many EB Coverages fall into this classification. Nothing
positive can result from Pure Risk, but many are insured (Fire, Auto, Illness, Disability)
Speculative Risk: Involve a possibility (that is not present in pure risk) of a gain. Three
potential outcomes: Loss, No Loss, Gain (Ex: Purchase Stock, Gambling)
✔✔Most Important Type of Pure Risk (Mod 2.2) - ✔✔Personal Risk (Death, Illness, DI,
Unemployment)
✔✔Summarize Methods for Handling Risk (Mod 2.2) - ✔✔1: Avoidance - does not take
on risk/gets rid of
2: Control - attempts to prevent or reduce the probability/severity of a loss taking place
3: Retention - risk is assumed and paid for by the person suffering the loss
4: Transfer - one shifts the financial burden of risk to another party
5: Insurance - form of transfer which the financial burden is transferred to insurance
company
✔✔How is insurance a mechanism for EBP's? (Mod 2.3) - ✔✔Insured (EE/ER) pays
money (premium) into a fund (insurance company). Upon occurrence of loss,
reimbursement is provided to person suffering loss. Thus, risk has been
reduced/eliminated and all who paid into the fund share the resulting loss.
✔✔Compare insurance mechanism to gambling (Mod 2.3) - ✔✔Insurance is a
mechanism to handling existing risk - gambling creates risk where one did not
previously exist. Risk caused by gambling is 100% speculative, while insurance deals
with pure risk. Gambling involves a gain for one party while insurance is a mutual
sharing of any losses. The loser in the gambling transaction remains in a negative
situation while the insured is financially restored in whole or part to prior condition.
✔✔Define Indemnification (Mod 2.3) - ✔✔Principle of making the insured whole again
after reimbursement for covered loss takes place - similar financial situation than prior to
claim.
,✔✔Which risk handling technique is mutually exclusive (Mod 2.3) - ✔✔Avoidance -
when you avoid a risk, you have no losses so there is no need for other techniques
✔✔State advantages/disadvantages of using insurance to fund an EBP (Mod 2.3) -
✔✔Advantages:
-Known Premiums (Budgeting)
-Outside Administration (Handled by Insurance)
-Financial Backing
-Cost Management (Design Plans to limit cost)
-Economy (Insurance more efficient/lower cost)
Disadvantages:
-Possible Additional Costs (Admin, Comm, Overhead, Premium Taxes)
-Employee Satisfaction (Slow, Claim Denials)
✔✔Describe characteristics of ideal insurable risk (Mod 2.3) - ✔✔1: Must be large
number of similar risks (law of large numbers)
2: Loss should be verifiable and measurable
3: Loss should not be catastrophic in nature
4: Chance of loss subject to calculation (avg frequency/severity) - adequate premium
5: Premium should be economically feasible - insured should afford premium/less than
face value or amount of policy coverage
6: Loss should be accidental and unintentional from the insured's standpoint/control
(moral)
✔✔Describe characteristics of group technique that enable life/health to be written as
EBP by minimizing adverse selection (Mod 2.5) - ✔✔1: Only certain groups are eligible
2: Steady flow of lives through the group
3: Minimum number of covered lives
4: Minimum portion must participate
5: Eligibility Requirements
6: Maximum Limits Imposed (prevent excess cov)
7: Conservative Guarantee Issue Amounts
✔✔Describe Indemnity Plans (Mod 3.1) - ✔✔The 1st employment based medical plans
covered catastrophic losses (inpatient hospital expenses) - later added outpatient,
diagnostic and physician services. Early programs and their successors known as
Indemnity Plans (or traditional, fee-for services). They pay a percentage of cost of
treatment (100% Emergency/Preventative and 80% all other) and don't require
permission to access specialty.
✔✔Describe Managed Care (Mod 3.1) - ✔✔Insurance carriers have a role in steering
health services/care while prepaying some portion of healthcare services. The managed
care model (in the form of Health Maintenance Organizations - HMO's) all but replaced
traditional indemnity plans.
,✔✔Define common types of Employer Sponsored Health Plans (Mod 3.1) - ✔✔1: HMO
(Health Maintenance Organization)
2: PPO (Preferred Provider Organization)
3: POS (Point of Service Plan)
4: HDHP (High Deductible Health Plan) - linked to Tax-Advantaged Savings Account
✔✔How does an HMO operate? (Mod 3.1) - ✔✔Requires individual to select primary
care physician (PCP) from a network of providers. PCP is responsible for managing
individual's care and if care is required beyond scope of PCP, they will provide a referral
to specialty care. No benefits (except emergency) are available outside the Network.
Out of pocket expenses (PCP/Specialty) are routinely a flat dollar amount (copay) - no
need to file for reimbursement.
✔✔How does a PPO operate? (Mod 3.1) - ✔✔52% of Covered Workers Enrolled;
Designed in response to HMO criticism, allows limited benefits for care received out of
the preferred network and requires no referral to see a specialist. If specialist is in-
network, coverage may be similarly structured with copays under HMO. Outside
network, cost is significantly higher.
✔✔How are POS plans part of a hybrid between HMO/PPO plans? (Mod 3.1) -
✔✔Offers in-network (preferred) and out of network (nonpreferred) benefits. Individual
may need to select PCP to obtain referrals for in-network specialty care. Out of pocket
expenses for in-network providers are copays (similar to HMO cost...slightly higher) - no
need to file for reimbursement. For out of network, out of pocket expenses are not a flat
dollar amount but a percentage (ex: 40% common) of fees.
✔✔Contrast PPO's vs POS' (Mod 3.1) - ✔✔Both overlap significantly. Differences do
include primary care provider requirement by POS but not PPO; lower copay amounts
for preferred care in POS than in PPO; smaller network in a POS than PPO.
✔✔Describe HDHP's (Mod 3.1) - ✔✔Provides catastrophic insurance. Trades lower
premium cost to higher deductible by paying benefits only after insured has incurred
significant out of pocket expenses. Developed so individuals have greater financial
stake in healthcare decisions - manage expenses, offers possibility of accumulating
health care savings in tax-advantaged account (both ER/EE contrib's)
✔✔What are the 3 types of savings options coupled with HDHP's? (Mod 3.2) - ✔✔1:
FSA's (Flexible Spending Accounts) - before plan year, elect a certain amount to be
deducted on a pre-tax basis from check (not to exceed IRS limit of $2,650). Available
throughout the year for qualified expenses - cannot be refunded for unused amount at
end of plan year.
2: HRA's (Health Reimbursement Arrangements) - Employer Funded accounts
established to pay health care expenses - not required by law to roll over unused
contributions over plan year.
, 3: HSA's (Health Savings Accounts) - coupled with HDHP's. Owned by the EE and
funded with tax-free contributions made by EE, ER or both. Unused contributions can
be rolled over year to year. Penalties for money used for nonmedical expenses before
Age 65.
✔✔Contrast between an In-Network (Preferred) vs an Out-of-Network (Non-Preferred)
Provider (Mod 3.3) - ✔✔In-Network: Contract with individual's health insurance plan to
provide services to the member at a discount (for increased volume). Some plans may
have a tiered structure with varying out of pocket costs.
Out-of-Network: No contract with insurance plan...when available, costs are
considerably higher.
✔✔Define terms "Allowed Amount" and "usual, customary or reasonable (UCR) fee" as
related to Out-of-Network Benefits (Mod 3.3) - ✔✔Terms used by health plans to
determine the maximum amount the plan will pay for covered health services. Can also
be called negotiated rate, payment allowance, etc. If the provider charges more than the
allowed amount by the health plan, the provider can charge the member for the
difference.
✔✔Describe special consideration given to preventative care (Mod 3.3) - ✔✔Treatments
that fall under preventative (shots, mammograms, cholesterol, etc) are covered w/o any
deductibles, copays or coinsurance when in-network. Now ACA mandates all
preventative services are covered under group health with no charge of ded, copay,
coins (Mod 3.5)
✔✔Describe the history of prescription drug coverage (Mod 3.4) - ✔✔In the early days,
PDC was a small portion of overall health and such expenses were not covered. When
coverage eventually became available, it was originally subject to same
deductibles/coinsurance as office visits, lab work and other outpatient services. Today,
it is traditionally carved out and administered by Pharmacy Benefit Managers (PBM's),
these are TPA's contracted to process claims and reimburse pharmacies for dispensing
drugs, as well as cost containment/disease management.
✔✔Impact of parity legislation of MH/SA (Mod 3.4) - ✔✔Until recently, MH/SA had
limited coverage compared with medical and surgical care in the form of lower
reimbursement rates (ex: 50% for these services vs 80-100% for non MH/SA), fewer
allotted visits, lower lifetime/annual dollar out of pocket maximums. This has been aided
by ACA and MHPA.
✔✔Describe (MBHO's) managed behavioral health care organizations (Mod 3.4) - ✔✔In
the 1980's, behavioral health was carved out by many insurance plans and contracted
out to MBHOs. These are independent organizations - key objective of separation was
to control costs through oversight of expenses (case management and early
intervention). Future is uncertain given ACA's support of integrated/coordinated care
rather than carveout.
ANSWERS GRADED A+
✔✔Define physical hazard, moral hazard, morale hazard (Mod 2.1) - ✔✔Physical:
Physical Condition (Defective Wiring, No Fire Extinguisher), increases chance of loss
Moral: Dishonesty increases chance of loss (Arson)...b/c of Moral, premiums are higher
to all. Attempt to control by careful UW and provisions such as deductibles, waiting
periods, exclusions
Morale: Carelessness or Indifference by insureds since they have insurance (protected
from loss).
✔✔How does pure risk differ from speculative risk (Mod 2.2) - ✔✔Pure Risk: Situations
where two alternatives are possible - risk will happen (no loss) or it will happen and a
financial loss takes place. Many EB Coverages fall into this classification. Nothing
positive can result from Pure Risk, but many are insured (Fire, Auto, Illness, Disability)
Speculative Risk: Involve a possibility (that is not present in pure risk) of a gain. Three
potential outcomes: Loss, No Loss, Gain (Ex: Purchase Stock, Gambling)
✔✔Most Important Type of Pure Risk (Mod 2.2) - ✔✔Personal Risk (Death, Illness, DI,
Unemployment)
✔✔Summarize Methods for Handling Risk (Mod 2.2) - ✔✔1: Avoidance - does not take
on risk/gets rid of
2: Control - attempts to prevent or reduce the probability/severity of a loss taking place
3: Retention - risk is assumed and paid for by the person suffering the loss
4: Transfer - one shifts the financial burden of risk to another party
5: Insurance - form of transfer which the financial burden is transferred to insurance
company
✔✔How is insurance a mechanism for EBP's? (Mod 2.3) - ✔✔Insured (EE/ER) pays
money (premium) into a fund (insurance company). Upon occurrence of loss,
reimbursement is provided to person suffering loss. Thus, risk has been
reduced/eliminated and all who paid into the fund share the resulting loss.
✔✔Compare insurance mechanism to gambling (Mod 2.3) - ✔✔Insurance is a
mechanism to handling existing risk - gambling creates risk where one did not
previously exist. Risk caused by gambling is 100% speculative, while insurance deals
with pure risk. Gambling involves a gain for one party while insurance is a mutual
sharing of any losses. The loser in the gambling transaction remains in a negative
situation while the insured is financially restored in whole or part to prior condition.
✔✔Define Indemnification (Mod 2.3) - ✔✔Principle of making the insured whole again
after reimbursement for covered loss takes place - similar financial situation than prior to
claim.
,✔✔Which risk handling technique is mutually exclusive (Mod 2.3) - ✔✔Avoidance -
when you avoid a risk, you have no losses so there is no need for other techniques
✔✔State advantages/disadvantages of using insurance to fund an EBP (Mod 2.3) -
✔✔Advantages:
-Known Premiums (Budgeting)
-Outside Administration (Handled by Insurance)
-Financial Backing
-Cost Management (Design Plans to limit cost)
-Economy (Insurance more efficient/lower cost)
Disadvantages:
-Possible Additional Costs (Admin, Comm, Overhead, Premium Taxes)
-Employee Satisfaction (Slow, Claim Denials)
✔✔Describe characteristics of ideal insurable risk (Mod 2.3) - ✔✔1: Must be large
number of similar risks (law of large numbers)
2: Loss should be verifiable and measurable
3: Loss should not be catastrophic in nature
4: Chance of loss subject to calculation (avg frequency/severity) - adequate premium
5: Premium should be economically feasible - insured should afford premium/less than
face value or amount of policy coverage
6: Loss should be accidental and unintentional from the insured's standpoint/control
(moral)
✔✔Describe characteristics of group technique that enable life/health to be written as
EBP by minimizing adverse selection (Mod 2.5) - ✔✔1: Only certain groups are eligible
2: Steady flow of lives through the group
3: Minimum number of covered lives
4: Minimum portion must participate
5: Eligibility Requirements
6: Maximum Limits Imposed (prevent excess cov)
7: Conservative Guarantee Issue Amounts
✔✔Describe Indemnity Plans (Mod 3.1) - ✔✔The 1st employment based medical plans
covered catastrophic losses (inpatient hospital expenses) - later added outpatient,
diagnostic and physician services. Early programs and their successors known as
Indemnity Plans (or traditional, fee-for services). They pay a percentage of cost of
treatment (100% Emergency/Preventative and 80% all other) and don't require
permission to access specialty.
✔✔Describe Managed Care (Mod 3.1) - ✔✔Insurance carriers have a role in steering
health services/care while prepaying some portion of healthcare services. The managed
care model (in the form of Health Maintenance Organizations - HMO's) all but replaced
traditional indemnity plans.
,✔✔Define common types of Employer Sponsored Health Plans (Mod 3.1) - ✔✔1: HMO
(Health Maintenance Organization)
2: PPO (Preferred Provider Organization)
3: POS (Point of Service Plan)
4: HDHP (High Deductible Health Plan) - linked to Tax-Advantaged Savings Account
✔✔How does an HMO operate? (Mod 3.1) - ✔✔Requires individual to select primary
care physician (PCP) from a network of providers. PCP is responsible for managing
individual's care and if care is required beyond scope of PCP, they will provide a referral
to specialty care. No benefits (except emergency) are available outside the Network.
Out of pocket expenses (PCP/Specialty) are routinely a flat dollar amount (copay) - no
need to file for reimbursement.
✔✔How does a PPO operate? (Mod 3.1) - ✔✔52% of Covered Workers Enrolled;
Designed in response to HMO criticism, allows limited benefits for care received out of
the preferred network and requires no referral to see a specialist. If specialist is in-
network, coverage may be similarly structured with copays under HMO. Outside
network, cost is significantly higher.
✔✔How are POS plans part of a hybrid between HMO/PPO plans? (Mod 3.1) -
✔✔Offers in-network (preferred) and out of network (nonpreferred) benefits. Individual
may need to select PCP to obtain referrals for in-network specialty care. Out of pocket
expenses for in-network providers are copays (similar to HMO cost...slightly higher) - no
need to file for reimbursement. For out of network, out of pocket expenses are not a flat
dollar amount but a percentage (ex: 40% common) of fees.
✔✔Contrast PPO's vs POS' (Mod 3.1) - ✔✔Both overlap significantly. Differences do
include primary care provider requirement by POS but not PPO; lower copay amounts
for preferred care in POS than in PPO; smaller network in a POS than PPO.
✔✔Describe HDHP's (Mod 3.1) - ✔✔Provides catastrophic insurance. Trades lower
premium cost to higher deductible by paying benefits only after insured has incurred
significant out of pocket expenses. Developed so individuals have greater financial
stake in healthcare decisions - manage expenses, offers possibility of accumulating
health care savings in tax-advantaged account (both ER/EE contrib's)
✔✔What are the 3 types of savings options coupled with HDHP's? (Mod 3.2) - ✔✔1:
FSA's (Flexible Spending Accounts) - before plan year, elect a certain amount to be
deducted on a pre-tax basis from check (not to exceed IRS limit of $2,650). Available
throughout the year for qualified expenses - cannot be refunded for unused amount at
end of plan year.
2: HRA's (Health Reimbursement Arrangements) - Employer Funded accounts
established to pay health care expenses - not required by law to roll over unused
contributions over plan year.
, 3: HSA's (Health Savings Accounts) - coupled with HDHP's. Owned by the EE and
funded with tax-free contributions made by EE, ER or both. Unused contributions can
be rolled over year to year. Penalties for money used for nonmedical expenses before
Age 65.
✔✔Contrast between an In-Network (Preferred) vs an Out-of-Network (Non-Preferred)
Provider (Mod 3.3) - ✔✔In-Network: Contract with individual's health insurance plan to
provide services to the member at a discount (for increased volume). Some plans may
have a tiered structure with varying out of pocket costs.
Out-of-Network: No contract with insurance plan...when available, costs are
considerably higher.
✔✔Define terms "Allowed Amount" and "usual, customary or reasonable (UCR) fee" as
related to Out-of-Network Benefits (Mod 3.3) - ✔✔Terms used by health plans to
determine the maximum amount the plan will pay for covered health services. Can also
be called negotiated rate, payment allowance, etc. If the provider charges more than the
allowed amount by the health plan, the provider can charge the member for the
difference.
✔✔Describe special consideration given to preventative care (Mod 3.3) - ✔✔Treatments
that fall under preventative (shots, mammograms, cholesterol, etc) are covered w/o any
deductibles, copays or coinsurance when in-network. Now ACA mandates all
preventative services are covered under group health with no charge of ded, copay,
coins (Mod 3.5)
✔✔Describe the history of prescription drug coverage (Mod 3.4) - ✔✔In the early days,
PDC was a small portion of overall health and such expenses were not covered. When
coverage eventually became available, it was originally subject to same
deductibles/coinsurance as office visits, lab work and other outpatient services. Today,
it is traditionally carved out and administered by Pharmacy Benefit Managers (PBM's),
these are TPA's contracted to process claims and reimburse pharmacies for dispensing
drugs, as well as cost containment/disease management.
✔✔Impact of parity legislation of MH/SA (Mod 3.4) - ✔✔Until recently, MH/SA had
limited coverage compared with medical and surgical care in the form of lower
reimbursement rates (ex: 50% for these services vs 80-100% for non MH/SA), fewer
allotted visits, lower lifetime/annual dollar out of pocket maximums. This has been aided
by ACA and MHPA.
✔✔Describe (MBHO's) managed behavioral health care organizations (Mod 3.4) - ✔✔In
the 1980's, behavioral health was carved out by many insurance plans and contracted
out to MBHOs. These are independent organizations - key objective of separation was
to control costs through oversight of expenses (case management and early
intervention). Future is uncertain given ACA's support of integrated/coordinated care
rather than carveout.
