CEBS GBA COMPREHENSIVE EXAM STUDY
GUIDE WITH COMPLETE SOLUTIONS
●● The law of large numbers states that:
Answer: As the size of the same increases, the sample mean gets closer
to the population mean.
●● Indemnification
Answer: 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.
●● Adverse Selection
Answer: 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. This exists because individuals know more
about their health status than do insurers.
●● Moral Hazard
Answer: Premise that payments are made only for random losses which
creates moral hazard. Moral hazard is faced by insurers because
individuals are more likely to use unneeded health services when they
are not paying the full cost of those services.
,●● Coinsurance
Answer: A type of insurance in which the insured pays a share of the
payment made against a claim in excess of the deductible.
●● Third-Party Payers
Answer: Generic term for any outside party, 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.
●● Medicare
Answer: A federal program of health insurance established by Congress
in 1965 to provide medical benefits to persons 65 years of age and older.
Also covers health care costs associated with selected disabilities and
illnesses, regardless of age.
●● Medicaid
Answer: Began in 1966. A federal and state assistance program that pays
for health care services for people who cannot afford them. Mandatory
nursing home benefit added in 1972.
●● Four Characteristics of Insurance
Answer: 1. Pooling of losses.
2. Payment only for random losses.
,3. Risk transfer.
4. Indemnification
●● Pooling of losses
Answer: Is the basis of insurance. Pooling = losses are spread over a
large group of individuals. Pooling involves the grouping of a large
number of homogeneous exposure units. People or things having the
same risk characteristics. Law of large numbers applies.
●● Payment only for random losses
Answer: 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
Answer: The transfer of risk from an insured to an insurer. Insurance
involves risk transfer. The exception to risk transfer is self-insurance.
The insurer is in a better financial position to bear the risk than the
insured because of the law of large numbers.
●● Private Insurers
Answer: Blue Cross/Blue Shield, Commercial Insurers, and Self-
insurers.
, ●● Blue Cross Blue Shield
Answer: 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
Answer: Multiple insurance programs offered by hospitals. Hospitals
provided services to program members who made fixed payments to
hospitals. Programs expanded from single-hospital programs to multi-
hospital plans called hospital service plans. The Blue Cross name was
officially adopted by most of these plans in 1939.
●● Blue Shield
Answer: Similar to Blue Cross plans. Providers were physicians not
hospitals. 36 Blue Cross Blue Shield organizations today. The Blues are
independent corporations that belong to a single national association
with set standards. The Blues provide health care coverage for 106
million individuals.
●● Commercial Insurers
Answer: Private, non-government insurers who are often the insurance
options available through employers. All commercial insurance
companies are taxable (for-profit) entities.
●● Self-Insurers
GUIDE WITH COMPLETE SOLUTIONS
●● The law of large numbers states that:
Answer: As the size of the same increases, the sample mean gets closer
to the population mean.
●● Indemnification
Answer: 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.
●● Adverse Selection
Answer: 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. This exists because individuals know more
about their health status than do insurers.
●● Moral Hazard
Answer: Premise that payments are made only for random losses which
creates moral hazard. Moral hazard is faced by insurers because
individuals are more likely to use unneeded health services when they
are not paying the full cost of those services.
,●● Coinsurance
Answer: A type of insurance in which the insured pays a share of the
payment made against a claim in excess of the deductible.
●● Third-Party Payers
Answer: Generic term for any outside party, 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.
●● Medicare
Answer: A federal program of health insurance established by Congress
in 1965 to provide medical benefits to persons 65 years of age and older.
Also covers health care costs associated with selected disabilities and
illnesses, regardless of age.
●● Medicaid
Answer: Began in 1966. A federal and state assistance program that pays
for health care services for people who cannot afford them. Mandatory
nursing home benefit added in 1972.
●● Four Characteristics of Insurance
Answer: 1. Pooling of losses.
2. Payment only for random losses.
,3. Risk transfer.
4. Indemnification
●● Pooling of losses
Answer: Is the basis of insurance. Pooling = losses are spread over a
large group of individuals. Pooling involves the grouping of a large
number of homogeneous exposure units. People or things having the
same risk characteristics. Law of large numbers applies.
●● Payment only for random losses
Answer: 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
Answer: The transfer of risk from an insured to an insurer. Insurance
involves risk transfer. The exception to risk transfer is self-insurance.
The insurer is in a better financial position to bear the risk than the
insured because of the law of large numbers.
●● Private Insurers
Answer: Blue Cross/Blue Shield, Commercial Insurers, and Self-
insurers.
, ●● Blue Cross Blue Shield
Answer: 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
Answer: Multiple insurance programs offered by hospitals. Hospitals
provided services to program members who made fixed payments to
hospitals. Programs expanded from single-hospital programs to multi-
hospital plans called hospital service plans. The Blue Cross name was
officially adopted by most of these plans in 1939.
●● Blue Shield
Answer: Similar to Blue Cross plans. Providers were physicians not
hospitals. 36 Blue Cross Blue Shield organizations today. The Blues are
independent corporations that belong to a single national association
with set standards. The Blues provide health care coverage for 106
million individuals.
●● Commercial Insurers
Answer: Private, non-government insurers who are often the insurance
options available through employers. All commercial insurance
companies are taxable (for-profit) entities.
●● Self-Insurers
