Introduction to Risk Management and Insurance, 10e (Dorfman/Cather)
Chapter 18 Health Insurance and Disability Income
1) Major medical insurance:
A) always provides the same benefits as basic medical, but has higher limits
B) is designed for low income consumers
C) is sold only to groups
D) has a high limit of coverage
2) Which of the following is a cost shifting technique in health insurance?
A) Utilization review
B) Generic drugs
C) Second opinions
D) Increased deductibles
3) Criticisms of the American health care system include all of the following except:
A) waiting to repair the system will make cost control and universal access worse
B) the current system is more consistent with the American political philosophy than socialized
medicine
C) Americans pay too much for health care
D) too many Americans do not have adequate access to health care
4) Which of the following is not typically included in a major medical insurance policy?
A) Large deductible
B) Participating provision
C) Large number of exclusions
D) High face amount
5) The waiting period in disability income insurance:
A) eliminates payment for minor illness
B) provides larger benefits to the insured
C) provides indirect loss coverage
D) integrates employment sick days with the disability plan
6) JoEllen has a major medical policy with a $500,000 lifetime aggregate limit, a $1,000 annual
deductible and 80% coinsurance. Her health losses for the year include the following: hospital
bills of $42,000; surgeon’s fees of $14,000, prescription medication expenses of $5,000. How
much will JoEllen’s insurance pay for this loss?
A) $48,000
B) $48,800
C) $60,000
D) $61,000
7) Which is the most desirable type of health insurance renewability feature?
A) Nonrenewable
B) Noncancellable
C) Guaranteed renewable
D) Optionally renewable
8) The preexisting condition clause in health insurance:
A) makes a preexisting insurance contract pay for prior medical conditions
B) eliminates coverage for conditions that existed before the effective date of the current contract
C) coordinates the payment of already existing conditions among multiple policies
D) provides blanket coverage for preexisting conditions
9) The purpose of long term care insurance is to:
A) pay supplemental Medicare benefits when 60 days of coverage has been exceeded
B) pay for housekeeping services for elderly disabled retirees on Medicare or Medicaid
C) pay for short stays in a hospital for the purpose of rehabilitation
D) pay for services in a long term care facility such as custodial care, skilled nursing care,
intermediate care, or hospice care
10) How does Blue Cross health insurance cover hospitalization?
A) By covering a specific number of days in the hospital
B) It pays up to 80% of all usual and customary charges in a semi-private room
C) It pays a flat dollar amount per day of hospitalization, regardless of the actual charges
incurred
D) Hospitalization coverage is not provided by Blue Cross policies
11) Which one of the following is not a reason for the increase in U.S. health care costs?
A) More expensive medical equipment and buildings
B) Increased medical malpractice insurance costs
C) Hospital labor operating costs
D) Increased cost of funeral expenses
12) Which of the following is not a type of health insurance coverage?
A) Basic medical expense insurance
B) Medicare supplemental coverage insurance
C) Double indemnity insurance
D) Major medical insurance
13) Which of the following clauses are associated with major medical coverage?
A) Subrogation
B) Mortgagee
C) Replacement cost
D) Deductible
14) The strictest definition of “disability” used in disability insurance products is the:
A) inability to engage in any occupation
B) inability to make the same income earned before the onset of the disability
C) inability to earn non-wage income
D) inability to engage in one’s regular occupation
15) Granny Clampett’s health insurance policy has a $500 annual aggregate deductible, and
80/20 cost sharing deductible, and a $5,000 maximum annual out-of-pocket cap of $5,000. She
wrecks her Harley and breaks her hip, and her total medical bills for the injury are $122,721.
How much will her insurer pay for this claim?
A) $5,500
B) $97,777
C) $98,177
D) $117,721
16) Granny Mayberry’s health insurance policy has a $500 annual aggregate deductible, 80/20
cost sharing deductible, and a maximum annual out-of-pocket cap of $5,000. She wrecks her
Harley and breaks her hip, and her total medical bills for the injury are $12,890. How much will
her insurer pay for this claim?
A) $7,890
B) $10,312
C) $9,912
D) $12,890
17) Your personal health insurance policy provides the following coverage:
For all covered medical bills, you must pay a $100 annual aggregate deductible.
After meeting that deductible, you must share in all additional expenses on a 90/10
basis. In any one year, your out-of-pocket maximum expenditure will not exceed $1,000.
In 2009 you fall and crack your skull. The covered medical bills you incur total $7,100. How
much will you have to pay for this loss, and how much will the insurer pay?
A) You pay $100, your insurer pays $7,000.
B) You pay $800, your insurer pays $7,000.
C) You pay $800, your insurer pays $6,300.
D) You pay $1,000, your insurer pays $6,100.
18) Jean’s health insurance policy has a 70/30 participation deductible. The policy has no other
deductible provisions, nor does it have an annual out-of-pocket maximum limit. If Jean has brain
transplant surgery that results in medical bills of $300,000, how much of the medical bills will
her insurer pay?
A) $210,000
B) $90,000
C) $300,000
D) cannot be determined from the given information
19) Critics of HMOs say that:
A) HMO members have too many choices of doctors they can use and services they can receive
B) HMO doctors waste money because they have no incentive to control costs
C) the 10% deductible required for every procedure is cost-prohibitive for most citizens
D) none of the above
20) Which of these health insurers normally rewards its doctors through profit sharing?
A) Traditional Health Insurers
B) Blue Cross/Blue Shield Organizations
C) Health Maintenance Organizations
D) Preferred Provider Organizations
21) Medicaid recipients must:
A) wait six-months before they can enroll
B) provide a core requirement of minimum benefits
C) not have any pre-existing conditions
D) first spend all their financial assets
22) Which of the following is false?
A) Within the next two decades, about 50 million people born between 1946 and 1964 will retire.
B) Medicaid insurance currently finances over 60 percent of all long-term nursing home care
expenses.
C) The mobility of American families means that many disabled elderly persons will not have
children living close enough to assist them.
D) As our society ages and health care costs increase, long-term care facilities will become more
necessary.
23) Long-term care policies:
A) are not standardized
B) are purchased by more than 70% of U.S. senior citizens
C) provide coverage that is normally triggered by an inability of the insured to understand the
ramifications of their actions
D) are legal in only 38 states
24) When a hospital performs preadmission testing, in which it determines the most optimal
treatment before the patient actually enters the hospital, it is considered to be performing:
A) utilization review
B) cost containment
C) catastrophe prevention
D) adverse selection
25) All of the following are individually-purchased health insurance products except:
A) Medicaid insurance
B) long-term care insurance
C) basic medical insurance
D) major medical insurance
26) In 2008 the U.S. spent ________% of GDP on health care.
A) 8.8
B) 10.3
C) 16.4
D) 22
27) Because people sometimes forget to pay their premiums on time, health insurance policies
normally contain a/an ________ to prevent unnecessary termination of the insured.
A) grace period clause
B) reinstatement clause
C) pro-rata clause
D) entire contract
28) Which statement is true?
A) Spending for physicians’ services in the U.S. has increased over time.
B) Spending for hospital services in the U.S. has increased over time.
C) Health care spending in the U.S. has increased over time.
D) All of the above
29) Which statement is false about the United States?
A) Health care spending per capita in 2008 was $7,720.
B) The share of personal health spending associated with hospital services has increased since
2000.
C) The percentage of the U.S. population without health insurance was 19% in 2009.
D) The share of personal health spending growth associated with prescription drug spending has
declined since 2000.
30) Blue Cross is:
A) owned by the doctors
B) owned by Blue Shield
C) not sold on a group basis
D) a hospital service prepayment plan
31) HMOs:
A) are the same as PPOs but cover only groups of individuals
B) collect a capitation payment for each insured and provide “comprehensive” health and
preventive care
C) tend to be found mostly in rural areas
D) provide a reduced fee if the insured has zero claims during the preceding policy year
32) The term “HMO” means:
A) Health Maintenance Organization
B) Health Management Organization
C) Healthy Mamas Organization
D) Hospital Management Organization
33) The term “PPO” means:
A) Preferred Participation Organization
B) Participating Physician Organization
C) Physicians’ Participation Organization
D) Preferred Provider Organization
34) More than half of all health insurance in the U.S. is provided by:
A) Blue Cross Plans
B) Traditional Health Insurers
C) HMOs & PPOs
D) HMOs only
35) An insured in a preferred provider organization pays less out of his pocket if he chooses to
use:
A) an out-of-network physician
B) a preferred provider
C) his/her regular physician
D) a chiropractor
36) Medical expense insurance, such as that provided by Blue Cross, has relatively large
deductible provisions.
37) Major medical insurance has relatively large deductibles.
38) Major medical insurance usually requires the insured to pay a percentage of all losses after a
deductible up to an out-of-pocket limit.
39) Disability income insurance generally requires an elimination or waiting period before
benefits begin.
40) A “guaranteed renewable” health insurance policy is also known as a “noncancellable”
policy.
41) Less than half of the U.S. population is covered by health insurance.
42) HMOs are health insurers specializing in cancer insurance.
43) The participation provision is generally associated with major medical insurance.
44) Disability income insurance replaces income that cannot be earned while a person is disabled
according to the contract’s definition of disability.
45) A common exclusion in health insurance policies is any preexisting condition.
46) Insurers do not sell Medicaid policies; they are provided by the government.
47) Individual Medicaid policies must return in benefits at least 60 percent of the premium
earned.
48) Medicaid requires recipients to exhaust all other assets before they can receive benefits.
49) Traditional Blue Cross benefits are expressed in terms of services rather than dollars.
50) Distinguish between cost shifting and cost containment in health care.
51) Distinguish between a guaranteed renewable and a noncancellable health insurance contract.
52) Explain how a typical major medical contract works.
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53) Explain why the definition of disability is important in disability income contracts. Provide
some examples of disability showing the range of definitions.
54) What is the difference between an HMO and a PPO in providing health care?