MHA 708 | MHA708 Exam 2: Healthcare Policy
Updated and Latest Questions and Correct
Answers with Rationale - Louisiana State
University in Shreveport
1. Which component of Medicare is primarily funded through payroll taxes and provides
coverage for inpatient hospital stays and skilled nursing facility care?
A. Medicare Part D
B. Medicare Part B
C. Medicare Part C
D. Medicare Part A
Correct Answer: D
Explanation: Medicare Part A is specifically designed to cover hospital insurance,
including inpatient care and hospice. This part is largely funded by the 2.9 percent payroll
tax shared by employers and employees. Unlike Part B, most beneficiaries do not pay a
premium for Part A if they have a sufficient work history. Part B covers outpatient services
and requires a monthly premium from the beneficiary. Distinguishing between these parts
is essential for understanding the fiscal sustainability of the Medicare Trust Fund.
2. In the context of health insurance, what does the term ‘Adverse Selection’ refer to?
A. When providers only select patients with minor health issues to maximize profit.
B. The tendency of insured individuals to use more services because they are covered.
C. The process where the government selects which private insurers can participate in the
marketplace.
D. When healthy individuals drop coverage because premiums rise, leaving only high-risk
individuals in the pool.
Correct Answer: D
Explanation: Adverse selection occurs when there is an asymmetry of information
between the insurer and the insured. This phenomenon often leads to a ‘death spiral’
where healthy people exit the insurance pool due to high costs. As the pool becomes sicker
on average, premiums must rise further to cover the higher claims. Policy interventions like
the individual mandate were designed to mitigate this specific economic risk. Without a
balanced risk pool, private insurance markets struggle to remain financially viable or
affordable.
,3. A healthcare provider is participating in a Value-Based Purchasing (VBP) model. Which of
the following best describes the primary goal of this reimbursement structure?
A. To link provider payments to improved clinical outcomes and patient experience.
B. To shift the financial risk of high-cost patients entirely to the federal government.
C. To maximize the volume of services provided to increase revenue.
D. To eliminate all private insurance participation in the Medicare market.
Correct Answer: A
Explanation: Value-Based Purchasing shifts the focus from the quantity of care to the
quality of care provided. It uses financial incentives to reward providers who meet specific
performance measures regarding patient safety and clinical processes. This model is a
direct response to the inefficiencies found in traditional fee-for-service systems. By tying
reimbursement to outcomes, the policy aims to improve the overall health of the
population while containing costs. Successful implementation requires robust data
collection and reporting systems within healthcare organizations.
4. How does the Federal Medical Assistance Percentage (FMAP) impact state Medicaid
programs?
A. It determines the flat fee that patients must pay for outpatient visits.
B. It dictates the percentage of the federal share of Medicaid expenditures in each state.
C. It sets the maximum salary for healthcare administrators in state-run hospitals.
D. It mandates that all states provide the exact same level of coverage regardless of budget.
Correct Answer: B
Explanation: The FMAP is the formula used to determine the federal government’s share
of a state’s Medicaid costs. States with lower per capita incomes receive a higher FMAP,
meaning the federal government covers a larger portion of their expenses. This funding
mechanism allows poorer states to provide necessary services that they might otherwise
be unable to afford. Fluctuations in FMAP can significantly impact a state’s ability to
maintain or expand its Medicaid eligibility. Policy changes to this percentage are often a
major point of negotiation in federal budget discussions.
5. Under the MACRA legislation, the Merit-based Incentive Payment System (MIPS) evaluates
clinicians based on which of the following categories?
A. Total Number of Surgeries, Distance from Hospital, and Years of Experience
B. Patient Satisfaction, Employee Retention, and Facility Aesthetics
C. Quality, Cost, Promoting Interoperability, and Improvement Activities
D. Quantity of Referrals, Pharmaceutical Usage, and Marketing Budget
, Correct Answer: C
Explanation: MACRA was designed to move Medicare Part B providers toward a
performance-based payment system. MIPS combines several previous quality programs
into one comprehensive score that determines payment adjustments. The ‘Quality’
category focuses on clinical outcomes, while ‘Cost’ evaluates the resources used to treat
patients. ‘Promoting Interoperability’ encourages the effective use of electronic health
record technology among providers. These four pillars are intended to streamline federal
reporting requirements while incentivizing higher standards of care.
6. Which economic concept explains why an insured individual might seek more medical care
than they would if they were paying the full cost out-of-pocket?
A. Supply-side rationing
B. Moral Hazard
C. Capital Depreciation
D. Opportunity Cost
Correct Answer: B
Explanation: Moral hazard refers to the change in behavior that occurs when an individual
is insulated from the financial consequences of their actions. In healthcare, this manifests
as patients consuming more services because the insurance company bears the majority of
the cost. This increased consumption can lead to higher overall healthcare spending and
potential inefficiency in the market. To combat moral hazard, insurers often use cost-
sharing mechanisms like deductibles and co-payments. These financial barriers are
designed to make patients more conscious of the cost and necessity of their care.
7. In an Accountable Care Organization (ACO), what happens if the organization spends less
than its target budget while meeting quality benchmarks?
A. The surplus must be returned immediately to the patients.
B. The ACO may share in the savings with the Medicare program.
C. The providers are penalized for under-utilization of services.
D. The federal government reduces the ACO’s budget for the following year.
Correct Answer: B
Explanation: ACOs are groups of doctors and hospitals that collaborate to provide
coordinated, high-quality care to Medicare patients. The Shared Savings Program allows
these organizations to keep a portion of the money saved if they reduce costs below a set
benchmark. However, these savings are only granted if the ACO also meets specific quality
performance standards. This aligns the financial interests of the provider with the health
outcomes of the patient population. It represents a significant shift away from the
traditional volume-based incentives of the healthcare system.
Updated and Latest Questions and Correct
Answers with Rationale - Louisiana State
University in Shreveport
1. Which component of Medicare is primarily funded through payroll taxes and provides
coverage for inpatient hospital stays and skilled nursing facility care?
A. Medicare Part D
B. Medicare Part B
C. Medicare Part C
D. Medicare Part A
Correct Answer: D
Explanation: Medicare Part A is specifically designed to cover hospital insurance,
including inpatient care and hospice. This part is largely funded by the 2.9 percent payroll
tax shared by employers and employees. Unlike Part B, most beneficiaries do not pay a
premium for Part A if they have a sufficient work history. Part B covers outpatient services
and requires a monthly premium from the beneficiary. Distinguishing between these parts
is essential for understanding the fiscal sustainability of the Medicare Trust Fund.
2. In the context of health insurance, what does the term ‘Adverse Selection’ refer to?
A. When providers only select patients with minor health issues to maximize profit.
B. The tendency of insured individuals to use more services because they are covered.
C. The process where the government selects which private insurers can participate in the
marketplace.
D. When healthy individuals drop coverage because premiums rise, leaving only high-risk
individuals in the pool.
Correct Answer: D
Explanation: Adverse selection occurs when there is an asymmetry of information
between the insurer and the insured. This phenomenon often leads to a ‘death spiral’
where healthy people exit the insurance pool due to high costs. As the pool becomes sicker
on average, premiums must rise further to cover the higher claims. Policy interventions like
the individual mandate were designed to mitigate this specific economic risk. Without a
balanced risk pool, private insurance markets struggle to remain financially viable or
affordable.
,3. A healthcare provider is participating in a Value-Based Purchasing (VBP) model. Which of
the following best describes the primary goal of this reimbursement structure?
A. To link provider payments to improved clinical outcomes and patient experience.
B. To shift the financial risk of high-cost patients entirely to the federal government.
C. To maximize the volume of services provided to increase revenue.
D. To eliminate all private insurance participation in the Medicare market.
Correct Answer: A
Explanation: Value-Based Purchasing shifts the focus from the quantity of care to the
quality of care provided. It uses financial incentives to reward providers who meet specific
performance measures regarding patient safety and clinical processes. This model is a
direct response to the inefficiencies found in traditional fee-for-service systems. By tying
reimbursement to outcomes, the policy aims to improve the overall health of the
population while containing costs. Successful implementation requires robust data
collection and reporting systems within healthcare organizations.
4. How does the Federal Medical Assistance Percentage (FMAP) impact state Medicaid
programs?
A. It determines the flat fee that patients must pay for outpatient visits.
B. It dictates the percentage of the federal share of Medicaid expenditures in each state.
C. It sets the maximum salary for healthcare administrators in state-run hospitals.
D. It mandates that all states provide the exact same level of coverage regardless of budget.
Correct Answer: B
Explanation: The FMAP is the formula used to determine the federal government’s share
of a state’s Medicaid costs. States with lower per capita incomes receive a higher FMAP,
meaning the federal government covers a larger portion of their expenses. This funding
mechanism allows poorer states to provide necessary services that they might otherwise
be unable to afford. Fluctuations in FMAP can significantly impact a state’s ability to
maintain or expand its Medicaid eligibility. Policy changes to this percentage are often a
major point of negotiation in federal budget discussions.
5. Under the MACRA legislation, the Merit-based Incentive Payment System (MIPS) evaluates
clinicians based on which of the following categories?
A. Total Number of Surgeries, Distance from Hospital, and Years of Experience
B. Patient Satisfaction, Employee Retention, and Facility Aesthetics
C. Quality, Cost, Promoting Interoperability, and Improvement Activities
D. Quantity of Referrals, Pharmaceutical Usage, and Marketing Budget
, Correct Answer: C
Explanation: MACRA was designed to move Medicare Part B providers toward a
performance-based payment system. MIPS combines several previous quality programs
into one comprehensive score that determines payment adjustments. The ‘Quality’
category focuses on clinical outcomes, while ‘Cost’ evaluates the resources used to treat
patients. ‘Promoting Interoperability’ encourages the effective use of electronic health
record technology among providers. These four pillars are intended to streamline federal
reporting requirements while incentivizing higher standards of care.
6. Which economic concept explains why an insured individual might seek more medical care
than they would if they were paying the full cost out-of-pocket?
A. Supply-side rationing
B. Moral Hazard
C. Capital Depreciation
D. Opportunity Cost
Correct Answer: B
Explanation: Moral hazard refers to the change in behavior that occurs when an individual
is insulated from the financial consequences of their actions. In healthcare, this manifests
as patients consuming more services because the insurance company bears the majority of
the cost. This increased consumption can lead to higher overall healthcare spending and
potential inefficiency in the market. To combat moral hazard, insurers often use cost-
sharing mechanisms like deductibles and co-payments. These financial barriers are
designed to make patients more conscious of the cost and necessity of their care.
7. In an Accountable Care Organization (ACO), what happens if the organization spends less
than its target budget while meeting quality benchmarks?
A. The surplus must be returned immediately to the patients.
B. The ACO may share in the savings with the Medicare program.
C. The providers are penalized for under-utilization of services.
D. The federal government reduces the ACO’s budget for the following year.
Correct Answer: B
Explanation: ACOs are groups of doctors and hospitals that collaborate to provide
coordinated, high-quality care to Medicare patients. The Shared Savings Program allows
these organizations to keep a portion of the money saved if they reduce costs below a set
benchmark. However, these savings are only granted if the ACO also meets specific quality
performance standards. This aligns the financial interests of the provider with the health
outcomes of the patient population. It represents a significant shift away from the
traditional volume-based incentives of the healthcare system.
