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HIA practice questions

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Question 1Health Insurance Basics

Which of the following best describes the fundamental purpose of health insurance?

  1. To allow insurers to profit from premiums without paying claims
  2. To guarantee that every enrollee receives the same amount of medical care
  3. To set the prices that providers may charge for services
  4. To pool premiums from many people so the costs of covered medical expenses are shared Correct answer.

Explanation

Health insurance transfers and pools risk: many insureds contribute premiums, and the funds are used to pay covered claims for those who need care. It does not equalize care received, and it does not set provider prices.

Question 2Health Insurance Basics

In health insurance terminology, what does the term 'risk' refer to?

  1. The commission paid to an agent for a sale
  2. The chance that a covered loss will occur and produce a claim Correct answer.
  3. The interest earned on invested reserves
  4. The administrative cost of processing an application

Explanation

Risk is the uncertainty about whether a loss will occur; insurers accept the financial risk of covered losses in exchange for premiums. Administrative costs, investment earnings, and commissions are separate financial elements.

Question 3Health Insurance Basics

Which concept describes the spreading of loss exposure across a large number of insureds?

  1. Reinsurance
  2. Moral hazard
  3. Adverse selection
  4. Risk pooling Correct answer.

Explanation

Risk pooling combines many separate exposures so that the losses of the few are shared by the group, making costs more predictable. Adverse selection and moral hazard are behaviors that undermine pooling rather than the pooling itself.

Question 4Health Insurance Basics

A person with a serious chronic illness is more likely to buy health insurance than a healthy person. This tendency is known as:

  1. Moral hazard
  2. Adverse selection Correct answer.
  3. Risk retention
  4. Subrogation

Explanation

Adverse selection occurs when individuals with higher-than-average risk are more likely to purchase or keep coverage, which can raise costs for the pool. Insurers counter it with underwriting, waiting periods, and enrollment rules.

Question 5Health Insurance Basics

An insured begins skydiving after purchasing a health policy and files a claim for injuries from a jump. The concern that coverage may encourage riskier behavior illustrates:

  1. Moral hazard Correct answer.
  2. Insurable interest
  3. Risk pooling
  4. Adverse selection

Explanation

Moral hazard is the increased willingness to take risks, or to use more services, because a third party bears the cost. It is distinct from adverse selection, which concerns who chooses to buy coverage.

Question 6Health Insurance Basics

What is the primary function of an insurance premium?

  1. It is the maximum benefit payable under the policy
  2. It is the amount the insurer pays toward a claim
  3. It is the fee charged by a provider for a visit
  4. It is the consideration paid by the insured in exchange for coverage Correct answer.

Explanation

The premium is the consideration the policyholder pays to keep the policy in force; it funds expected claims, expenses, and reserves. Claim payments, benefit maximums, and provider fees are separate concepts.

Question 7Health Insurance Basics

A fixed dollar amount an insured must pay out of pocket before the insurer begins paying for covered services is called a:

  1. Coinsurance
  2. Premium
  3. Copayment
  4. Deductible Correct answer.

Explanation

A deductible is the initial amount of covered expenses the insured pays before benefits begin. Coinsurance and copayments are cost-sharing that typically apply after the deductible is met.

Question 8Health Insurance Basics

After meeting the deductible, an insured pays 20 percent of covered expenses and the insurer pays 80 percent. The insured's 20 percent share is called:

  1. Copayment
  2. Out-of-pocket maximum
  3. Deductible
  4. Coinsurance Correct answer.

Explanation

Coinsurance is the percentage of covered costs the insured shares after the deductible. A copayment is a flat dollar amount, and the out-of-pocket maximum caps total cost sharing.

Question 9Health Insurance Basics

Which term describes a fixed dollar charge the insured pays at the time of a covered service, such as $30 for an office visit?

  1. Coinsurance
  2. Deductible
  3. Copayment Correct answer.
  4. Premium

Explanation

A copayment is a predetermined flat charge for a specific service. It differs from coinsurance, which is a percentage of cost, and from a deductible, which is an initial threshold.

Question 10Health Insurance Basics

An insured has a $2,000 deductible, 20 percent coinsurance, and a $6,000 out-of-pocket maximum. After paying the deductible, the insured incurs $10,000 in covered expenses. Ignoring any copayments, what is the insured's total out-of-pocket cost?

  1. $3,600 Correct answer.
  2. $6,000
  3. $4,000
  4. $2,000

Explanation

The insured first pays the $2,000 deductible, leaving $8,000 of covered expenses. Coinsurance of 20 percent on $8,000 is $1,600, so total cost sharing is $2,000 plus $1,600, or $3,600, which is below the $6,000 maximum.

Question 11Health Insurance Basics

What is the purpose of an out-of-pocket maximum in a health plan?

  1. It limits the total cost sharing an insured pays for covered services in a period Correct answer.
  2. It limits the insurer's total claim payments
  3. It sets the maximum number of services covered
  4. It caps the premium the insurer may charge in a year

Explanation

The out-of-pocket maximum protects the insured by capping the amount of deductibles, coinsurance, and copayments paid for covered in-network services during the benefit period. It does not cap premiums, service counts, or insurer payments.

Question 12Health Insurance Basics

A network of physicians and hospitals that contract with an insurer to provide services at negotiated rates is best described as a:

  1. Captive insurer
  2. Reinsurance treaty
  3. Third-party administrator
  4. Provider network Correct answer.

Explanation

A provider network consists of contracted providers who agree to accept negotiated rates and network rules. Third-party administrators, captives, and reinsurance are different insurance arrangements.

Question 13Health Insurance Basics

Which type of managed care plan generally requires members to use network providers and to obtain a referral from a primary care physician to see a specialist?

  1. Preferred provider organization (PPO)
  2. Health savings account (HSA)
  3. Health maintenance organization (HMO) Correct answer.
  4. Indemnity plan

Explanation

HMOs typically require members to use in-network providers and coordinate care through a primary care physician, including specialist referrals. PPOs and indemnity plans offer more flexibility in choosing providers.

Question 14Health Insurance Basics

A plan that pays a percentage of covered charges and generally allows the insured to see any licensed provider is characteristic of:

  1. A Medicaid managed care program
  2. A closed-panel HMO
  3. A traditional indemnity plan Correct answer.
  4. A point-of-service plan with a gatekeeper

Explanation

Traditional indemnity (fee-for-service) plans reimburse covered charges and generally do not restrict members to a network. HMOs and point-of-service plans impose network and gatekeeper rules.

Question 15Health Insurance Basics

In a preferred provider organization (PPO), what is the primary consequence of using an out-of-network provider?

  1. The insured pays a higher share of the cost Correct answer.
  2. The deductible is waived
  3. The insured must change to an HMO
  4. The claim is automatically denied in full

Explanation

PPOs allow out-of-network care but typically require higher cost sharing, such as a larger deductible or lower reimbursement percentage. Claims are not automatically denied, and the plan does not force a change of plan type.

Question 16Health Insurance Basics

What is the key distinction between a health reimbursement arrangement (HRA) and a health savings account (HSA)?

  1. An HRA must be paired with a high-deductible plan, while an HSA cannot be
  2. An HRA is funded by the employer, while an HSA is owned by the individual Correct answer.
  3. An HSA is available only to Medicare enrollees, while an HRA is not
  4. An HRA is always fully portable, while an HSA is not

Explanation

HRAs are employer-funded accounts that the employer controls, while HSAs are individually owned accounts that require a qualifying high-deductible health plan. HSA funds are portable and belong to the account holder.

Question 17Health Insurance Basics

Which of the following is an example of a third-party payer in the health care system?

  1. The physician providing the service
  2. The patient receiving care
  3. The hospital's billing department
  4. A commercial health insurer Correct answer.

Explanation

A third-party payer is an entity other than the patient or provider that pays for care, such as a commercial insurer or government program. Patients and providers are the first and second parties.

Question 18Health Insurance Basics

Which government program provides health coverage primarily to individuals age 65 and older and to certain people with disabilities?

  1. Medicaid
  2. TRICARE
  3. CHIP
  4. Medicare Correct answer.

Explanation

Medicare is the federal program for people age 65 and older and for certain disabled individuals. Medicaid is income-based, CHIP covers children in low-income families, and TRICARE serves military beneficiaries.

Question 19Health Insurance Basics

A low-income adult with limited resources applies for health coverage that is administered jointly by the state and federal government and is based on income. This program is:

  1. Medicaid Correct answer.
  2. Medicare Part A
  3. A health savings account
  4. TRICARE

Explanation

Medicaid is a joint federal-state program that provides coverage based on income and eligibility rules set within federal guidelines. Medicare is age- or disability-based, TRICARE serves military beneficiaries, and an HSA is a savings vehicle.

Question 20Health Insurance Basics

What does the term 'underwriting' mean in health insurance?

  1. The process of evaluating and classifying the risk presented by an applicant Correct answer.
  2. The process of marketing policies to employers
  3. The process of negotiating rates with hospitals
  4. The process of paying claims after services are rendered

Explanation

Underwriting assesses an applicant's health status, history, and other risk factors to decide whether to issue coverage and on what terms. It is separate from claim payment, provider contracting, and marketing.

Question 21Health Insurance Basics

An insurer's practice of charging different premium rates based on factors such as age and geographic area is known as:

  1. Claims adjudication
  2. Coordination of benefits
  3. Subrogation
  4. Risk classification Correct answer.

Explanation

Risk classification groups insureds with similar expected costs and assigns rates accordingly. Adjudication is claim processing, subrogation is recovery from third parties, and coordination of benefits prevents duplicate payment.

Question 22Health Insurance Basics

When a person is covered by two health plans, coordination of benefits rules determine:

  1. Which plan pays first and how the plans share the cost Correct answer.
  2. The premium each plan must charge
  3. Whether the person may keep both plans
  4. The tax treatment of the benefits

Explanation

Coordination of benefits establishes the order of payment and prevents benefits from exceeding the cost of care. It does not decide whether coverage may exist or set premiums or tax treatment.

Question 23Health Insurance Basics

An insurer pays a claim for an auto-accident injury and then seeks reimbursement from the at-fault driver's liability insurer. This right is called:

  1. Coinsurance
  2. Indemnification
  3. Reinsurance
  4. Subrogation Correct answer.

Explanation

Subrogation allows the insurer that paid a claim to pursue recovery from the party legally responsible for the loss. It prevents the insured from double recovery and shifts costs to the responsible party.

Question 24Health Insurance Basics

What does the principle of indemnification mean in health insurance?

  1. The insurer may cancel coverage at any time
  2. The insured must pay all costs until a maximum is reached
  3. The insurer must pay a fixed amount regardless of actual expenses
  4. The insured should be restored to the approximate financial position held before the loss Correct answer.

Explanation

Indemnification means the insured is compensated for actual covered losses without profiting from them. This principle underlies coordination of benefits and subrogation.

Question 25Health Insurance Basics

An insured pays premiums for years without filing a claim. Which statement best explains why the insured still benefits from the policy?

  1. The insurer refunds all unused premiums at renewal
  2. The policy provides protection against financial loss from an uncertain future event Correct answer.
  3. The insured earns interest on premiums paid
  4. The insured is guaranteed a claim payment eventually

Explanation

Insurance provides protection against the financial consequences of an uncertain event, and the value exists whether or not a claim occurs. Premiums are not refunded, do not earn interest for the insured, and do not guarantee payment.

Question 26Health Insurance Basics

Which of the following best describes the concept of 'adverse selection' in health insurance?

  1. The situation in which an insured obtains health care services from an out-of-network provider without prior authorization
  2. The tendency of individuals with higher health risks to seek coverage more often than those with lower risks Correct answer.
  3. The practice of an insurer denying coverage for a pre-existing condition during the first year of a policy
  4. The process by which an insurer determines the premium for a group based on its overall claims experience

Explanation

Adverse selection occurs when people with greater health risks are more likely to purchase insurance, which can lead to higher-than-expected claims and higher premiums. Insurers use underwriting and plan design features to mitigate adverse selection.

Question 27Health Insurance Basics

An insured has a health plan with a $1,000 deductible and 20% coinsurance. The insured incurs $5,000 in covered medical expenses. What is the insured's total out-of-pocket cost for these expenses, assuming no other cost-sharing?

  1. $1,800 Correct answer.
  2. $1,000
  3. $2,000
  4. $5,000

Explanation

The insured first pays the $1,000 deductible. The remaining $4,000 is subject to 20% coinsurance, which equals $800. The total out-of-pocket cost is $1,000 + $800 = $1,800.

Question 28Health Insurance Basics

Which of the following is a key characteristic of a health maintenance organization (HMO) plan?

  1. Members generally must receive care from network providers and have a primary care physician who coordinates care Correct answer.
  2. Members pay a fixed premium and the plan pays all covered expenses with no deductible or coinsurance
  3. Members may see any provider they choose, but pay higher cost-sharing for out-of-network care
  4. Members have a savings account that can be used for qualified medical expenses

Explanation

HMOs typically require members to use a network of contracted providers and to have a primary care physician (PCP) who manages and coordinates their care, including referrals to specialists. This gatekeeper model helps control costs.

Question 29Health Insurance Basics

An insured has a health insurance policy with a $500 annual deductible and a 20% coinsurance clause. The insured incurs $300 in covered expenses in January and $4,000 in covered expenses in March. How much will the insurer pay for the March expenses?

  1. $3,500
  2. $3,700
  3. $3,040 Correct answer.
  4. $3,200

Explanation

The January expenses of $300 are applied to the deductible, leaving $200 of the deductible unmet. The March expenses first satisfy the remaining $200 deductible, leaving $3,800 subject to coinsurance. The insurer pays 80% of $3,800, which is $3,040.

Question 30Health Insurance Basics

Which of the following best defines a 'premium' in health insurance?

  1. The portion of a claim that the insured pays after the deductible is met
  2. The periodic payment an insured makes to keep a health insurance policy in force Correct answer.
  3. The maximum amount an insurer will pay for a covered service
  4. The amount an insured pays for a covered service at the time of care

Explanation

A premium is the regular payment (e.g., monthly) made by the insured or policyholder to the insurer to maintain coverage. It is distinct from cost-sharing amounts like copayments, coinsurance, and deductibles.

Question 31Health Insurance Policy Provisions

Under the standard grace period provision in an individual health insurance policy with a monthly premium mode, the grace period is typically how long?

  1. 10 days Correct answer.
  2. 90 days
  3. 31 days
  4. 7 days

Explanation

For individual health policies paying monthly, the standard grace period is 10 days (7 days for weekly mode, 31 days for modes other than monthly). The grace period preserves coverage for a short time after a missed due date.

Question 32Health Insurance Policy Provisions

An insured's individual health policy lapses for nonpayment and she applies for reinstatement 45 days later. Under the typical reinstatement provision, which statement is accurate?

  1. Coverage resumes immediately with no underwriting conditions
  2. The insurer must reinstate automatically if premium is paid
  3. Reinstatement is prohibited after 30 days of lapse
  4. The insurer may require evidence of insurability before reinstating Correct answer.

Explanation

When a policy has lapsed beyond the grace period, the insurer generally may condition reinstatement on evidence of insurability and payment of overdue premiums. Coverage is not automatic and prior conditions may be treated as new.

Question 33Health Insurance Policy Provisions

The entire contract provision in a health insurance policy generally provides that the policy and which of the following constitute the whole agreement?

  1. The application and any attached endorsements Correct answer.
  2. The insured's prior medical records
  3. The insurer's marketing brochures
  4. The agent's verbal representations

Explanation

The entire contract provision states that the policy plus the attached application and any riders or endorsements form the complete agreement. This prevents agents' outside statements from altering the contract.

Question 34Health Insurance Policy Provisions

An insured submits a claim, and the insurer requests additional proof of loss. Under a typical time limit on certain defenses (incontestability) provision, after the policy has been in force for two years, the insurer may generally do which of the following?

  1. Rescind the policy for any misstatement in the application
  2. Void coverage for innocent nondisclosure
  3. Deny a claim for a condition that began after the policy was issued Correct answer.
  4. Contest the policy based on a material misstatement

Explanation

After the contestable period, the insurer cannot rescind or contest the policy for misstatements (except fraud), but it may still deny claims for conditions that first appear after the policy's effective date. The provision limits how long the insurer can challenge the policy itself.

Question 35Health Insurance Policy Provisions

A health insurance policy contains a provision stating that the insurer may not contest the policy after it has been in force for two years from its date of issue. This provision is known as which of the following?

  1. Free look provision
  2. Time limit on certain defenses Correct answer.
  3. Change of occupation clause
  4. Entire contract clause

Explanation

The time limit on certain defenses provision, often called the incontestability clause, bars the insurer from contesting the policy after a stated period, commonly two years. It protects insureds from later rescission for application errors.

Question 36Health Insurance Policy Provisions

A policyholder cancels an individual health policy and does not yet have a replacement policy in force. Which provision allows the insured to continue the existing coverage for a limited period after cancellation?

  1. Consideration clause
  2. Return of premium provision
  3. Waiver of premium
  4. Extended term provision Correct answer.

Explanation

The extended term provision lets an insured whose policy is cancelled continue coverage for a limited period without paying additional premium, based on the policy's cash value or premium structure. It bridges the gap until replacement coverage begins.

Question 37Health Insurance Policy Provisions

Which policy provision allows the insurer to adjust benefits if the insured changes to an occupation more hazardous than the one stated in the application?

  1. Reduction of benefits clause
  2. Misstatement of age provision
  3. Change of occupation provision Correct answer.
  4. Illegal occupation provision

Explanation

The change of occupation provision permits the insurer to reduce benefits to the level that the premium paid would have purchased for the more hazardous occupation. If the insured moves to a less hazardous occupation, premium may be reduced.

Question 38Health Insurance Policy Provisions

An insured's age was misstated on a health insurance application. When a claim occurs, the insurer discovers the error. Under the misstatement of age provision, what will the insurer typically do?

  1. Adjust the benefit to the amount the premium would have purchased at the correct age Correct answer.
  2. Void the policy from inception and refund all premiums
  3. Deny the claim entirely regardless of the policy's duration
  4. Pay the claim in full because age errors are ignored

Explanation

The misstatement of age provision allows the insurer to adjust benefits so they equal what the premium paid would have purchased at the insured's true age. The policy is not voided; benefits are equitably adjusted.

Question 39Health Insurance Policy Provisions

The free look provision in an individual health insurance policy gives the policyholder the right to do which of the following?

  1. Cancel the policy at any time without penalty
  2. Increase benefits without additional premium
  3. Return the policy within a specified number of days for a full premium refund Correct answer.
  4. Transfer ownership of the policy to another person

Explanation

The free look provision grants a specified period, commonly 10 days after delivery, during which the insured may return the policy for a full refund of premium. It provides a review period after purchase.

Question 40Health Insurance Policy Provisions

Under the physical examination and autopsy provision, which statement is accurate?

  1. The insurer may require an examination only before the policy is issued
  2. The insured must pay for any examination the insurer requests
  3. The insurer may require an examination and, where permitted, an autopsy at its own expense Correct answer.
  4. Autopsies are prohibited by law in all health policies

Explanation

This provision allows the insurer to require a physical examination of the insured and, where not prohibited by law, an autopsy in the event of death, at the insurer's expense. These rights support claims investigation.

Question 41Health Insurance Policy Provisions

A health insurance policy contains a provision that premium payments are due in advance and that coverage is not effective until the initial premium is paid. This reflects which concept?

  1. Subrogation
  2. Waiver
  3. Consideration Correct answer.
  4. Estoppel

Explanation

Consideration is the exchange of value in a contract; in insurance it is the premium paid by the insured and the promise to pay claims by the insurer. No coverage exists until the premium is paid.

Question 42Health Insurance Policy Provisions

An insured deliberately fails to disclose a known serious illness on a health insurance application. The insurer issues the policy and learns of the omission six months later. What is the insurer's likely remedy?

  1. The insurer may only raise the premium going forward
  2. The insurer must honor all claims because the policy was issued
  3. The insurer may rescind the policy for material misrepresentation Correct answer.
  4. The insurer must wait two years before taking any action

Explanation

Material misrepresentation in the application allows the insurer to rescind the policy if discovered within the contestable period. Because the omission was material and intentional, the insurer may void coverage and return premium.

Question 43Health Insurance Policy Provisions

The subrogation provision in a health insurance policy allows the insurer to do which of the following?

  1. Require the insured to submit to an autopsy
  2. Adjust benefits for age misstatement
  3. Recover benefits paid from a third party who caused the loss Correct answer.
  4. Cancel the policy for nonpayment

Explanation

Subrogation gives the insurer the right to pursue recovery from a third party legally responsible for the insured's injury, to the extent of benefits paid. It prevents double recovery by the insured.

Question 44Health Insurance Policy Provisions

The notice of claim provision in a health insurance policy typically requires the insured to notify the insurer of a claim within how many days after the loss begins?

  1. 90 days
  2. 20 days Correct answer.
  3. 45 days
  4. 5 days

Explanation

The notice of claim provision commonly requires written notice within 20 days after the occurrence or start of the loss, or as soon as reasonably possible. Prompt notice lets the insurer investigate.

Question 45Health Insurance Policy Provisions

Under the claim forms provision, if the insurer does not furnish claim forms within the required period after notice, the insured may do which of the following?

  1. Submit written proof of loss in any reasonable form Correct answer.
  2. Cancel the policy retroactively
  3. File suit immediately without any documentation
  4. Demand double indemnity

Explanation

If the insurer fails to provide claim forms within the stated time, the insured may submit written proof of the loss in another reasonable manner. The insurer cannot later deny the claim solely for lack of its own form.

Question 46Health Insurance Policy Provisions

A health policy requires written proof of loss within 90 days after the loss. The insured misses the deadline but provides proof five months later with no valid excuse. What result is most likely?

  1. The claim is automatically approved under the free look provision
  2. The insurer may deny the claim for failure to provide timely proof Correct answer.
  3. The insurer must pay because proof of loss is optional
  4. The insurer must pay but may raise future premiums

Explanation

The proof of loss provision sets a deadline for documentation, and failure to comply without good cause can justify denial. The insurer is entitled to timely proof to evaluate the claim.

Question 47Health Insurance Policy Provisions

The time of payment of claims provision generally requires the insurer to pay a clean claim within what period after receiving proof of loss?

  1. Within two years
  2. Within a specified number of days, commonly 30 to 60 days Correct answer.
  3. Immediately upon notice of claim
  4. Only after the policy anniversary

Explanation

The time of payment of claims provision requires prompt payment, typically within a set number of days such as 30 to 60, after the insurer receives satisfactory proof of loss. This protects insureds from unreasonable delay.

Question 48Health Insurance Policy Provisions

The payment of claims provision addresses which of the following?

  1. Which occupations are excluded
  2. When the policy may be cancelled
  3. How premiums are calculated
  4. To whom and how benefits will be paid Correct answer.

Explanation

The payment of claims provision specifies the payee and manner of benefit payment, including that benefits are paid to the insured or designated beneficiary. It ensures orderly distribution of claim proceeds.

Question 49Health Insurance Policy Provisions

The legal actions provision in a health insurance policy generally states that no lawsuit may be brought against the insurer until when?

  1. A specified number of days after proof of loss is submitted, commonly 60 days Correct answer.
  2. After the insured has exhausted all appeals
  3. Immediately after the claim is denied
  4. Only after the policy has lapsed

Explanation

The legal actions provision requires a waiting period, often 60 days, after proof of loss is filed before the insured may sue the insurer. It also sets a maximum time limit for filing suit.

Question 50Health Insurance Policy Provisions

The change of beneficiary provision in a health insurance policy typically allows the insured to do which of the following?

  1. Change the beneficiary only with the insurer's written consent
  2. Never change a beneficiary once named
  3. Change the beneficiary by written request without the beneficiary's consent, unless irrevocable Correct answer.
  4. Change the beneficiary only at renewal

Explanation

Unless the beneficiary designation is irrevocable, the insured may change the beneficiary by filing a written request with the insurer, without the current beneficiary's consent. The change takes effect when recorded by the insurer.