4352 Module 6
The sharing of expenses between the insured and the insurer in a group health insurance plan is an example of A) the coinsurance. B) the maximum out-of-pocket (MOOP). C) the deductible. D) the maximum benefit.
a.) the coinsurance The sharing of expenses between the insured and the insurer in a group health insurance plan is an example of coinsurance. A common split between insurer and insured is 80/20.
Which of the following statements pertaining to prepaid legal services offered by an employer is CORRECT? i. Prepaid legal services are a fringe benefit that makes legal services available to employees. ii. Examples of benefits that may be included in the plan are bankruptcy assistance, adoption assistance, divorce legal fees assistance, and the preparation of estate planning documents. A) I only B) Both I and II C) Neither I nor II D) II only
b.) both
Which of the following is the source from which workers' compensation insurance premiums are paid? A) The employer to the employee B) The employee to the state C) The employee to the employer D) The employer to the state
d.) The employer to the state The answer is the employer to the state. Workers' compensation insurance premiums are paid by the employer to the state.
Which of the following federal laws require employers with more than 20 employees to include in their group insurance plan a continuation of benefits provision for all eligible employees? A) TEFRA B) ERISA C) PPACA D) COBRA
d.) cobra COBRA requires employers with more than 20 employees to include in their group insurance plan a continuation of benefits provision for all eligible employees. Coverage may be continued for 18-36 months.
Which of the following expenses is typically payable from a flexible spending account (FSA)? i. Medical ii. Dental iii. Dependent care iv. Individual life insurance premiums A) I, II, and III B) II, III, and IV C) I, II, III, and IV D) I only
a.) i, ii, and iii The answer is I, II, and III. FSAs are usually used only for medical, dental, and dependent care expenses. Individual life insurance premiums are not covered because the IRS does not consider them a qualified benefit.
Group long-term disability insurance typically provides benefits for any of the following periods except A) for a specified term longer than two years. B) until death. C) for six months only. D) until an employee's normal retirement age (usually 65).
c.) 6 months only The answer is for six months only. Group long-term disability insurance typically provides coverage for a specified term longer than two years, until an employee's normal retirement age (usually 65), or until death. A short-term disability income policy provides coverage for up to two years.
Which of the following statements regarding group long-term care (LTC) insurance is CORRECT? i. Generally, group LTC policies are more expensive than individual LTC policies. ii. Employers may offer group long-term care insurance as an employee benefit. iii. After an employee's termination, LTC coverage may be continued on a direct pay basis. A) II and III B) III only C) I, II, and III D) II only
a.) ii and iii The answer is II and III. Generally, group LTC policies are less expensive that individual LTC policies.
Darwin, a key employee of International Container Inc., is covered by the company's noncontributory group term life insurance coverage in the amount of $80,000. He has designated his spouse as a beneficiary of the policy. Which of the following statements apply to this coverage? i. The employer can deduct the premiums on the first $50,000 of coverage only. ii. Darwin must pay tax on the cost of coverage above $50,000. iii. If the plan is discriminatory, Darwin must pay tax on the cost of the entire $80,000 coverage. iv. Darwin's taxable income will increase by $30,000—the amount of coverage in excess of $50,000. A) II, III, and IV B) I and III C) I and II D) II and III
d.) ii and iii The answer is II and III. The employer can deduct the premiums on the entire $80,000 of coverage. Darwin's taxable income will increase only by the difference in the premium between $80,000 and $50,000 of coverage.
For a group life insurance plan to not be considered discriminatory, A) it must pass either the ratio percentage test or the average benefits test. B) employees must receive the same dollar amount of coverage. C) benefits would have to be the same for key and nonkey employees. D) the same formula for coverage amounts must be applied to all employees.
d.) the same formula for coverage amounts must be applied to all employees. The answer is the same formula for coverage amounts must be applied to all employees. Uniformity of benefit amounts does not mean that all employees must receive the same dollar amount of coverage—only that the same formula for coverage amounts must be applied to all employees. Thus, all benefits available to key employees must be available to all participants using a uniform formula.
Which of the following are principles of the workers' compensation laws? i. In exchange for benefits, an employee gives up the right to sue the employer, except in extreme cases. ii. The costs for workers' compensation benefits are funded through payroll taxes, and the employee is expected to contribute. iii. The injured employee is not required to prove negligence on the part of the employer. iv. The benefits payable under workers' compensation are periodic payments. A) I, III, and IV B) II, III and IV C) II and III D) I and IV
a.) i, iii, and iv The answer is I, III, and IV. Statement II is incorrect. Workers' compensation is funded through premiums paid solely by the employer.
Which of the following statements regarding the Health Insurance Portability and Accountability Act of 1996 (HIPAA) is CORRECT? A) HIPAA defined a pre-existing condition as a medical condition that was treated or diagnosed within nine months before enrolling in a new group health plan. B) HIPAA defined a pre-existing condition as a medical condition that was treated or diagnosed within three months before enrolling in a new group health plan. C) HIPAA defined a pre-existing condition as a medical condition that was treated or diagnosed within six months before enrolling in a new group health plan. D) HIPAA defined a pre-existing condition as a medical condition that was treated or diagnosed within 12 months before enrolling in a new group health plan.
c.) HIPAA defined a pre-existing condition as a medical condition that was treated or diagnosed within six months before enrolling in a new group health plan. The answer is HIPAA defined a pre-existing condition as a medical condition that was treated or diagnosed within six months before enrolling in a new group health plan.
Which statement represents the main difference between traditional health insurance arrangements and health maintenance organizations (HMOs)? A) HMOs provide both the health care service and the health care financing, but traditional health care insurance companies provide only the financing. B) Traditional health care insurance companies provide both the health care service and the health care financing, but HMOs provide only the health care service. C) Traditional health insurance companies provide both the health care service and the health care financing, but HMOs provide only the health care financing. D) HMOs provide both the health care service and the health care financing, but traditional health care insurance companies provide only the service.
a.) HMOs provide both the health care service and the health care financing, but traditional health care insurance companies provide only the financing. HMOs provide both the health care service and the health care financing, but traditional health care insurance companies provide only the financing.
Which of the following statements describe circumstances that result in taxation to the employee of medical expense reimbursements from a group medical insurance policy? i. Medical expense reimbursements are taxable to the employee to the extent they exceed the expenses incurred. ii. Medical expense reimbursements are taxable to the employee if the employer paid the premiums for coverage. iii. If the employee deducted the medical expenses in a prior year, reimbursement for those expenses in a subsequent year is subject to tax. iv. Medical expense reimbursements from an employer's nondiscriminatory self-funded plan are taxable to the employee. A) I and III B) I, II, and III C) I and IV D) II, III, and IV
a.) i and iii The answer is I and III. Both are true statements. Even if the employer pays the premiums, the benefits are not taxable to the employee. Medical expense reimbursements are not taxable to the employee unless they exceed the expenses incurred, or the employee deducted the expense.
Joe was involved in an accident at the plant where he works, and as a result, lost his arm. Under the workers' compensation system, this type of injury is considered an example of A) partial permanent disability. B) partial temporary disability. C) total permanent disability. D) total temporary disability.
a.) partial permanent disability. Losing an arm is an example of a partial permanent disability.
All of the following statements regarding unemployment insurance are correct except A) unemployment compensation is tax free to the recipient. B) the employer pays a tax to fund the unemployment benefit to the out-of-work employee. C) benefits are determined by previous wage levels. D) typically, unemployment benefits are paid out for 26 weeks.
a.) unemployment compensation is tax free to the recipient. The answer is unemployment compensation is tax free to the recipient. Unemployment compensation is fully taxable to the recipient.
Because of a slowdown in business activity, Sarah has voluntarily agreed to reduce her hours and become a part-time employee. Before the change, Sarah and her spouse were covered under her employer's group health plan. Which of the following statements regarding Sarah's COBRA rights is CORRECT? A) Because her change is voluntary, COBRA rules do not apply. B) COBRA allows for continuation coverage of 18 months in this situation. C) COBRA allows for continuation coverage of 36 months in this situation. D) COBRA allows for continuation coverage of 29 months in this situation.
b.) COBRA allows for continuation coverage of 18 months in this situation. The answer is COBRA allows for continuation coverage of 18 months in this situation. COBRA rules apply even though Sarah's move to part-time status was voluntary. She is permitted a continuation coverage period of up to 18 months.
Which of the following statements best describes a characteristic of group life insurance? A) Group life insurance coverage is usually based on a formula that takes into account years of service and compensation. B) Group life insurance coverage is usually based on a percentage (or multiple) of compensation. C) The amount of coverage is usually a flat amount for each participant to avoid having the plan be discriminatory. D) Group life insurance coverage is usually based upon years of service.
b.) Group life insurance coverage is usually based on a percentage (or multiple) of compensation. The answer is group life insurance coverage is usually based on a percentage (or multiple) of compensation. Group life insurance coverage usually is based on a percentage (or multiple) of compensation, thus reflecting the value of the employee to the organization and keeping pace with cost-of-living increases.
One characteristic of short-term disability coverage used in an employee benefit plan is that it normally provides A) a benefit of up to 50% of salary. B) a weekly benefit for up to a maximum of 52 weeks. C) for the same elimination period for disability due to either sickness or accident. D) for benefits to be paid only after a 60-day elimination period.
b.) a weekly benefit for up to a maximum of 52 weeks.
Which of the following is a common characteristic of group health insurance utilizing a preferred provider network? i. Participating providers are paid on a fee-for-service basis, as their services are used by covered employees. ii. Covered employees have financial incentives to receive treatment within the network. A) Neither I nor II B) Both I and II C) II only D) I only
b.) both
Which of the following statements regarding group long-term care (LTC) insurance is CORRECT? The provisions of a group LTC policy are essentially the same as individual coverage. After separation from service, the employee may continue the LTC coverage on a direct pay basis. Group LTC contracts are underwritten on an individual basis. A) I, II, and III B) I and II C) I only D) II only
b.) i and ii The answer is I and II. Only statement III is incorrect. Group LTC contracts are underwritten on a group basis as an employee benefit.
Which of the following statements regarding workers' compensation is CORRECT? i. Workers' compensation provides benefits only if the employer was negligent. ii. Workers' compensation is funded by contributions deducted from employees' paychecks. iii. Workers' compensation benefits are excluded from the employee's gross income for tax purposes. A) I only B) III only C) II and III D) I and III
b.) iii only Employees cannot be required to contribute to workers' compensation; employers are responsible for providing the coverage. Workers' compensation imposes strict liability on the employer, and benefits do not depend on whether the employer was negligent.
Monica is an employee of ABC, Inc., which provides group term life insurance (GTLI) to each employee. Monica has coverage in the amount of $160,000. The monthly cost for this GTLI coverage is $0.38 per $1,000. Monica makes annual payments of $200 toward the cost of the insurance. What amount must be reported as income on her W-2 for the cost of her GTLI? A) $0 B) $41.80 C) $301.60 D) $501.60
c.) 301.60 The answer is $301.60. The amount that must be reported as taxable income on Monica's W-2 is $301.60, calculated as the following: GTLI coverage$160,000Less− 50,000Excess coverage$110,000Times cost per $1,000× 0.38Monthly cost$ 41.80Times 12 months× 12Annual cost$ 501.60Monica's payment− 200.00Taxable income$ 301.60
Which of the following statements regarding health savings accounts (HSAs) is CORRECT? A) Employer contributions to a health savings account are included in the employee's gross income. B) HSA balances remaining unused at the end of the calendar year are forfeited. C) Individuals age 55 and over who are covered by a high-deductible health plan can make additional catch-up contributions to their HSAs. D) An HSA can only be established by an individual, not an employer.
c.) Individuals age 55 and over who are covered by a high-deductible health plan can make additional catch-up contributions to their HSAs. The answer is individuals age 55 and over who are covered by a high-deductible health plan can make additional catch-up contributions to their HSA. Unused account balances remain in the account and continue to grow on a tax-advantaged basis. Employer contributions are excluded from the employee's income. Both individuals and employers can establish HSAs. (Employers establish them for employees.)
Betty is a highly compensated employee at Sound Trends, a store that sells audio and video items. The company provides its employees with various benefits, including long-term disability (LTD) income coverage, at no cost to the employee. The company provides LTD coverage by purchasing an insurance policy from a nationally known company. The company pays the premiums for all covered employees. Assume that Betty is disabled for six months and receives $3,000 in LTD benefits from the plan. Which of the following explains the income tax implications of this long-term disability coverage? A) The benefits received are tax free to Betty because they are considered a tax-free employee benefit. B) The premiums are not deductible by the employer because the policy is underwritten by a third-party insurance company. C) The benefits are taxable to Betty because the cost of the coverage was paid by her employer. D) The premiums paid by Sound Trends are taxable income to Betty.
c.) The benefits are taxable to Betty because the cost of the coverage was paid by her employer. The answer is the benefits are taxable to Betty because the cost of the coverage was paid by her employer. If the employer pays the premiums, benefits are taxable to the employee. If the employee pays the premiums, benefits are tax free to the employee.
Group major medical benefits usually begin after the insured has incurred an initial annual amount of out-of-pocket expense called A) a maximum out-of-pocket limit. B) a stop-loss limit. C) a deductible. D) a coinsurance limit.
c.) a deductible The answer is a deductible. The deductible requires insureds to pay a certain amount of their medical expenses each calendar year before coverage begins.
A cafeteria plan consisting of various tax-free benefits that are funded through salary reductions elected by employees each year is called A) a VEBA. B) a split-dollar benefit plan. C) a flexible spending account (FSA). D) a Section 162 plan.
c.) a flexible spending account (FSA). The answer is a flexible spending account (FSA). An FSA is a cafeteria plan consisting of various tax-free benefits that are funded through salary reductions elected by employees each year.
Jan pays for her group disability income policy via a flexible spending account. What amount of her benefit would be taxable as ordinary income if she became disabled? A) 0% B) The amount in excess of 2% of adjusted gross income C) 50% D) 100%
d.) 100% The answer is 100%. Group disability benefits received via a plan funded with pretax dollars are fully taxable to the employee.
Which of the following terms in a group health insurance plan describes the limits that a person will have to pay in any calendar year for covered medical expenses? A) Coinsurance B) Copayment C) Deductible D) Maximum out of pocket (MOOP)
d.) MOOP The maximum out of pocket (MOOP) is the absolute most the insured will pay for covered expenses and includes the deductible plus the insured's share of the coinsurance.
Allison is a key employee for JEM Company. She is offered group term life insurance for two times her base salary of $100,000, while rank-and-file employees are only offered one times their base salary. Based on this information, how much of the premium on her group term life insurance coverage must be included in her taxable compensation for the year? A) The premium for $50,000 of coverage B) The premium for $150,000 of coverage C) $0 D) The premium on $200,000 of coverage
d.) The premium on $200,000 of coverage The answer is the premiums on $200,000. Because she is a key employee, and the group term life insurance plan discriminated on her behalf, the entire amount of the premium paid by JEM attributable to the death benefit would be subject to ordinary income tax.
Which of these statements is true regarding most group life insurance plans sponsored by an employer? A) They are subject to the participation and vesting requirements of the Employee Retirement Income Security Act of 1974 (ERISA). B) Including church and government employers, they are subject to the ERISA plan termination insurance provisions. C) They are considered nonqualified plans. D) They are required to meet ERISA's reporting, disclosure, and fiduciary responsibility provisions.
d.) They are required to meet ERISA's reporting, disclosure, and fiduciary responsibility provisions. Generally, welfare benefit plans are required to meet ERISA's reporting, disclosure, and fiduciary responsibility provisions but are exempt from the participation, vesting, funding, and plan termination provisions. (Church, government, and unfunded excess benefit plans are generally exempt from ERISA.)