Life and Health - Chapter 13 Quiz

After Robert signed up for Medicare, he withdrew $2,000 from his HSA. He used $600 for his Medicare Supplement premium, $200 for out-of-pocket medical expenses, and the remaining $1,200 on a trip to celebrate his retirement. Later on, when he paid his taxes for the year, he discovered that: Everything was taxable $1,200 was subject to income tax $1,200 was subject to income tax plus a 20% penalty Nothing was taxable

$1,200 was subject to income tax Robert paid income tax on the $1,200, but not the 20% penalty, because he was at least 65 years of age, as indicated by the fact that he was on Medicare and retired. Relevant content:13.2 Consumer-Driven Health Plans (CDHPs)

Victoria, age 62, calculated last year's gross income to be $60,000. When she totaled up the cost of individual Medical and Long-term Care insurance, as well as her various out-of-pocket medical costs, she discovered the total was $7,500, which meant she could deduct _______ from her taxable income. $1,500 $7,500 $3,000 $6,000

$1,500 $1,500 is the excess over 10%. $3,000 is the excess over 7.5% and the other options misunderstand the nature of the threshold. Relevant content:13.4 Federal Tax Considerations for Personally-Owned Health Insurance Policies

Evelyn paid a $700 annual premium for a business overhead expense policy that paid a monthly benefit of up to $4,000 for a benefit period of 6 months. When Evelyn became disabled she used the entire benefit for 3 months, which covered $11,000 in employee salary and rent and utilities, which meant that the amount of the benefits which was reported as income equaled: $1,000 $12,000 Zero $11,000

$12,000

What is the maximum annual contribution to an FSA, which is allowed by law? $2,550 10% of AGI There is no limit 20%

$2,550 The limit is $2,550 per year. Relevant content:13.5 Federal Tax Considerations for Business and Group Health Insurance Policies

Nathan is insured under a group disability plan which requires that he pay 1/3 of the premium. Nathan is currently drawing a $6,000 monthly benefit from the plan. How much of the $6,000 is subject to income tax? $6,000 $4,000 Zero $2,000

$4,000 Since the employer pays 2/3 of the monthly premium, then 2/3 of the monthly benefit ($4,000) would be taxable as income to Nathan. Relevant content:13.5 Federal Tax Considerations for Business and Group Health Insurance Policies

Gary participates in a group long-term care insurance program through his employer. The employer pays for a standard level of coverage for all employees, and Gary pays for an additional voluntary amount of coverage. In all, Gary's employer pays two thirds of the cost and Gary pays the remaining one third of the cost. If Gary makes a claim under this policy, what percentage of his benefits would be taxable based on the premium structure? 33% 0% 100% 67%

0% This is a long-term care insurance plan, not disability insurance. The tax-status of benefits does not depend on who pays the premium. Relevant content:13.4 Federal Tax Considerations for Personally-Owned Health Insurance Policies

The cost-sharing provisions of TRICARE Standard include: A $12 co-pay for office visits and 25% co-pay for procedures An $11 daily co-pay for hospital stays and 25% co-pay for procedures A $12 co-pay for office visits and $11 daily co-pay for hospital stays An $11 co-pay for office visits and $12 daily co-pay for hospital stays

A $12 co-pay for office visits and 25% co-pay for procedures Both TRICARE Standard and TRICARE Prime have a $12 office visit co-pay. Prime has an $11 per day co-pay for hospital stays, and Standard has a 25% co-pay for procedures. Relevant content:13.3 TRICARE (The Uniformed Services Health program)

Which of the following disability policies would be considered a deductible business expense? A business overhead expense policy A disability income policy purchased by an entrepreneur on him or herself A policy which funds a disability buyout plan A key employee policy

A business overhead expense policy A business overhead expense policy pays for deductible business expenses not the employer's personal income. Relevant content:13.7 Business Disability Insurance

Which of the following disability policies would be considered a deductible business expense? A key employee policy A policy which funds a disability buyout plan A disability income policy purchased by an entrepreneur on him or herself A business overhead expense policy

A business overhead expense policy A business overhead expense policy pays for deductible business expenses not the employer's personal income. Relevant content:13.7 Business Disability Insurance

Which of the following disability income benefits would be received free of federal income tax? Business overhead expense insurance Employer-paid group insurance A personal disability income insurance policy benefit Employee paid-group insurance through a Cafeteria Plan

A personal disability income insurance policy benefit The beneficiary must also be the premium payer, and the premiums must be paid with after-tax dollars. Relevant content:13.5 Federal Tax Considerations for Business and Group Health Insurance Policies

Under the ACA, Stephen purchased a Silver plan that covered him, his wife and his 2 children, ages 17 and 24. Since he is a sole proprietor with no employees, what portion of his premiums is he able to deduct? Those in excess of 10% of his AGI All of the premiums paid Only the premiums paid for the coverage on his children and himself Only the premiums paid for his portion of the coverage

All of the premiums paid The deduction applies to premiums paid to cover all family members. Relevant content:13.1 Patient Protection and Affordable Care Act (PPACA)

Which of the following individuals is not eligible to establish a Health Savings Account? Magdalena, who has access to a consumer driven health plan through her firm Anne, who is covered through a traditional HMO Mary, a self-employed individual who purchase a high deductible policy through her state exchange Martha, who also has access to an FSA through her employer

Anne, who is covered through a traditional HMO Because Anne is covered through a traditional HMO, she does not have the required HDHP needed to establish and fund an HSA. Relevant content:13.2 Consumer-Driven Health Plans (CDHPs)

All of the following statements regarding a group Accidental Death and Dismemberment policy are incorrect, except: The premiums paid by the employer are considered part of the employee's income The premiums paid by the employer are not deductible as a business expense to the employer Any benefits received are not taxable to the recipient Accidental Death and Dismemberment Insurance is not available on a group basis, only on an individual basis

Any benefits received are not taxable to the recipient The benefits received are not taxable to the recipient. All of the other answers are false. Relevant content:13.5 Federal Tax Considerations for Business and Group Health Insurance Policies

When are LTC premiums deductible for an employer: When the plan is a tax qualified plan Any time premiums for employee policies are paid by the employer When the premiums are paid by the employee When the policy is offered as a group plan

Any time premiums for employee policies are paid by the employer Whenever an employer pays for an employee's LTC, the premium is deductible, regardless of whether it is a group or individual policy. The LTC policy's status as qualified or non-qualified may impact the taxability of the benefits, but not the deductibility of the premiums. Relevant content:13.5 Federal Tax Considerations for Business and Group Health Insurance Policies

Under which of the following business-related plans are benefits taxable as income to the owner? Disability Buy-Sell Agreement Neither Business Overhead Expense nor Disability Buy-Sell Agreement Business Overhead Expense Both Business Overhead Expense and Disability Buy-Sell Agreement

Business Overhead Expense Since the premium is deductible, the benefits received are taxable. Relevant content:13.5 Federal Tax Considerations for Business and Group Health Insurance Policies

Under which business-related use of Disability Income Insurance would the premiums be tax-deductible? Disability coverage purchased to fund an entity purchase plan Business Overhead Expense Coverage Disability coverage purchased to fund a cross purchase plan Key Person Disability Income

Business Overhead Expense Coverage Business Overhead Expense Coverage is deductible as an ordinary business expense. Any benefits received would be taxable. Relevant content:13.5 Federal Tax Considerations for Business and Group Health Insurance Policies

The 'Appeal Rights' required by the Affordable Care Act apply to: Denial of one's application for insurance Denial of compliance with the individual mandate by the IRS Denial of eligibility for a government subsidy Denial or reduction of benefits to insureds for specific claims

Denial or reduction of benefits to insureds for specific claims The ability to appeal is the ability to appeal a judgment regarding the applicability of benefits to a specific situation. It is similar to the ability to appeal benefit denials in an HMO. Relevant content:13.1 Patient Protection and Affordable Care Act (PPACA)

Which of the following procedures might be covered by an FSA, but not an HRA? Coinsurance Surgery Deductibles Eyeglasses

Eyeglasses Eyeglasses are covered separately from major medical expenses. Relevant content:13.2 Consumer-Driven Health Plans (CDHPs)

Ashley wanted to establish her company benefit plan so that it could cover her individual health insurance premiums and out-of-pocket expenses without group insurance or loss of unused benefits. After some research, she established a: HRAs FSAs MSAs HSAs

HRAs A self-employed entrepreneur may establish an HRA without also establishing an HDHP. Relevant content:13.2 Consumer-Driven Health Plans (CDHPs)

Under the ACA, Insurer's provided group or individual health insurance coverage are prohibited from: Imposing restrictions on the frequency of services Imposing any limits on essential benefits Imposing annual or lifetime dollar limits on essential services Imposing lifetime, but not annual dollar limits on services

Imposing annual or lifetime dollar limits on essential services Plans may impose neither lifetime nor annual dollar limits on certain costs, though the frequency or number of procedures per year may be restricted. Relevant content:13.1 Patient Protection and Affordable Care Act (PPACA)

If an employer purchases a Key Person disability policy on an employee, when would the disability benefit be received income tax free? It is by definition tax-free since the employer buys it for his or her own benefit If the benefit is paid to the employee If the premium is paid by the employee If the key employee is covered under a group insurance policy

It is by definition tax-free since the employer buys it for his or her own benefit Key employee insurance indemnifies the company for the risk of losing an employee. The company pays to receive a benefit, which is not considered a business expense. Relevant content:13.7 Business Disability Insurance

For which policy type is the threshold for deductibility lower after one reaches the age of 65? Medical expense insurance and long-term care insurance Long-term care insurance only Medical expense insurance only Medical expense insurance, long-term care insurance, and disability income insurance

Long-term care insurance only Long-term care insurance has a lower threshold at age 65 and greater. The threshold for the other policies stays the same at 10%. Relevant content:13.4 Federal Tax Considerations for Personally-Owned Health Insurance Policies

The benefits received from which of the following personal policies are received tax-free? Medical expense insurance, long-term care insurance, and disability income insurance Medical expense insurance and disability income insurance Medical expense insurance and long-term care insurance Medical expense insurance only

Medical expense insurance, long-term care insurance, and disability income insurance Health insurance benefits from these policies are tax-free. The difference is in the treatment of the premiums. Relevant content:13.4 Federal Tax Considerations for Personally-Owned Health Insurance Policies

Michelle's corporation chose a high-deductible health plan (HDHP) because it: Was concerned about covering catastrophic costs, not the cost of preventative medical treatments Needed one in order to offer its 1,000 employees an FSA Needed an HDHP to coordinate with the HSA they intended to offer its 700 full time employees Needed an HDHP to coordinate with the MSA it intended to establish for its 700 full time employees

Needed an HDHP to coordinate with the HSA they intended to offer its 700 full time employees All such plans cover preventative costs, and HDHPs are not needed to establish an FSA. As for MSAs, they specifically for small business and the self-employed. HSAs are the only plan that meet the criteria of the question. Relevant content:13.2 Consumer-Driven Health Plans (CDHPs)

What taxes apply to the benefits under an individual Disability Income Policy on which the insured has paid the premiums? No tax Income tax FICA tax Capital gains tax

No tax Benefits received from an individual Disability Income Policy are not subject to taxation because the premiums are not deductible. Relevant content:13.4 Federal Tax Considerations for Personally-Owned Health Insurance Policies

Which of the following statements regarding coverage for emergency care under the Affordable Care Act is correct? Plans must do so regardless of network affiliation without requiring prior approval Plans do not provide out of network care Benefits are paid at the out of network rate Prior authorization is needed

Plans must do so regardless of network affiliation without requiring prior approval Plans that cover emergency care cannot restrict it to a network or cover it at a reduced rate. Relevant content:13.1 Patient Protection and Affordable Care Act (PPACA)

Which of the following statements regarding the termination of coverage under the ACA is true? Policies must have a 30 day grace period Policies may be terminated for non-payment after 90 days with 30 days notice Policies may be terminated for fraud if there is at least 90-days notice Coverage may be rescinded for non-payment

Policies may be terminated for non-payment after 90 days with 30 days notice There is a 90-day grace period, and notice of potential termination must be given 30-days in advance. Coverage may only be rescinded for fraud or intentional misrepresentation of material fact, with 30 days notice. Relevant content:13.1 Patient Protection and Affordable Care Act (PPACA)

Which of the following statements regarding the taxation of personally owned health insurance is false? Premiums paid for personally-owned disability insurance policies are not tax-deductible The same person may receive long-term care insurance benefits tax free, and deduct long-term care insurance premiums in the same tax year Premiums are never deductible if benefits are received tax-free Medical expense insurance benefits are received tax-free

Premiums are never deductible if benefits are received tax-free Premiums may be deductible if tax-free benefits are paid. It depends on the personally-owned policy. Relevant content:13.4 Federal Tax Considerations for Personally-Owned Health Insurance Policies

Which of the following statements regarding TRICARE is correct? TRICARE Life is mandatory for active duty members and their dependents TRICARE Standard requires a primary care manager or approved referrals TRICARE Prime is mandatory for active duty members TRICARE standard is an optional coverage for service members on active duty

TRICARE Prime is mandatory for active duty members Prime is required for activity duty service members, and is available but not mandatory for dependents. Prime also requires referrals or a primary care manager in order to benefit from its low co-pay formula. TRICARE Standard does not. Relevant content:13.3 TRICARE (The Uniformed Services Health program)

Karen, age 50, withdraws $1,000 from her Health Savings Account (HSA) for a purpose other than a qualified medical expense. As a result of this action: The $1,000 is taxed as ordinary income, with an additional $200 penalty tax applied The $1,000 is taxed as ordinary income, with no penalty tax applied The $1,000 is taxed as ordinary income, with an additional $150 penalty tax applied The $1,000 is taxed as ordinary income, with an additional $100 penalty tax applied

The $1,000 is taxed as ordinary income, with an additional $200 penalty tax applied The $1,000 would be taxed as any other income with an additional 20% penalty tax of $200 applied. The penalty tax is not applied if the taxpayer is age 65 or older, or if a withdrawal is due to the death or disability of the account owner. Relevant content:13.2 Consumer-Driven Health Plans (CDHPs)

Which statement is true regarding taxation of health insurance? The benefits received from a group Disability Income Policy paid entirely by the employer are fully taxable as income to the employee The benefits received from a group Accidental Death and Dismemberment Policy are taxable to the recipient The benefits received from a qualified Long-Term Care Policy are usually subject to federal income tax The benefits received from a personally owned Disability Income Policy are subject to federal income taxes

The benefits received from a group Disability Income Policy paid entirely by the employer are fully taxable as income to the employee When an employer pays the full cost of disability income insurance for the employee, any benefit received is fully taxable to the employee. Relevant content:13.5 Federal Tax Considerations for Business and Group Health Insurance Policies

Harry and Sally were equal partners in a catering business worth $400,000. They entered into a buy-sell agreement that provided funding whether one of them died or was disabled. The annual premium for each of the disability insurance policies was $2,000. All of the following statements are correct, except: Harry and Sally each own the policy on the other partner The premiums are tax deductible Harry and Sally would receive the policy benefit, which each would use to buy out the disabled partner, on an income tax free basis Harry and Sally are each respectively named as the beneficiary on the policy which each of them owns

The premiums are tax deductible The premiums would not be deductible since the non-disabled partner would individually receive the benefit from a disability policy that he or she individually owns. Relevant content:13.6 Medical Expense Coverage for Sole Proprietors and Partners

In which of the following circumstances was the small business owner able to deduct the premiums she paid for insurance? The sole proprietor of a small firm buys an overhead expense policy The partners purchase a policies to fund a buyout plan The employer buys a key employee policy on his top sales executive The sole proprietor buys a policy on him or herself

The sole proprietor of a small firm buys an overhead expense policy Business disability insurance premiums are not deductible if the business (or proprietor/partner both pays the premium and directly receives the benefit. In the case of the business overhead expense policy, the benefit covers business expenses, not the owner's salary, and is therefore considered a cost of doing business. Relevant content:13.5 Federal Tax Considerations for Business and Group Health Insurance Policies

Group health insurance plans apply which of the following restrictions to dependent coverage on children of the primary insured up to age 26? They must be single They must be under age 26 They must be students They must be claimed as dependents on the insured's taxes

They must be under age 26 The ACA expanded dependent coverage to all children of the insured to age 26. Relevant content:13.1 Patient Protection and Affordable Care Act (PPACA)

In order to achieve its goals, the Affordable Care Act instituted a variety of measures, including all of the following, except: Private insurance which is subsidized and regulated Broader Medicaid eligibility Medicare coverage Universal use of Consumer Driven Health Plans (CDHPs)

Universal use of Consumer Driven Health Plans (CDHPs) CDHPs are still allowed, but to some extent de-emphasized. Relevant content:13.1 Patient Protection and Affordable Care Act (PPACA)

Victor, age 59, calculated last year's gross income to be $100,000. When reviewing the cost of his various personal insurance policies, he found that his disability income policy annual premium was $3,500, his long-term care insurance annual premium was $4,000, and the total annual cost of his individual Medical insurance premiums and out-of-pocket medical expenses came to $5,500. Based on this information, he could deduct ______ from his taxable income for that year. $9,500 $5,500 Zero $3,000

Zero While the total amount calculated is over 10%, part of that total refers to disability insurance premiums, which are not deductible. Without that amount, the other expenses add up to $9,500, which is below the threshold for deductibility. Relevant content:13.5 Federal Tax Considerations for Business and Group Health Insurance Policies