California Life-Only & Accident and Health AgentAccident and Health InsuranceMedium
A small business owner wants to purchase a health insurance plan that provides coverage for her employees' medical expenses, including doctor visits, hospital stays, and prescription drugs. She is looking for a plan that is purchased from a licensed insurance carrier and where the insurance carrier assumes the financial risk. What type of plan is she seeking?
- ASelf-funded plan
- BMinimum premium plan
- CFully insured plan
- DAdministrative Services Only (ASO) plan
Show answer & explanationAnswer & explanation
Correct answer: C. Fully insured plan
A fully insured plan is one where the employer purchases a health insurance policy from a licensed insurance carrier. The insurance carrier collects premiums and assumes the full financial risk for paying claims, as described in the scenario.
Why the other options are wrong
- A. A self-funded plan is where the employer directly pays for employee medical claims, assuming the financial risk themselves, rather than buying a policy from an insurer.
- B. A minimum premium plan is a hybrid funding arrangement where the employer pays a set amount to the insurer, but also retains some claim risk, often for smaller, predictable claims.
- D. An ASO plan is typically associated with self-funded plans, where an insurer provides administrative services but does not assume the risk for claims.
Fully Insured Health Plan
A health insurance plan where an employer purchases coverage from a licensed insurance carrier. The carrier collects premiums and assumes all financial risk for paying employee medical claims.
- Purchased from an insurance carrier.
- Carrier assumes all financial risk.
- Employer pays fixed premiums.
Memory trick: FULLY INSURED: The insurer is FULLY responsible for the risk.