California Life-Only & Accident and Health AgentAccident and Health InsuranceMedium
A small business owner is evaluating different health insurance plans for her 12 employees. She is considering a plan where the employer contributes a portion of the premium, and employees also contribute a portion. All eligible employees are required to participate. This type of group health insurance plan is best described as:
- ANon-contributory
- BContributory
- CFully insured
- DPartially self-funded
Show answer & explanationAnswer & explanation
Correct answer: B. Contributory
A contributory group health insurance plan is one where both the employer and the employees share the cost of the premiums. Such plans typically require a minimum percentage of eligible employees to participate to ensure adverse selection is minimized.
Why the other options are wrong
- A. Non-contributory plans mean the employer pays 100% of the premiums, which is not the case here.
- C. Fully insured refers to the risk being transferred to an insurance company, not how premiums are shared between employer and employee.
- D. Partially self-funded refers to the funding mechanism, not how premiums are shared between employer and employee.
Contributory Group Plan
A group insurance plan where both the employer and the employees share the cost of premiums.
- Both employer and employee contribute to premium payments
- Requires a minimum percentage of employee participation (e.g., 75%)
- Helps mitigate adverse selection
Memory trick: Funding a group plan is like a potluck: everyone contributes something.