Texas General Lines — Life, Accident, Health and HMOHealth InsuranceMedium
A small business owner wants to provide health insurance for employees but is concerned about rising costs. They are exploring options that allow for some employer control over costs while still offering benefits. Which type of plan would be MOST suitable if they want to pay claims out of their own funds and purchase stop-loss coverage?
- AHealth Maintenance Organization (HMO)
- BSelf-Funded Plan
- CPreferred Provider Organization (PPO)
- DFully Insured Group Plan
Show answer & explanationAnswer & explanation
Correct answer: B. Self-Funded Plan
A self-funded plan allows employers to pay for employee health claims directly from their own funds, rather than paying premiums to an insurance company. Stop-loss coverage is then purchased to protect the employer from catastrophic claim costs, making this option ideal for an employer seeking more cost control and willing to bear some risk.
Why the other options are wrong
- A. An HMO is a type of managed care plan, typically fully insured, where the employer pays premiums and has less direct control over claims payment.
- C. A PPO is a type of managed care plan, often fully insured, offering network flexibility but less direct cost control for the employer.
- D. In a fully insured plan, the employer pays premiums to an insurer who then pays claims, offering less control over costs.
Self-Funded Health Plan
An employer-sponsored health plan where the employer directly assumes the financial risk for providing healthcare benefits to its employees, rather than purchasing a fully insured policy.
- Employer pays claims directly.
- Often paired with stop-loss insurance to limit risk.
- Allows greater control over plan design and costs.
- Exempt from state insurance laws (subject to ERISA).
Memory trick: Funding: Fully insured is hands-off, self-funded is hands-on with stop-loss.