Texas General Lines — Life, Accident, Health and HMOHealth InsuranceMedium
A small business owner wants to provide health insurance to their employees but is concerned about the administrative burden and potential for high claims affecting future premiums. They are also seeking tax advantages. Which funding arrangement would BEST suit these needs?
- AVoluntary benefits plan
- BFully insured plan
- CHealth Reimbursement Arrangement (HRA)
- DSelf-funded plan
Show answer & explanationAnswer & explanation
Correct answer: B. Fully insured plan
A fully insured plan transfers the financial risk and administrative burden to the insurance company. While premiums might increase with claims, the employer is not directly responsible for paying individual claims, and premiums are tax-deductible for the business.
Why the other options are wrong
- A. Voluntary benefits are typically employee-paid and supplement primary coverage, not a core funding arrangement for group health.
- C. An HRA is an employer-funded account for medical expenses, not a full health insurance funding arrangement itself.
- D. A self-funded plan places the financial risk and administrative burden directly on the employer, which is contrary to the stated concerns.
Fully Insured Health Plan
A health insurance plan where an employer pays premiums to an insurance company, and the insurer assumes the financial risk and administrative responsibility for paying claims.
- Employer pays a fixed premium.
- Insurance company bears the risk of claims.
- Less administrative burden for the employer.
- Premiums are tax-deductible for the employer.
Memory trick: Who holds the money, who takes the risk?