Life & Health Insurance Exam (National Portion)Health InsuranceMedium
An employer offers a group health plan that is partially self-funded, meaning the employer pays for most claims directly from its own funds. To protect against catastrophic losses from very high individual claims, the employer purchases an additional policy. What type of policy is this?
- AExperience Rating Policy
- BReinsurance
- CAdministrative Services Only (ASO) Contract
- DStop-Loss Insurance
Show answer & explanationAnswer & explanation
Correct answer: D. Stop-Loss Insurance
Stop-Loss insurance is purchased by self-funded employers to protect themselves from potentially devastating losses due to extremely high claims from an individual employee or from the group as a whole. It sets a limit on the employer's liability.
Why the other options are wrong
- A. Experience rating is a method of determining premiums based on a group's past claims, not a type of insurance policy.
- B. Reinsurance is typically purchased by insurers to transfer risk to other insurers, not directly by employers.
- C. ASO contracts are for administrative services provided by an insurer for a self-funded plan, not for risk protection.
Stop-Loss Insurance
A type of insurance purchased by self-funded employers to protect themselves from large, unpredictable claims. It limits the employer's financial liability for health care costs.
- Designed for self-funded group health plans.
- Protects against catastrophic claims, either per individual (specific) or for the entire group (aggregate).
- Allows employers to manage risk while retaining control over their health plan.
Memory trick: Stop-Loss stops the bleeding from big claims.