In a minimum premium arrangement, what does the insurer do?

In a minimum premium arrangement, the insurer is responsible for funding excess amounts after a predetermined limit is reached. This type of arrangement allows the employer or group to handle the initial healthcare costs up to a certain threshold, thereby retaining some level of risk. Once the expenses exceed the set limit, the insurer then steps in to cover the additional costs. This structure is beneficial for organizations looking to manage healthcare costs while providing insurance coverage for significant expenses that may arise.

The concept is particularly appealing as it balances the need for risk management with cost containment. The organization retains lower risks and premiums while safeguarding against catastrophic costs, which is not the case with funding all healthcare costs or only paying for catastrophic claims. Additionally, self-insuring without caps implies an unlimited out-of-pocket expense for the organization, which is contrary to the principle of a minimum premium arrangement that includes a defined limit for the insurer's involvement.