Massachusetts Health & Accident Insurance Practice Exam

What does a shared funding arrangement allow an employer to do?

1. Completely eliminate healthcare expenses

2. Self-fund healthcare expenses up to a limit

3. Transfer all risk to the insurance provider

4. Participate in government-funded healthcare

The correct answer is: Self-fund healthcare expenses up to a limit

A shared funding arrangement allows an employer to self-fund healthcare expenses up to a predetermined limit while also purchasing a stop-loss insurance policy to cover costs exceeding that limit. This arrangement provides a balance between maintaining control over healthcare spending and mitigating risk. Under this arrangement, the employer is not responsible for all healthcare expenses, thereby limiting their financial exposure. If costs go beyond the set limit, the stop-loss insurance kicks in to cover those excess expenses, allowing the employer to manage their budgets effectively while offering employees benefits akin to traditional insurance plans. This setup is distinct from a complete elimination of healthcare expenses, which is not feasible, and from transferring all risk to an insurance provider, which is characteristic of fully insured plans. Shared funding does not entail participation in government-funded healthcare either, as it typically involves a combination of self-funding and insurance mechanisms.