Massachusetts Health & Accident Insurance Practice Exam

What is typically a requirement for a shared funding arrangement?

1. Participation of at least 50% of eligible employees

2. An agreed-upon premium rate for all members

3. Defined maximum health expenses the employer covers

4. A full risk transfer to an insurance company

The correct answer is: Defined maximum health expenses the employer covers

In a shared funding arrangement, the requirement of defining the maximum health expenses that the employer covers is a critical feature. Such arrangements allow employers to manage their healthcare costs while still providing valuable benefits to their employees. By establishing a clear cap on what they will spend, employers can budget more effectively and avoid unexpected spikes in healthcare costs. Under this model, the employer is responsible for healthcare expenses up to a predetermined limit, after which the risk is typically transferred to an insurance carrier. This balance of risk between the employer and the insurer is what differentiates a shared funding arrangement from fully insured plans, where the insurance company assumes all risk. The other options relate to arrangements that may not be integral to a shared funding framework or address elements that are not consistent across all such agreements. For instance, participation rates and premium agreements might be necessary in different contexts but do not define the essence of shared funding specifically as the defined maximum expense does.