Massachusetts Health & Accident Insurance Practice Exam

Which type of group funding option allows for provisional premium collections?

1. Self-Funding Arrangement

2. Minimum Premium Arrangement

3. Shared Funding Arrangement

4. Retrospective Premium Arrangement

The correct answer is: Retrospective Premium Arrangement

The correct choice pertains to the Retrospective Premium Arrangement, which allows for provisional premium collections based on the insurer's estimated risk at the beginning of the policy period. In this arrangement, the premiums collected can be adjusted after the policy period has concluded, based on the actual loss experience. If the losses are lower than expected, the additional premium collected may be refunded or applied to future premiums. This flexibility aligns with the needs of organizations that may experience fluctuations in risk or claims, enabling them to manage their insurance costs more effectively. In contrast, other arrangements define different structures for premium calculations and collections. For instance, a Self-Funding Arrangement allows the business to pay for medical claims directly rather than purchasing insurance, which removes the aspect of provisional premium payments. The Minimum Premium Arrangement guarantees a minimum amount of premium to be paid while also allowing for adjustments based on claim experience but does not operate on the same provisional basis as the retrospective model. Meanwhile, the Shared Funding Arrangement involves a collaborative risk approach where the employer and insurer share certain risks, but again, this does not typically facilitate provisional collections in the same way as the retrospective structure.