Massachusetts Health & Accident Insurance Practice Exam

Who may elect to fully self-fund in a self-funding arrangement?

1. Small employers with minimal risks

2. Large employers

3. Part-time employees only

4. Non-profit organizations exclusively

The correct answer is: Large employers

In the context of self-funding for health insurance, large employers are generally the most suitable candidates for fully self-funding arrangements. This is due to their greater financial resources and the ability to absorb higher risks associated with unpredictable health care costs. Large employers often have a sufficient employee base to more accurately predict claim costs and can benefit from financial and administrative efficiencies that come from managing their own risk rather than purchasing fully insured plans. Moreover, large employers can implement various strategies to mitigate risk, such as stop-loss insurance, which provides a safety net for extremely high claims. This flexibility enables them to tailor employee benefits more effectively compared to smaller employers, who may lack the necessary capital or administrative capabilities for self-funding. In contrast, small employers typically face greater financial risks when opting for self-funding due to their limited pool of employees, leading to potential volatility in claims. The other options mentioned, such as part-time employees or non-profit organizations exclusively, do not aptly reflect the overarching capabilities and resources required for a successful self-funding arrangement, reinforcing why large employers are the primary candidates for this approach.