Washington Life Producer Practice Exam

What is a self-funded plan in insurance described as?

1. An employer-funded insurance program

2. An insurance policy with no external funding

3. An employer pays from a fund derived from current revenues

4. A plan offering individual employee contributions

The correct answer is: An employer pays from a fund derived from current revenues

A self-funded plan in insurance refers to a setup where an employer takes on the financial risk of providing health care benefits to its employees rather than obtaining a traditional insurance policy from an insurance carrier. In this arrangement, the employer pays for employees' medical claims directly from its own funds, which can be derived from current revenues or reserves set aside for this purpose. This structure allows employers more control over how health benefits are administered and can be more cost-effective in certain circumstances. Rather than paying a premium to an insurance company, the employer effectively acts as its own insurer, covering costs as they arise. The objective is to manage health care expenses and to potentially save on premiums that would otherwise go to external insurance providers. Other options may describe various aspects or characteristics of insurance and funding models, but they do not encapsulate the essence of a self-funded plan as accurately as the selected answer.