Group Insurance Chpt 17

[Black Mage]

Before I ask I may question let me say I was not meant to be an accountant. :)

Ok, so Chapter 17 is all Greek to me, so I hope the actuary students who are smarter than me can answer these questions which are the major holes in my reading comprehension.

Ch 17
1) What is an Alternative Funding Method?
2) How does the Reserveless Agreement work?
3) How are the funds held by the policyholder used in Admin Service Agreements?

Thanks for your help!

[James Madison]

In the standard method of funding insurance (fully insured plans) the employer pays premium every month and the employees get their medical payments reimbursed by the insurer. An alternate method is self insurance. Under self-insurance the insurer takes no risk. The insurer pays claims but is subsequently reimbursed by the employer. The insurer is compensated for this service (claim adjudication) via a fee (sometimes called an ASO fee – Administrative Services Only). Other alternative funding arrangements include a reserveless plan. I think this is very similar to an indemnity (fully insured) plan but the employer purposely doesn’t pay any premium for the first few months. This unpaid premium approximates the amount held for the claim reserve. The employer then can invest the claim reserve itself (somewhat like modified coinsurance). At the end of the contract the employer must pay a terminal premium (to the insurer) equivalent to the claim reserve.

Retrospective premium arrangements and retrospective experience rating are other alternate funding methods. See Chapter 33 of the Group Insurance book for more details.

[Sellout]

Rosenbloom Ch. 43 has more details on alternative insurance arrangements.