AHIP Practice Exam

Self-funding in health insurance refers to a scenario where an employer takes on the financial risk for employee health claims, paying for those claims directly instead of purchasing a traditional insurance policy from an insurance company. This method allows employers to control costs more effectively and invest in tailored health benefit solutions that can meet the specific needs of their workforce.

By self-funding, an employer can avoid certain premiums and administrative costs associated with fully insured plans. They may also utilize stop-loss insurance to protect themselves against exceptionally high claims, ensuring that while they assume a degree of risk, they are still safeguarded against catastrophic coverage costs. This approach is commonly adopted by larger employers who can handle the financial risks and have the means to cover variable healthcare expenses.

The other options presented do not accurately describe self-funding. Individuals paying out of pocket relates to personal health expenses rather than employer-driven health insurance strategies. A health insurance plan that requires no payments from the insured does not exist in a sustainable model, and government-subsidized plans involve a different funding mechanism altogether, typically designed for specific unable to afford coverage.