Request For Proposal (RFP) Milestone Practice Test

What is the funding mechanism for a self-funded plan?

Employer is responsible for funding a bank account for all claims processed each month. The carrier funds claims based on estimated risk. Claims are paid from a government fund. The plan uses a fixed premium to the carrier.

Correct Answer:

Employer is responsible for funding a bank account for all claims processed each month.

Explanation:

Self-funded plans place the responsibility for paying claims directly with the employer. Instead of sending premiums to an insurer, the employer funds actual claim costs from a dedicated account (often managed with a third-party administrator to process claims) and may add stop‑loss coverage to cap large losses. This arrangement is why funding a bank account to cover claims as they’re processed is the best description of the funding mechanism. The other descriptions describe insured models or government-funded schemes, where the insurer or the government bears the claim cost or a fixed premium is paid, which does not apply to self-funding.

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