What is a key feature of a self-funding arrangement?

Prepare for the Maine Life Insurance Test. Use flashcards and multiple choice questions with explanations. Get exam-ready now!

A self-funding arrangement is characterized by the employer assuming the financial risk for providing health benefits to its employees. In this model, employers set aside their own funds to pay for claims that arise, rather than purchasing a fully insured plan from an insurance provider.

In this arrangement, while the employer takes on both the risk and responsibility of funding the claims, they often engage third-party administrators (TPAs) to manage the claims process. This means the employer does not need to handle every detail directly but can rely on the administrative expertise of these services to ensure claims are processed efficiently and correctly. The choice of having "administrative services only" reflects this dynamic where the employer retains the ultimate financial liability, while a third party facilitates the operation of claims.

This aspect is crucial to understanding self-funding because it distinguishes it from fully insured plans where all the risk is transferred to the insurance carrier, and the employer simply pays premiums for coverage.

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