Explain the difference between insurance plans offered by ...

[Tirant22]

Explain the difference between insurance plans offered by insurance companies and self-funded insurance plans.
 
  What will be an ideal response?

Question 2

In theory, the CEO hires the consultant to perform an objective analysis of the company's executive pay package and to make whatever recommendations the consultant feels are appropriate; however, in practice, which tends to be the case?
 
  A) Shareholders' interests are often placed secondary to the interests of the CEO.
  B) This relationship generally leads to a compensation package that is higher than expected.
  C) This relationship generally leads to a compensation package that is lower than expected.
  D) This relationship has the potential to promote a conflict of interest.

[cupcake16]

Answer to Question 1

Answer: The main difference between insurance plans offered by insurance companies and self-funded insurance plans centers on how benefits provided to policyholders are financed. When companies elect indemnity plans, they establish a contract with an independent insurance company. Insurance companies pay benefits from their financial reserves, which are based on the premiums companies and employees pay to receive insurance. Companies may instead choose to self-fund employee insurance. Such companies pay benefits directly from their own assets, either current cash flow or funds set aside in advance for potential future claims. The decision to self-fund is based on financial considerations. Self-funding makes sense when a company's financial burden of covering employee medical expenses is less than the cost to subscribe to an insurance company for coverage. By not paying premiums in advance to an independent carrier, a company retains these funds for current cash flow.

Answer to Question 2

Answer: D