Minimum Premium Plan
A self-funded employee benefits arrangement where an employer pays claims up to a predetermined level, with an insurance company handling administrative services and covering claims above that threshold. This hybrid approach combines self-insurance with traditional insurance protection against catastrophic losses.
Example
“The manufacturing company adopted a minimum premium plan to reduce insurance costs while maintaining protection against large medical claims exceeding $100,000.”
Memory Tip
Think 'Min-Premium' - you pay the MINimum to insurers and handle most claims yourself, reducing PREMIUM costs.
Why It Matters
Minimum premium plans can significantly reduce healthcare costs for employers by eliminating insurance company profit margins on routine claims while maintaining catastrophic protection. This arrangement allows companies to retain unused premium dollars and gain more control over their benefits spending.
Common Misconception
People often think minimum premium plans are the same as fully self-funded plans, but they actually include insurance company involvement for large claims and administrative services. Another misconception is that these plans are suitable for small employers, when they typically require substantial employee populations to be cost-effective.
In Practice
ABC Corporation with 500 employees sets up a minimum premium plan with a $50,000 specific stop-loss level. The company pays all medical claims under $50,000 from their own funds, totaling $1.2 million annually. They pay the insurance company a minimum premium of $300,000 for administrative services and coverage of claims exceeding $50,000. When an employee has a $150,000 heart surgery, ABC pays the first $50,000 and the insurance company covers the remaining $100,000, saving ABC approximately 15-25% compared to a fully-insured plan.
Etymology
Developed in the 1970s as employers sought alternatives to fully-insured plans, combining 'minimum premium' to reflect the reduced insurance company premium payments with self-funding concepts.
Common Misspellings
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Related Terms
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See Also
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