Multiple Choice
In the context of public solutions to externalities, a plan of action taken by the government to achieve a specific goal is best described as a:
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7. Externalities
Public Solutions to Externalities
Multiple Choice
Which of the following statements is true regarding self-funded or self-insured health plans as a public solution to externalities in healthcare?
A
They eliminate the need for any government oversight or regulation.
B
They require employers to purchase insurance from private insurers for all claims.
C
They are always regulated by state insurance laws.
D
They allow employers to directly bear the financial risk of employee health claims.
Verified step by step guidance1
Understand the concept of self-funded or self-insured health plans: these are arrangements where employers assume the financial risk of providing healthcare benefits to their employees, rather than purchasing a traditional insurance policy from an insurer.
Recognize that self-funded plans do not eliminate the need for government oversight entirely, as there are still federal regulations (such as ERISA) that apply, even if state insurance laws may not fully regulate them.
Note that self-funded plans do not require employers to purchase insurance from private insurers for all claims; instead, employers pay for claims directly, sometimes using third-party administrators for processing.
Understand that self-funded plans are generally exempt from state insurance laws, meaning they are not always regulated by state insurance regulations, unlike fully insured plans.
Conclude that the key characteristic of self-funded health plans is that they allow employers to directly bear the financial risk of employee health claims, which aligns with the correct statement in the problem.
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