What are the two types of funding methods in insurance?

The two primary types of funding methods in insurance are full-insured and self-insured plans.

In a full-insured plan, the insurance company assumes the financial risk of providing coverage for policyholder claims. The employer or policyholder pays a premium to the insurer, and in return, the insurer guarantees coverage for claims, managing the claims process and the associated financial risks. This kind of plan is typically easier to manage for the employer, as they are not responsible for the claims, and predictable costs are associated with their premiums.

On the other hand, a self-insured plan allows the employer to assume the financial risk of providing health benefits to employees. In this arrangement, the employer sets aside funds to pay for the claims directly instead of paying premiums to an insurance company. This method can lead to cost savings if the claims experience is favorable, but it also means that the employer must be financially prepared to cover potentially high claim amounts.

The other options are less relevant as they focus on varying aspects of coverage or insurance types rather than the core funding methods, which are fundamentally about how the financial responsibilities for claims are handled between the insurer and the policyholder.