Why would large employers prefer to fund the benefits for their employees themselves?

• A. To reduce benefits
• B. To not pay premiums to an insurer to transfer the risk and costs
• C. To comply with government mandates
• D. To obtain tax advantages

Answer: (B)

The main idea is self-funding for employee benefits. When a large employer funds benefits themselves, they pay the actual claims and administrative costs directly rather than paying premiums to an insurer that covers those costs plus a profit and load. This lets the employer avoid transferring the risk and related costs to an insurer, and instead they bear the cost of benefits from their own funds. If claims come in lower than expected, the employer keeps the savings; if claims are high, they still have the ability to manage costs, often using stop-loss reinsurance to limit exposure. This approach relies on the employer’s ability to predict costs and manage the plan, which is more feasible for large organizations with enough scale. The other options don’t capture the core reason: it isn’t primarily about reducing benefits, complying with mandates, or gaining tax advantages, but about controlling and potentially reducing long-term costs by not paying an insurer to assume the risk.