insurance

Minimum Premium Plan

A self-funded employee benefit arrangement where an employer pays claims up to a specific threshold, with an insurance company handling administration and covering claims above that amount. The employer pays a minimal premium to the insurer for stop-loss protection and administrative services.

Example

“The manufacturing company adopted a minimum premium plan, paying the first $100,000 in employee medical claims while their insurer handled administration and excess claims.”

Memory Tip

Think 'Min-Prem' - employers pay the MINimum PREMium by taking on most of the risk themselves.

Why It Matters

Minimum premium plans can significantly reduce insurance costs for employers with predictable claim patterns while maintaining professional plan administration. This arrangement allows companies to retain cash flow benefits and potentially share in favorable claims experience.

Common Misconception

People often confuse minimum premium plans with fully insured plans, thinking the insurance company pays all claims. In reality, the employer bears most of the financial risk and only pays the insurer for administrative services and stop-loss protection above predetermined levels.

In Practice

ABC Corporation with 200 employees sets up a minimum premium plan with a $150,000 annual claims threshold. They pay their insurer $45,000 annually for administration and stop-loss coverage. During the year, employee claims total $130,000, which ABC pays directly, saving approximately $25,000 compared to a traditional fully-insured plan. If claims had exceeded $150,000, the insurance company would cover the excess amount.

Etymology

Developed in the 1970s as employers sought ways to reduce insurance costs while maintaining coverage, combining 'minimum premium' to reflect the reduced insurance company fees.

Common Misspellings

Minimun Premium PlanMinimum Premiem PlanMinimum Premium PlaneMinumum Premium Plan

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