Which of the following statements about self-funded health care insurance plans is incorrect?

The statement indicating that self-funded plans are subject to medical loss ratio requirements that apply to fully insured plans is incorrect because self-funded plans are not bound by these requirements. Medical loss ratio (MLR) regulations, which require that a certain percentage of premiums be spent on medical care as opposed to administrative costs, apply specifically to fully insured plans. Self-funded plans, in contrast, operate differently as the employer assumes the financial risk of providing health care benefits directly to employees rather than contracting with an insurance provider.

Self-funded plans are generally exempt from the requirements that fully insured plans must adhere to, including state-regulated MLR requirements, which is a key reason for their growing popularity among larger employers. They also enjoy exemptions from state premium taxes and are not subject to the essential health benefits requirement of the Affordable Care Act (ACA). Additionally, under the Employee Retirement Income Security Act (ERISA), they are exempt from many state insurance laws, which allows for greater flexibility in plan design and management.

This understanding of the nature of self-funded plans clarifies why the answer provided is indeed the incorrect statement regarding self-funded health care insurance plans.