Which statement is true of a large deductible plan?

• A. It eliminates the need for a claims administrator
• B. It only applies to medical costs
• C. It requires annual premium adjustments based on loss ratio
• D. A loss payment fund (LPF) is required and operates similar to an escrow account

Answer: (C)

In a large deductible workers’ comp plan, the price you pay isn’t fixed just once at the start. The plan shifts a big portion of the risk to the employer, but the insurer still monitors actual losses and adjusts costs accordingly. The main mechanism is retrospective or experience-based pricing, where the premium is adjusted after the policy year based on how actual losses compare to what was expected. This is captured by using a loss ratio—the relationship between losses incurred (and reserves) and the premium charged. If actual losses are higher than anticipated, the loss ratio worsens and the premium goes up; if losses are lower, the premium can be reduced. That dynamic is why annual premium adjustments based on loss ratio is the best description of how a large deductible plan operates.

As for the other statements: a claims administrator is still needed, since someone must handle the claims even with a deductible. The plan’s scope isn’t limited to medical costs—large deductible arrangements typically cover the full workers’ comp exposure, including indemnity. And a loss payment fund isn’t a universal requirement in these plans; some programs use other mechanisms to fund losses, but an LPF isn’t a defining feature of all large deductible arrangements.