Question

City of Desperation has decided to have a self-funded medical plan. They have

       been to an actuarial expert to determine the monthly premium to be charged and

       what amount it is going to take fund the plan. The expert said that a reserve of

       $500,000 would be needed. What will happen now related to accounting for

        such?

            A. The original $500,000 would a reciprocal transfer.

            B. They fund will be an Internal Service Fund.

            C    A large amount of deductible for the plan and the rest will be

                   in reinsurance.

            D. All of the above.

Answer 1

    B. They fund will be an Internal Service Fund.

Explanation

As the expert said that a reserve of $500,000 would be needed, so the amount will be an service fund that will be internal , as the purpose of the the fund is to benefit the people of the city and this will do the needful and and insurance will be very beneficial for the people of the city

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Thanks!