A small employer funds a group health plan with a $5,000 per-person deductible and buys a stop-loss policy that reimburses the plan for any single claim exceeding $100,000. This arrangement combines which risk management techniques?

Why A is correct

The employer retains the risk of claims up to the deductible and claims below the stop-loss attachment — those dollars are paid from the employer's own funds, which is retention. The stop-loss policy transfers the catastrophic tail of the risk to an insurer: claims above the threshold are shifted to the insurer, which is transfer. Combining retention and transfer is a common strategy that lets an employer save premium while capping its worst-case exposure.

Why the other options are wrong

• B) Avoidance means eliminating the exposure entirely, which a deductible does not do; the stop-loss policy is a transfer, not retention.
• C) The deductible is not loss reduction, which would shrink the frequency or severity of losses; it is a retained layer of risk, and the stop-loss is a transfer, not avoidance.
• D) The deductible is the employer's retained risk, not risk sharing with an insurer; the stop-loss policy is transfer, not reduction.

Memory hook

You keep the small stuff (retention) and hand off the monster claims (transfer).