Alternative Risk Financing Facilities

Let's break this one up a little bit. First, we'll jump in with "risk financing." This basically concerns putting money aside for unexpected events in the future. Fundamentally, you're contemplating risk financing when you ask "how am I going to pay for it when the worst happens?"

The most common form of risk financing is...insurance. You pay insurance premiums on a regular basis, and if anything bad happens unexpectedly, the insurance company picks up most of the bill. Anything other than insurance is an alternative, as in "alternative risk financing."

The "facilities" part is just the way the financing is structured. It's not a physical facility, like a building or a campus, or even like you might say if you are trying to be demur about going to the bathroom, as in "Excuse me, I have to use the facilities. Could you direct me to the lavatory?" Instead, the facility here is just the set up of how you are going finance your risk alternatively.

The most common types of alternative risk financing facilities include things like self-insurance and risk pools. These are basically insurance without the middle man, but work only when the numbers of people involved are big enough. So a really big company might be able to self-insure for healthcare because they have enough employees where the costs across the population get relatively predictable. Meanwhile a few semi-large companies might pool together in the same way. None of them are big enough on their own to make it work, but by getting together, they can effectively self insure in a way that's still cheaper than using a third-party company.