Level-Funded Health Plans

More Small Businesses are moving to Level-Funding

Fully funded, self-funded, and level funded health plans can be found throughout every industry, but small businesses traditionally have more financial strain with health insurance than large companies.

Employers with less than 50 Full-time employees are not required to offer Health Insurance to their employees but that doesn’t mean it doesn’t happen.  Some small business owners want to take care of their employees out of the goodness of their heart or they have the mindset that it will strengthen their recruitment and retention.

Whatever the motivation, small employers who offer healthcare to their workforce know that health insurance is still among the most important recruiting tools when offering a compensation package.

Because fully funded health insurance plans tend to be expensive for small businesses, many are turning to level funded health plans to save cost.

What is a Level-Funded Health Plan?

A level funded health plan (also known as a partially self-funded plan) is a type of health insurance plan where the employer takes on more of the risk.

With a fully-insured plan, premium goes to an insurance company for coverage and all the risk and reward is transferred to the insurance company.  Level funded health plans can be understood by looking at what’s under the hood:

• Administrative Costs — These costs are fixed and charged per employee per month. They will remain the same regardless of claims. This is the cost employers pay fees for network access, third party claims administration, prescription network, and broker fees.
• Claims Fund — This is the variable portion of level funded health plans, but also where the most cost savings potential lies.  As with a fully insured plan, the insurance carrier estimates what they think claims will cost for the particular group over the course of a plan year and the employer agrees that he will fund this amount into a claims fund.  The difference with level funded health plans is that if the claims are lower than expected, the insurance company will refund part or sometimes, all of the unused funds back to the employer.
• Stop Loss Coverage — This limits the risk exposure of the employer and covers the entire workforce’s claims for the plan year. This acts like an umbrella policy protecting the employer from any claims that are higher than what he has agreed to fund. If together, your employees incur enough claims that they reach the aggregate stop loss deductible the reinsurance kicks in and reimburses the employer for claims.  This allows the employer to quantify his cost before committing to the plan just as is done for a fully-insured plan.

Benefits of Level-Funding

The most attractive allure to the small business owner is obviously cost.  If a group is relatively healthy, level-funded solutions provide the opportunity to save hard dollars up front and in with low claims utilization, residual cost savings in years down the road.  How?  After fixed costs, a portion of any unused claims money remaining in the claims account at the end of the plan year and runout period goes back to offset next year’s plan cost.