Level-Funded Health Plans: A Closer Look for Small Businesses

In response to today’s economic reality, most small employers are exploring ways to control their group health insurance costs and forecast their expenses more accurately while minimizing cost. As plans under the Affordable Care Act (ACA) continue to increase, small businesses owners continue to toil through coverage solutions and funding strategies in a bid to take back control of their companies while still providing health care benefits to employees.

What is a Level-Funded Health Plan?

Level-funding is a type of health insurance plan which combines the predictability and financial safety of fully funded plans with the customization and cost savings of a self-funded plan. You get access to your claims data conveniently while your claims experience defines your rates.

Basically, level-funded health plans are a hybrid of fully funded and self-funded plans. While the plans have the same look and feel as a traditional small group plan, they present advantages and savings of self-funded benefits programs. Recently, there has been significant growth in popularity of level funded plans because of the dislike with overpaying for ACA plans; especially among groups with low-risk individuals.

With level-funding, employers pay a set amount each month to a carrier. This amount typically includes the cost of administration, stop loss coverage, administrative fees, and the maximum claims based on underwriting projections. The carrier facilitating the plan will pay claims throughout the year. If your payments exceeded claims, you would receive a refund from the excess at the end of the year. If the claims exceeded what you pay into the program, your stop loss insurance will cover the overage amount.

Benefits of Level-Funded Health Plans to Small Employers

The number of employees in your business affects your ability to contract with your preferred health insurance carrier. Small and medium sized companies will enjoy the bulk of below advantages:

1. Get Money Back and Save On Cost

In the event, (approximately 60% of participants) a portion of the premium paid in remains unused, you would receive a refund of unused money in the claims fund at the end of the plan year.

2. More Affordable

In most cases, level-funded health plans do not have similar regulatory requirements as traditional health plans. Electing this plan will signal less administrative work for your business and see more money going back into your business’s revenue stream. With potential savings of up to 30% there is minimal situations where a level-funded plan would not work for your business.

3. Employee Experience

When done correctly, employees will not notice a shift from a fully insured plan to a level-funded plan. The level-funded plan should allow employees access to the same physicians, hospitals, and pharmacy options as a fully insured plan. Employees will merely experience the benefits of cost savings on overall premium.

Ultimately, level funding is a great option to be considered given your company’s cash flow, risk tolerance, employee numbers and preferred budgeting methods. If you would like to meet with our group benefits advisor to better understand if level funding is a good option for your company contact Lashonda Degeneffe at ldegeneffe@paroubekinsurance.com or 920-347-9334.