Level-Funded Plans: Self-Insured Or Not?

Level-funded insurance plans are a hybrid of self-funded and fully-insured plans. They are a midway option for small employers who find self-insurance daunting. With level-funded plans, employers pay a fixed monthly amount for each employee's benefits, which includes the estimated cost of claims, stop-loss insurance premium, and administrative costs. If claims are lower than anticipated, employers may receive a rebate or credit for the following year's policy. If claims are higher than a predetermined level, the carrier's stop-loss insurance covers the excess costs.

Level-funded plans are a hybrid of self-funded and fully-insured plans

Level-funded health plans are a hybrid of self-funded and fully-insured plans. They are gaining popularity among small businesses as they offer a way to access the benefits of self-funding without taking on the full financial risk.

In a level-funded plan, an employer pays a fixed monthly fee that includes the estimated cost of claims, stop-loss insurance premiums, and administrative costs. This provides the employer with predictable monthly spending and the possibility of a refund if claims are lower than expected.

The level of risk assumption is shared between the employer and the insurance carrier, and this arrangement is protected by stop-loss insurance. This type of insurance limits the employer's financial responsibility for claims over a certain amount, either per employee or for the entire covered population.

The popularity of level-funded plans is due to their hybrid nature, which combines the benefits of a fully-insured plan with the potential for a refund on unused claim funds. Level-funded plans offer small businesses greater value by ensuring high-quality care at a lower cost.

However, level-funded plans offer little control over plan elements such as TPAs, PBMs, or network providers. There may also be more regulatory requirements involved, and the potential refund at the end of the coverage period may come with strings attached.

Level-funded plans are gaining popularity among small businesses

Level-Funded Plans: Gaining Popularity Among Small Businesses

Level-funded health plans are becoming an increasingly popular choice for small businesses, offering a range of benefits that traditional fully-insured plans do not.

Level-funded plans are a hybrid of self-funded and fully-insured plans, combining the cost-saving elements of self-insurance with the financial predictability of fully-insured plans. In this model, employers pay a fixed monthly amount to cover estimated claim costs, administrative fees, and stop-loss insurance. This arrangement provides cost containment and the potential for a refund if claims are lower than expected.

Small businesses often face challenges when it comes to funding health insurance for their employees, and the rising cost of insurance premiums has made finding affordable options even more critical. Level-funded plans offer a solution by providing greater cost efficiency and financial predictability.

Cost Efficiency

Level-funded plans allow small businesses to take advantage of cost efficiencies due to the predictability of budgeting for healthcare costs. By paying a fixed monthly amount, employers know exactly how much they will be spending each month, making it easier to manage cash flow. Additionally, if claims are lower than expected, there is the potential for a refund or surplus, further reducing costs.

Financial Predictability

Unlike self-funded plans, level-funded plans offer financial predictability by limiting the costs employers may face through stop-loss insurance. This insurance protects employers from excessive costs if claims are higher than a predetermined level (or cap). As a result, employers can avoid unexpected high fees and more accurately predict their healthcare budgets.

Regulatory Benefits

Level-funded plans are exempt from some Affordable Care Act (ACA) regulations, such as the requirement to offer essential health benefits. This gives employers more flexibility in plan design and reduces the regulatory burden on small businesses.

Considerations for Small Businesses

While level-funded plans offer many benefits, there are also some considerations for small businesses to keep in mind. These plans may have more regulatory requirements, and there is a potential financial risk if claims are higher than expected. Additionally, there may be administrative complexity involved in managing the plan, and there could be fluctuations in monthly costs depending on health claims.

Level-funded plans offer small businesses a way to balance the benefits of self-funded and fully-insured plans, providing cost efficiency, financial predictability, and regulatory advantages. As a result, they are becoming an attractive option for small businesses navigating the challenges of providing healthcare for their employees.

Level-funded plans offer a fixed monthly payment

Level-funded plans are a unique type of partially self-funded insurance plan. They are a hybrid of self-funded and fully-insured plans, combining the cost-saving elements of self-insured plans with the financial predictability of fully insured plans.

With a level-funded plan, employers pay a fixed monthly amount for each employee's benefits. This includes the estimated cost of claims, stop-loss insurance premium, and administrative costs. The fixed monthly payment covers the following:

Claims Fund

The employer sets aside a fixed amount to cover the expected claims expense for the group.

Stop-Loss Insurance

Protects the employer against higher-than-expected claims. Employers will not have to pay more than their pre-established fixed costs. If their costs are higher than the fixed amount, stop-loss insurance pays the claims.

Administration

A third-party administrator provides health plan administration—such as paying claims, customer service, and other administrative tasks—so the employers can spend their time focusing on their businesses.

Level-funded plans offer a number of benefits, including:

• Predictable expenses: Level-funded payments are typically spread evenly over a 12-month period, making cash flow management easier.
• Fair risk assessments: Only the employee risk pool is evaluated instead of a broad community sampling.
• Money-back: If any of the level-funded premium that is paid into claims is unused by the end of the year, it is refunded.
• Cost savings: Level-funded plans often cost less when compared to fully insured health plans.
• Control: Employers have more control over their health care costs.
• Flexibility: Level-funded plans have more flexible benefits for small and midsize businesses. Companies can customise the options based on the features and coverage employees will prefer and their available budget.
• Customer service: Top level-funded insurers offer dedicated, qualified customer service professionals.
• Access to technology: Modern, state-of-the-art insurance carriers that offer level-funded plans will provide HR staff and administrators with apps and tools to manage health benefits with ease.
• Small business-friendly: Small and midsize businesses increasingly choose level-funded plans.
• Access to plan data: Having access to plan data enables employers to implement proactive wellness and prevention initiatives for their employees.

Level-funded plans may result in a refund if claims are lower than expected

Level-funded plans are a hybrid of self-funded and fully-insured plans. They are designed to offer employers predictability with the potential of upfront savings and a surplus refund.

With a level-funded plan, an employer pays a fixed monthly amount to cover the estimated cost for claims, the premium for stop-loss insurance, and administrative costs. The stop-loss insurance covers health care costs over a set dollar amount. If total claims costs are lower than expected, the carrier makes adjustments at the end of the plan year in the form of a refund to the employer.

The possibility of a refund at the end of the coverage period is a major draw for employers. However, it's important to note that the refund may not be cash and the employer may be required to renew their benefits with the carrier to receive it.

Level-funded plans are designed to look and feel like fully insured plans. They are often provided by small groups (fewer than 50 employees) and are not available in every state due to stop-loss regulations.

Level-funded plans can be a good option for employers with healthy employees and lower-than-average healthcare costs who want more flexibility, control, and predictability from year to year.

Level-funded plans are not available in all states

Level-funded plans are a hybrid of self-funding and fully-insured plans. The level of risk assumption is shared by both the employer and the insurance carrier, and protected by stop-loss insurance.

Level-funded plans are underwritten by a commercial insurer or third-party administrator (TPA). These plans use a census of employees to create a cost projection and determine a flat (or level) monthly cost for the coverage. The premium includes a claims allowance, a fee paid to the TPA or commercial insurer, and stop-loss coverage.

The plans act like traditional fully-insured plans but offer rate relief and the possibility of a credit at the end of the plan year.

Frequently asked questions