For most employers, the concerns about health care costs have only intensified due to the events of the past year. This is causing some business leaders to explore various funding options to maximize their healthcare dollars.

Fully insured health plans have been a long-time favorite for the peace-of-mind they offer. But there’s a growing frustration with the high price tag for that peace-of-mind. The notion of moving to a self-insured plan, however, is just too daunting for some — especially given the lack of predictability, potential risks, and impact on cash flow.  

If you desire the advantages of a self-insured health plan, but need a little more financial certainty for your budgeting concerns, level-funded health plans might be the steppingstone you’ve been looking for. Level-funded plans use a hybrid approach that allows small employers to take advantage of the financial benefits and plan design flexibility that a self-insured plan offers while also retaining the lower risk and stable cost features found in fully insured plans.  

Level-Funded Health Plans Can Be a Viable “Bridge” in the Journey from Fully Insured to Self-Insured

How Do Level-Funded Plans Work?

With a level-funded plan, an employer pays a preset monthly amount to the health insurance carrier to cover the monthly costs for:

• Estimated Employee Claims
• Plan Administration
• Stop-Loss Coverage

If, at the end of the plan year, total claims costs are greater than the claims, the carrier and/or stop-loss coverage will cover those extra costs—meaning the employer is 100% protected.  

On the other hand, if total claims costs are lower than the expected, the employer can typically experience one of two things based on the agreed upon contract:

1. receive all or a significant portion of the unused account balance as a “refund” at the end of the year; or  
2. rollover unused claims-funds into the following year’s plan, thus further reducing future medical claims costs.  

Note: Plan administration and stop-loss premiums are not refundable.

What Are the Advantages of Level-Funded Plans?

• Improved Cash Flow: Unlike self-insured health plans, level-funded payments are spread evenly across a 12-month period. These predictable payments make cash management easier. The included stop-loss coverage protects against unexpected cost spikes due to higher or catastrophic claims.
• Company-Based Risk Assessment: Traditional fully-insured plans use a broad community group to assess risk when setting premium rates, while level-funded plans evaluate only a company’s own claims experience. Since a company’s risk is commonly lower than the general population, the results are often lower-cost plans.
• Opportunity to Earn an Annual Refund: A primary selling-point for small to mid-sized businesses, these plans allow employers to recoup savings —through a refund—when they have a heathier-than expected year. This is an advantage not found under fully insured plans.
• Transparency: Level-funded customers receive annual reports about plan utilization that identify areas of concern, misuse or abuse. This added insight gives businesses the opportunity to target plan design changes and educate and engage employees to take care of their health to help further reduce utilization costs.
• Fewer Regulations: May not be subject to certain ACA regulations and state mandates.
• Flexibility: Meet Federal regulatory requirements and easily replace traditional plans.

Weighing the Pros and Cons

There are numerous factors to consider when selecting a health plan.  It comes down to weighing the pros and cons for your company, such as:

Which Approach Is Right for Your Company and Employees?

Level-funded plans may position you to have more control over one of the largest expenses in running your business. A health plan built to meet the unique needs of your business positions you to reap the benefits of cost containment, wellness activities, and improve your ability to attract and retain talent.

If you are interested to learn more about the various funding arrangements and discuss which may be best suited for your company, contact LoVasco.  

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