If you desire the freedom of a self-funded insurance plan but need a little more certainty for your budgeting concerns, level funding might be the right fit for you. Level funding has become a popular choice with employers, as it combines the simplicity of a fully-funded insurance plan with the upside of a partially self-funded plan with no additional risks to the employer or the employees. With level funding, employers pay a set amount each month to a carrier. This amount typically includes the cost of administrative fees and the maximum amount of expected claims based on underwriting projections, as well as embedded stop-loss insurance. Is it the right choice for your business though? In order to assess your best options, here is everything you need to know about level funding.
Level Funding 101: Deciding What Works Best For You
What Is A Self-Funded Health Plan?
Before discussing the pros and cons of level funding, we must define what a self-funded health plan is. In a self-funded plan, the employer assumes the risk and responsibility of medical claims instead of contracting with an insurance carrier to pay those claims. The employer sets premium rates based on claim history and typically benefits from lower administration costs and greater flexibility both in plan design and cash flow within the business.
A self-funded plan may contract with a third-party administrator (TPA) but is still considered a self-funded plan because the company is responsible for funding the claims payments. Stop-loss insurance can be obtained to pay for excessively high claims, but the employer is responsible for the majority of the costs and the stop-loss insurance is simply a safeguard against extremely high, unpredictable claims.
Advantages Of Level Funding
Level funding provides several advantages for your business. Like other self-funded plans, you don’t have to spend money on premiums that are based on community rates, which might be higher than your employee group’s risk. Instead, you only pay for actual claims and an additional administrative fee, which most of the time includes stop loss coverage. Another benefit of level funding is that if all the money you set aside each month to cover claims is not used, you will receive a refund at the end of the year from the surplus. Depending on which medical carrier write your benefits, you may share anywhere from 50% -100% of the surplus. This can benefit you and your business greatly by saving money on expensive premiums for a fully insured plan that your company never ends up using. If you already have a self-funded plan, then you will enjoy a more budget-friendly method of monthly claims payment, with stop-loss insurance to protect you from unexpectedly high costs.
Disadvantages Of Level Funding
Although there are several upsides to level funding, it also comes with some disadvantages. One being that when you choose to self-fund you are likely looking to cut costs—and with level funding, part of your monthly payment is to cover administrative fees. Depending on the particular plan and your other options, these fees have the potential to cut into the savings you hope to gain from running a self-funded plan. In order to make the best decision, you’ll have to weigh the cost-effectiveness of administering your self-funded plan in-house, hiring a TPA, or choosing a level-funded option with administrative fees. Additionally, you still have to pay the claims. With level funding, you’re paying for the convenience of having equal payments throughout the year and the security of stop-loss coverage.
The upside is, with level funding, you don’t necessarily need your claims history to offer level funded plans, although many of the carriers will require you to submit individual medical questionnaires for each employee so they may assess the risk of the group. If there is the potential for high claims, many times the carriers will decline to quote the business.
Most carriers submit the ACA reporting on behalf of the employer. However, there may be additional costs incurred by the employer if the carrier doesn’t offer the reporting. Another disadvantage in some employer’s eyes is the requirement to submit their PCORI (Patient-Centered Outcomes Research Institute) fees each July. Albeit the fees are nominal, there is a penalty associated if the employer fails to submit the fees to the IRS by the deadline.
How To Determine If Level Funding Is Right For Your Company
Although there is a lot of information to consider, the advantages of level funding are apparent. However, it’s essential to determine whether your business would benefit from level funding. If any of the following rings true for your organization, level funding may be the right option for you:
- Your business has less than 50 employees and they are subject to community rating or the under 10 groups that may be age tabled rated.
- Your business has more than 50 employees but you wish to have more control over healthcare costs
- You wish to promote employee wellness and make your employees a priority
- You are interested in the concept of self-funding but are concerned about the “risks”
As premiums continue to skyrocket among traditional group plans, it’s important for employers to evaluate their healthcare options to ensure they aren’t losing money and are offering the best option for their employees.
“In today’s market there are more level funded options than ever before. Each carrier offers something different for the employer. Some carriers share 50% while others give back 100% of the surplus. Some carriers offer shelf plans while others allow you to customize your plans to fit employer’s needs and budget. The transparency of claims helps employers to understand how the monthly premiums are being spent and the visible claims reporting help employers make better sense of renewals which ultimately allow employers have more control over their budget and benefits.”
-Christine Crowell, Benefits Specialist at Alltrust Insurance
Alltrust’s Assistance In Making Your Decision
Ultimately, if you want to operate a self-funded health plan, level funding is an option that must be considered in light of your company’s cash flow, risk tolerance, employee numbers, and preferred budgeting methods. Our team at Alltrust Insurance can help guide you through the complexities of healthcare coverage. If you are interested in learning more about how level funding works and how it can be beneficial to your company, please visit our website and contact us today.
