Are Level-Funded Health Plans Right for Your Small Group Clients?

Level-funded health plans are not necessarily a new type of health plan, but one that is under-valued for small groups, particularly when compared to their traditional fully insured plans. Many strategic brokers are already recommending level-funded plans to their small groups – so are they right for your clients? Let’s cover:

• Overview of level-funded health plans
• Benefits of level-funded plans for small groups
• Questions brokers should ask to determine if level-funded plans would be a good fit

Overview of level-funded health plans

At a high level, Level-funded health plans are a type of health insurance that combines elements of self-funded and fully insured plans. They are often offered to small and mid-sized businesses as an alternative to traditional fully insured plans. Here are their key features:

1. Fixed premiums: With level-funded plans, the employer pays a fixed monthly premium to the insurance carrier. This premium is determined based on the projected average claims of the employee population, administrative fees, and the carrier's profit margin.
2. Self-funding structure: Level-funded plans operate under a self-funded structure, where the employer assumes some level of risk for healthcare claims. The fixed premiums paid by the employer are used to cover expected claims and administrative expenses.
3. Stop-loss protection: To mitigate the risk associated with high-cost claims, level-funded plans include stop-loss insurance. There are two types of stop-loss coverage: individual stop-loss and aggregate stop-loss. Individual stop-loss protects against high claims for individual employees, while aggregate stop-loss protects against high claims for the entire employee group.
4. Claims experience: At the end of the plan year, if the claims paid by the employer are lower than the fixed premiums paid, the excess amount may be returned to the employer as a refund or used to offset future premium costs. However, if claims exceed the fixed premiums, the stop-loss insurance kicks in to cover the excess.
5. Plan flexibility: Level-funded plans often provide greater flexibility in plan design compared to fully insured plans. Employers can customize the benefits, cost-sharing arrangements, and network options based on the specific needs of their employee population.
6. Transparency and reporting: Level-funded plans typically offer more transparency and access to claims data. Employers can analyze the claims experience, identify cost drivers, and implement strategies to manage healthcare costs more effectively. This transparency also helps employees understand their healthcare expenses and make informed decisions.

Benefits of level-funded plans for small groups

This type of self-funded health plan has experienced significant growth and popularity among small groups. Why? The answer is simple.

1. Increased cost control: Rising healthcare costs have driven employers, including small businesses, to seek more cost-effective alternatives. Level-funded plans offer potential cost savings compared to fully insured plans, as they allow employers to pay a fixed monthly amount (level premium) based on their employees' average claims history.
2. Small business adoption: Level-funded plans have gained traction among small businesses as they provide an opportunity to access the benefits of self-funded plans without the same level of risk exposure. The financial stability offered by level-funded plans, along with the potential for savings, has made them an attractive option for smaller employers.
3. Customization and flexibility: Level-funded plans offer more flexibility in plan design, allowing employers to tailor benefits and cost-sharing arrangements to meet the specific needs of their employee population. This customization has appealed to employers seeking greater control over their healthcare plans.
4. Greater transparency: Level-funded plans often provide employers and employees with more transparency regarding healthcare costs. This increased visibility into claims data and cost-sharing can encourage employees to make more informed decisions about their healthcare, potentially leading to better cost management.
5. Broker and TPA support: Insurance brokers and third-party administrators (TPAs) have played a crucial role in promoting and supporting the adoption of level-funded plans. They help educate employers, assist with plan implementation and administration, and provide ongoing support and guidance throughout the process.
6. Regulatory Environment: The regulatory environment has also contributed to the growth of level-funded plans. Some states have implemented favorable regulations and exemptions that facilitate the adoption of level-funded plans by small businesses.

Are level-funded plans right for your clients? Ask these questions!

It's important to note that while level-funded plans have grown in popularity, they may not be suitable for all businesses. So how can brokers evaluate whether level-funded plans will be a good fit for their clients? Ask the following questions:

1. What is the size and employee composition of the client's business? Understanding the number of employees and their demographics can help determine the risk profile and potential cost savings associated with a level-funded plan.
2. What is the client's risk tolerance? Determine the client's comfort level with assuming some level of risk and their willingness to participate in cost-sharing arrangements.
3. What is the client's current utilization and claims history? Evaluate the client's historical claims data to gauge whether a level-funded plan is appropriate based on their employees' health status and utilization patterns.
4. Does the client have the administrative capabilities to handle a level-funded plan? Determine if the client has the resources and expertise to manage the administrative tasks associated with a level-funded plan, such as claims processing, compliance, and financial management.
5. What are the client's objectives for their employee benefits program? Understand the client's goals, such as cost savings, greater control over plan design, improved employee engagement, or enhanced transparency. Assess whether level-funded plans align with these objectives. (BTW -- their goals, and how they behave aren't always the same!)
6. Are there any specific regulatory considerations or requirements for the client's location? Research and understand the legal and regulatory landscape for level-funded plans in the client's jurisdiction to ensure compliance and avoid any potential issues.

Level-funded plans aren't right for every business, but you can serve as a strategic partner to your clients by asking the right questions and presenting the right guidance and offerings based on their unique needs.

Want to learn how Star Benefits is working with brokers to bring these benefits to small groups? Give us a shout at [email protected].?