Level funded vs PEO Master, which one is better???

A level-funded health plan and a Professional Employer Organization (PEO) master health plan are two different approaches to providing health benefits to employees. Each has its advantages and disadvantages, but for many small to medium-sized businesses, a level-funded health plan can offer more flexibility, potential cost savings, and greater control over their benefits package. In this article, we will explore how a level-funded health plan can be a better choice than a PEO master health plan, supported by data and insights from industry sources.

Understanding the Basics

Level-Funded Health Plans: These are a type of self-insured plan where the employer pays a fixed monthly fee to cover estimated claims, administrative fees, and stop-loss insurance. This model allows businesses to benefit from the potential cost savings of self-insurance while minimizing the risk of high claims costs.

PEO Master Health Plans: Under a PEO arrangement, small and medium-sized businesses join a larger group to access health benefits, among other services. The PEO acts as a co-employer, managing HR tasks, payroll, and benefits administration. While this can simplify operations, it also means less customization and potential for higher costs due to the pooling of risk.

Cost Savings

One of the primary advantages of level-funded health plans is the potential for cost savings. Unlike traditional fully insured plans or PEO master plans, level-funded plans offer the opportunity for businesses to receive a refund on any unused claim funds. According to a report by the Society for Human Resource Management (SHRM), businesses that switch to level-funded plans often see significant savings in their health benefit costs due to this refund mechanism and lower administrative costs.

Flexibility and Control

Level-funded plans offer businesses more flexibility and control over their health benefits. Employers can customize their plans to meet the specific needs of their workforce, something that is often not possible under a PEO master plan. This customization can lead to higher employee satisfaction and better health outcomes. A study by the National Association of Health Underwriters (NAHU) found that businesses that switch to level-funded plans report higher levels of satisfaction due to the ability to tailor benefits and manage costs more effectively.

Transparency and Data Access

With a level-funded plan, employers have access to detailed claims data, allowing them to understand where their health benefit dollars are going. This transparency can help businesses make informed decisions about their health plans and implement wellness programs or other initiatives to control costs. In contrast, PEO arrangements often provide limited data, making it challenging for businesses to analyze their health benefit spending.

Potential Drawbacks

It's important to note that level-funded plans are not without their potential drawbacks. These plans require a level of engagement and management that may not be suitable for all businesses. Additionally, while stop-loss insurance protects against high claims, there is still a level of financial risk involved.

Conclusion

For businesses looking for cost savings, flexibility, and greater control over their health benefits, a level-funded health plan can be a superior option to a PEO master health plan. By offering the potential for refunds on unused claims, the ability to customize benefits, and access to detailed data, level-funded plans empower businesses to manage their health benefits proactively. However, it's crucial for businesses to carefully consider their specific needs and capabilities before making a decision.

Given the complexity of health benefit options and the rapidly changing landscape, businesses should consult with a benefits advisor or broker to explore the best solution for their unique situation.