Unlocking the Advantages of Level Funded Health Insurance for Your Business
Richard Westermayer
Employee Benefits Expert | Fitness Enthusiast, Golfer, Girl Dad, Outdoorsman | Principal at BeneSmart
Understanding Level Funded Health Insurance
As a business owner, navigating the complex world of health insurance can be a daunting task. However, there is a solution that offers the best of both worlds - level funded health insurance. In this comprehensive blog post, we'll dive deep into what level funded health insurance is, its key benefits for employers and employees, the associated costs, and how it compares to other options in the market. We'll also explore the potential risks and challenges, as well as the carriers that offer level funded plans and how to determine if your business qualifies.
What is Level Funded Health Insurance?
Level funded health insurance is a hybrid between a fully insured health plan and a self-funded plan. It combines the predictable, level premium payments of a fully insured plan with the advantages of a self-funded plan, such as greater control over plan design, access to claims data, and the ability to implement cost-saving measures.
The key components of a level funded health insurance plan include:
In a level funded plan, the employer's exposure is limited to the monthly premium payments, similar to a fully insured plan. However, the employer also benefits from the advantages of a self-funded plan, such as the ability to customize the plan design and access to claims data.
Benefits for Employers
Level funded health insurance offers several key advantages for employers:
Access to Claims Data
One of the biggest benefits of a level funded plan is the ability to access and analyze your company's claims data. This data can provide valuable insights that help you better manage your healthcare spending and make more informed decisions about your plan design and cost-saving measures.
Potential for Surplus Refunds
In a level funded plan, any unused claims dollars at the end of the year are returned to the employer as a surplus refund. This means that if your employees' healthcare costs are lower than expected, you can recoup those savings, rather than the insurance carrier keeping the excess funds.
Improved Employee Benefits
Level funded plans often allow employers to offer better benefits to their employees, such as lower deductibles, zero-deductible options, and disappearing deductibles. This can help attract and retain top talent, as well as improve employee satisfaction and well-being.
Cost Savings
Depending on your company's risk profile, a level funded plan can potentially save you 10-45% on your annual healthcare costs compared to a fully insured plan. This is because the level funded model allows for specific underwriting and the implementation of cost-saving measures that are not available in a fully insured arrangement.
Comparing Level Funded to Other Options
When evaluating level funded health insurance, it's important to understand how it differs from fully insured and self-funded plans:
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Fully Insured vs. Level Funded
The key difference between fully insured and level funded plans is the regulation and underwriting process. Fully insured plans are regulated under the Affordable Care Act (ACA), which requires adherence to certain rules and regulations, such as the medical loss ratio. Level funded plans, on the other hand, are regulated under the Employee Retirement Income Security Act (ERISA), which allows for more flexibility in plan design and specific underwriting based on your company's risk profile.
Self-Funded vs. Level Funded
The primary distinction between self-funded and level funded plans is the exposure to risk. In a self-funded plan, the employer is responsible for the full cost of claims, which can fluctuate throughout the year. In a level funded plan, the employer's exposure is capped at the monthly premium payments, providing more predictability and stability in healthcare costs.
Potential Risks and Challenges
While level funded health insurance offers numerous benefits, it's important to be aware of the potential risks and challenges:
Claims Exposure
The biggest risk associated with a level funded plan is the potential for high-cost claims or aggregate high-cost claims. To mitigate this risk, it's crucial to have the right stop-loss policies in place, including specific stop-loss coverage and aggregate stop-loss coverage.
Late Implementation
Transitioning from a fully insured plan to a level funded plan requires careful planning and coordination among all the plan components (TPA, network, PBM, and stop-loss). A late implementation can lead to connectivity issues and confusion for both employees and healthcare providers.
Communication Challenges
The level funded model can sometimes cause confusion for employees and healthcare providers, as the health insurance card may display the TPA logo in addition to the network logo. Effective communication and education are essential to ensure a smooth transition and avoid any disruptions in care.
Carriers Offering Level Funded Plans
Many of the major health insurance carriers, such as Aetna, Cigna, UnitedHealthcare, and Blue Cross Blue Shield, offer their own level funded health insurance products. These carrier-level funded plans can be a good option for some employers.
However, there is also a growing market of non-carrier level funded plans, where the employer can "unbundle" the various components (TPA, network, PBM, stop-loss) and work with independent partners to create a customized level funded solution. This can provide additional flexibility and potential cost savings.
Determining if You Qualify
To determine if your business qualifies for a level funded health insurance plan, the underwriting process is crucial. This process will evaluate your company's risk profile and provide an accurate assessment of whether a level funded plan is a good fit.
The underwriting process typically requires the following information:
It's important to note that your risk profile can change over time, so it's essential to regularly evaluate your options in the marketplace to ensure you're getting the best possible offer for your business.
Conclusion
Level funded health insurance offers a compelling solution for businesses looking to take control of their healthcare costs while providing better benefits to their employees. By understanding the key components, benefits, and potential risks, you can make an informed decision about whether a level funded plan is the right fit for your organization.
Remember, the underwriting process is crucial in determining your eligibility and securing the best possible offer. By working with experienced professionals and staying up-to-date on the latest market trends, you can unlock the advantages of level funded health insurance and position your business for long-term success.