Many smaller employers are concerned about taking the step from the financial safety of a fully insured health plan to the financial uncertainty of self-funding. That’s understandable since a self-funded health plan requires employers to pay claims as they come in, even if that means paying $5,000 in claims one month and $30,000 the next. Level-funded health plans act like traditional fully insured plans, but offer rate relief and the possibility of a credit at the end of the plan year.
How Level-Funded Plans Work
With a level-funded plan, an employer pays a health carrier the same monthly amount to cover the estimated cost for expected claims, the premium for stop-loss insurance that covers health care costs over a set dollar amount, and plan administration costs. If total claims costs are higher or lower than expected, the carrier makes adjustments at the end of the plan year in the form of a refund to the employer for lower claims or a premium increase on the stop-loss insurance renewal for higher claims.
Stop-loss coverage is an essential part of this arrangement because it limits an employer’s financial responsibility for claims over a certain amount, either on a per-employee basis or for the entire covered population.
Small groups made up of healthy individuals stand to save the most when implementing a level-funded plan. Smaller, healthier groups are also likely to have lower rate increases due to fewer claims. If group rates start to climb, switching back to a fully-funded plan is always an option.
Depending on the carrier or third party you use, a level-funded plan can be more complicated than a traditional fully-funded plan. You may have a learning curve when it comes to the earmarked trust fund with employee and employer contributions, stop-loss insurance, and reimbursements.
That’s why it is important to work with a independent insurance broker that offers strong support to guide you through all of the decisions and plan options. Schedule a call with one of our team benefit consultants to help you evaluate group health risks and make a calculated decision that could benefit your business. If you have immediate questions, call us toll free at 330-633-3837 or click here to email us your name and phone number for us to call you.