Level-Funded and Self-Funded Plans Alongside Direct to Employer Relationships
The terms level-funded and self-funded might be misunderstood or unfamiliar. In our last installment of the Direct to Employer series, we discussed what a Direct to Employer relationship is and what it entails. It's important to know how level-funded and self-funded plans work with a DTE relationship because they can be an extremely beneficial option for companies looking for an alternative to fully insured plans.
A self-funded plan essentially puts the risk on the employer but has increased potential for reward. An employer will be producing the funds for the medical claims they face. Premiums are calculated on various factors, including the number of claims expected and the amount of stop-loss coverage needed. Self-funded plans are not for smaller employers.
Fixed costs – admin fees, stop-loss coverage
Variable Costs – health care claims
Conversely, level-funded plans work well for smaller groups with approximately 2-50 employees. Level-funded plans budget for costs throughout the year. Level-funded plans are beneficial to healthy small groups because employee claims are paid from the claims allowance. At the end of the year, a group can get a refund from the excess claims allowance.
What does this all mean? It pays to be healthy. And ultimately it pays to have a plan with the necessary tools to help an employer keep its employees happy and healthy. Having a direct-to-employer relationship enables employers with the most competitive rates possible while also negotiating the best stop-loss contracts. As you can see above, this is critical to both self-funded and level-funded plans.
Stay tuned for our next installment of the DTE series where we define the main advantages of DTE relationships and how a self-funded/level-funded approach is key.
Ian Huron / Ian.firstname.lastname@example.org / 317-666-5119