Level Funded Plans
Level-Funded health plans merge the customizing characteristics with the reduced cost of a self-funded plan. It also provides the financial stability of a fully insured plan design. With a level-funded plan, the employer pays a monthly fee like self-funded plans. The employer group partners with an insurance carrier and a third-party administrator.
Many US employers are taking notice of the level-funded plan as it offers better cost certainty. Especially small employer groups, given the lowered risk and exemption from ACA-mandated requirements. The level-funded plan provides the pros of self-funding and ultimately reduces benefit value drainage to the employee while saving money for the employer.
The small- to mid-market employers are seeing a rise in health plan costs to the tune of $8,000 per employee and $23,000 per family on an annual basis. The substantial rise in cost is becoming a motivating factor for employers to consider level-funded plans as a prudent alternative to fully insured. The monthly premium with a level-funded approach becomes an estimated max cost. The estimated max cost includes stop-loss coverage and helps control the financial risk if catastrophic claims were to occur.
Level-funding brings many advantages to the table:
Level-funded plans offer more transparency to the data for employer human resources and financial leadership. The detailed utilization trend reporting offers critical insight into how employees might be creating overspending circumstances. (For example, the use of emergency room versus urgent care options.)
Premiums paid are not derived from community rates. The employer group pays only the administrative fee and actual claims costs.
Level-funding has the potential for fewer governmental regulations than fully insured plans.
The opportunity to improve risk management and prepare for claims is fostered through increased transparency of utilization data.
The finances put aside to cover the monthly claims can result in a refund at the end of the year when a surplus exists.
The level-funded plan offers a financing alternative that has similar flexibility to a self-funded plan, yet the protection of a fully-insured scenario.
Becky Dionne, MBA, LPC
New Edge Benefit Solutions