Level-Funded Health Plans: A Closer Look for Small Businesses
Given the friendliness of level-funded health plans to small businesses, the funding strategy is an attractive alternative for small employers. With consumers in the U.S. paying more for healthcare than any other country globally, level-funded health plans are increasingly becoming popular among small businesses looking to manage health insurance costs and improve employee benefits.
In response to today’s economic reality, most small employers are exploring ways to control their group health insurance costs and forecast their expenses more accurately while minimizing costs.
As plans under the Affordable Care Act (ACA) continue to increase, small business owners continue to wade through coverage solutions and funding strategies in a bid to take back control of their companies while still providing health care benefits to employees.
What is a Level-Funded Health Plan?
At its core, level-funding is a type of health insurance plan which combines the predictability and financial safety of fully-funded plans. With the customization and cost savings of self-funding. You get to access your claims data conveniently while your claims experience defines your rates.
Essentially level-funded health plans are a hybrid of fully funded and self-funded plans. While the plans have the same look and feel as traditional small group health plans, they present the advantages and savings of self-funded benefits programs.
Recently, the popularity of level-funded health plans among small businesses tired of overpaying in the ACA market has been witnessing growth. Especially among companies whose employee groups are low risk.
Under a level-funded health plan, an employer will contract with an insurance company, agreeing to take on more financial risk. Though employers pay a set amount to their carrier each month, the plan provides lesser risk and adds financial predictability compared to direct payment of claims.
An Overview of Level-Funded Health Plans
Businesses that are contemplating self-funding but want a stable payment option can look to level-funded health plans. If your workforce is mostly composed of young and healthy employees, you can make serious savings with a level-funded health insurance plan since the funds will be utilized rarely.
Level-funded health plans are pretty straightforward in that they allow employers to control cash flow. The monthly premiums set in a level-funding plan are divided; therefore, the tag “level” funded health plans. Let’s breakdown the components of a level-funded health plan:
1. Administrative Costs — These are fixed costs charged per employee. It is the cost you, as an employer, pay for claim adjudication, network availability, and prescription network. Regardless of your claim, these costs remain the same.
2. Aggregate Stop-Loss Coverage (ASL) — Aggregate stop-loss coverage covers the entire workforce. Once the claims incurred by employees reach the aggregate stop loss, the reinsurance kicks in and pays the claims from there.
3. Individual Stop Loss Coverage (ISL) — Employers pay for the individual stop-loss insurance to remain protected if individual claims for a given plan year are excessively high. If individual claims reach the stop loss, reinsurance kicks in, reimbursing the employer for claims.
4. Cash Set Aside for Claims — Under a level-funded health plan, this is the portion of a level-funded premium paid into a claims fund. The insurance carrier estimates what claims will be, and if claims for the year are lower than projections, the insurance company refunds the unused funds back to the employer.
How Do Level-Funded Health Plans Work?
Let’s see how level-funded health plans work:
1. Selecting a Plan
With level-funding, employers select a specific level-funded plan from available options. The good thing about the plans is that you can have a program that works for your business tailored for you so that you are in total control of your plan.
2. Fund Your Claims
As an employer, you will then need to set aside enough cash to cover anticipated claim expenses from the beginning of your contract. Just as in traditional health insurance plans, you will be required to make premium payments. Based on your employees’ health risk and age, your insurer will calculate the monthly premiums you will deposit into your claims fund so that your monthly benefits plan payment remains level for the entire year.
The good news is that if the total payments are more significant than actual claim costs, the surplus in an employer’s total payments is refunded at the end of the plan year.
3. Limit Your Risk
With a level-funded health plan, part of your monthly payments is a premium for ASL and ISL coverage. Stop-loss coverage will not only limit your liability as an employer; the regular health plan costs you pay to settle the actual healthcare costs incurred by employees. Though employers are obligated for all costs up to the stop-loss insurance level, if claims go beyond anticipated employee claim costs, the reinsurance acts as a safety net by covering the difference.
Benefits of Level-Funded Health Plans to Small Employers
Just many of the group insurance plans, the number of employees in your business affects your ability to contract with your preferred health insurance carrier. Small and medium-sized companies will enjoy the bulk of the following advantages:
1. Get Money Back and Save On Cost
Let’s say a portion of a level-funded premium paid into a claims fund remains unused at the end of the plan year. Unlike traditional funding plans that keep all portions of unused claims, over 60% of level-funded participants receive refunds of unused money in the claims fund at the end of the plan year.
2. More Affordable
Even to a healthy business, paying huge sums in annual renewals and premiums will end up straining your cash flow. Under a level-funded health plan, you only pay administrative fees and actual claims; thus, you do not have to worry about high claims straining your cash flow.
3. Flexible Plan Designs
Level-funded health plans are exempt from some ACA procedures, thus offer more flexibility in plan design. The detailed reporting level-funded health plans give employers access to critical information such as overutilization trends to inform plan design.
In most cases, level-funded health plans do not have similar regulatory requirements as traditional health finding plans. Taking out this plan will signal less administrative work for your business and even see more money getting back into your business’s revenue streams.
One Last Thing: The Cost Savings of LFPs Make Them a Great Solution for Your Small Business
For many small business owners who have not taken up level-funded plans, the risk of paying huge amounts of money in claims at the end of the year is a great cause of reservation. This cannot be further from the truth.
With potential savings of up to 30% and perks such as making your monthly bills more manageable by funding a consistent level or amount each month, there is no reason your small business should not go for a level-funded plan.
Pioneer Benefits Partners Can Help
Are you considering a level-funded health plan for your workforce? A level-funded health plan could save you money and better your employee benefits plan. Over at Pioneer Benefits Partners, we exist to help you do just that.
With fingers on the industry’s pulse, our range of plan options offers you the best solutions available while leaving your budget in good shape. We continue to employ our vast expertise in corporate benefits to provide clients with detailed plan options and ensure they settle on the best level-funded health plan deals. For more on level-funded health plans, and to find out why a level-funded plan is right for your small business, get in touch with us today.