Level Funded Health Plans – A Hybrid Solution to Self-Funding

21 Jan Level Funded Health Plans – A Hybrid Solution to Self-Funding

Small to Mid-Sized Employees Take a Closer Look at Level Funded Health Plans to Take Control of Costs and Expand Benefits

Prior to the pandemic, healthcare consumerism (i.e., employee wellness) had been a growing trend for health insurers and self-funded employer health plans, as healthy people are far less likely to have serious health issues that drive up claims and premiums.  As healthcare costs continue to go through the roof, post-pandemic, more and more companies are jumping on that wellness train.  One of those ways is through level-funded health plans, especially for small to medium size businesses.

In the past, generally only larger employers benefited from the transparency and financial predictability that self-funded plans provide, while small employers were best matched with fully insured options that are less risky.  Level-funded plans, aka partially funded plans, offer both the peace of mind of a fully insured plan with the flexibility and cost saving potential of a self-funded plan, allowing smaller employers to take back control of their finances after the pandemic, while actually expanding coverage to focus more on employee wellness and meet the needs of today’s post-pandemic workforce.

What is the difference between a Fully-Funded Health Plan and a Self-Funded Health Plan?

A fully-funded health plan is one where the insurance carrier assumes all the risk in exchange for a monthly premium.  The carrier pays all claims on the plan, and services the plan’s administration.  A self-funded plan requires the employer to assume all the risk, paying all claims on the plan, and will often partner with a PPO to provide healthcare services for the plan.  They will also hire a third-party vendor TPA to service the plan’s administration.  In other words, the employer becomes the insurer.

The Pros and Cons

The main advantage of a fully-funded plan is the employer knows exactly what the plan is going to cost them.  With a self-funded plan, the cost is somewhat unknown, but employers generally benefit from a significant savings in the overall cost of their benefit programs.  Additionally, employers have more control over the benefits that the plan offers.

The downside of a fully-funded health plan is when benefits go unused, the employer does not get any money back.  The downside of a self-funded health plan is the employer runs the risk of a large catastrophic claim and must purchase stop-loss insurance to protect themselves in such an event. Even with the additional expense of stop-loss insurance, employers can save a significant amount of money on premiums and other advantages.

Partially-Funded Plans (aka Level-Funded) are a variation of a Self-Funding and allows small employers to take advantage of all the cost saving and benefit design features of a self-insured plan, however, they share the risk with one of our top national carriers. The premiums for shared funding plans are generally much lower than fully insured plans.  And, if claims are less than what was originally projected, the employer will retain the surplus. If claims are more than projected, the employer does not have to pay anything additional to cover the extra costs because of stop loss insurance protections.  An employer may save even more by implementing wellness programs into the benefit strategy.

Considering a Level Fund Health Plan?

Idaho Benefits Consulting can help.  We work with top carriers across the nation offering the best level-funded options available.  We can further help you bundle your benefits in a variety of employer or employee-paid combinations, with employee wellness and other cost containment strategies to help keep them affordable for all.  We also implement a strong employee communication strategy to ensure your employees engage in utilizing their benefits wisely.