A level funded health plan is a type of self-funded health plan that offers smaller employers the benefits of self-funding without the risks and uncertainties. It is a hybrid solution that combines the features of a fully insured plan and a self-funded plan, giving employers more control over their healthcare costs and more opportunities to save money.
How Does a Level Funded Health Plan Work?
A level funded health plan works by having an employer pay a fixed monthly amount to a health carrier, which covers three components:
- The estimated cost of expected claims for the covered employees and dependents.
- The administrative fees for the health carrier to manage the plan, provide network access, handle claims processing, and offer other services.
- The premium for stop-loss insurance, which protects the employer from paying claims that exceed a certain threshold, either per individual or per group.
The monthly amount is based on the employer’s historical claims data and projected health care utilization. At the end of the plan year, the health carrier reconciles the actual claims with the estimated claims. If the actual claims are lower than expected, the employer receives a refund for the unused portion of the monthly payments. If the actual claims are higher than expected, the employer does not have to pay any additional amount, as the stop-loss insurance covers the excess claims.
What are the Benefits of a Level Funded Health Plan?
A level funded health plan offers several advantages for smaller employers who want to switch from a fully insured plan to a self-funded plan, such as:
- Predictable Expenses: A level funded plan provides a consistent monthly payment that is easier to budget and manage than a self-funded plan, which can vary depending on the claims experience. A level funded plan also eliminates some of the fees and taxes that are associated with a fully insured plan, such as state premium taxes and Affordable Care Act (ACA) fees.
- Lower Administrative Burden: A level funded plan simplifies the administration of a self-funded plan by outsourcing most of the tasks to the health carrier, such as third-party administration (TPA), pharmacy benefits management (PBM), and stop-loss insurance. The health carrier also provides compliance support and legal guidance to help employers meet their obligations under federal and state laws.
- Health Claims Rebates: A level funded plan rewards employers who have healthy and engaged employees who use less health care services or submit lower claims. Employers can receive a refund for any unused portion of their monthly payments at the end of the plan year, which can be reinvested in their business or used to improve their health benefits.
- Data for Future Savings: A level funded plan gives employers access to their own claims data and healthcare utilization reports, which can help them identify areas for improvement and optimization. Employers can use this data to design wellness programs, implement cost-containment strategies, negotiate better rates with providers, or transition to a fully self-funded plan for even more savings in the future.
Is a Level Funded Health Plan Right for Your Business?
A level funded health plan is an attractive option for smaller employers who want to enjoy the benefits of self-funding without taking on too much risk or complexity. However, it may not be suitable for every business. Some factors to consider before choosing a level funded health plan are:
- Your business size and employee population: A level funded health plan is typically designed for smaller employers with 3 to 199 employees who have stable and predictable claims experience. Larger employers may find more savings and flexibility with a fully self-funded plan.
- Your risk tolerance and cash flow: A level funded health plan reduces but does not eliminate the risk of self-funding. There is still a possibility that your monthly payments may increase if your claims experience worsens or if your stop-loss insurance premium goes up. You also need to have sufficient cash flow to cover your monthly payments and any unexpected expenses that may arise.
- Your health care goals and needs: A level funded health plan offers more control and transparency over your health care costs and data than a fully insured plan, but less than a fully self-funded plan. You may have limited choices in terms of network access, benefit design, and customization. You also need to comply with the rules and regulations of your health carrier and stop-loss insurer.
If you are interested in learning more about level funded health plans or finding out if they are right for your business, please contact us today. We can help you compare different options and find the best solution for your company needs.