Considering the rising healthcare costs, it’s no surprise that employers are constantly seeking ways to provide affordable coverage for their employees. One option that has become increasingly popular in recent years is level-funded health insurance. But what exactly is level-funded health insurance, and how does it work?
Level-funded health insurance is a hybrid model that combines aspects of self-insurance with the stability of a fixed monthly payment, similar to a fully insured plan. Employers pay a monthly fee to cover estimated claim costs and administrative expenses.
NPA Benefits, a leading employee benefits consulting firm, level funding explains that insurance carriers typically offer level-funded plans that can be tailored to meet an employer’s specific needs. This guide will discuss how level-funded health insurance works and its benefits for employers and employees.
Level Funded Health Insurance | A Basic Intro
Level-funded health insurance is a self-funded health plan where the health insurance carrier assumes significant risk but provides financial protection for the employer. The employer pays a set amount each month comprised of two parts:
- A fixed administrative fee to cover things like claims processing and other administrative costs
- An estimated claim cost based on the number of employees enrolled in the level-funded health plans and their expected healthcare utilization
If actual claims are lower than the estimated amount, the employer may receive a refund or credit from the carrier. On the other hand, if valid claims exceed the estimated amount, the airline will cover those additional costs up to a limit known as a “stop-loss” amount.
How Does It Differ From Traditional Health Insurance?
Traditional health insurance plans pay a fixed monthly premium to an insurance carrier. The carrier then assumes all financial risk for the claims of employees enrolled in the level-funded health plan. The carrier absorbs any surplus or deficit. In contrast, level-funded health insurance shifts some of the financial risk to the employer, making it a more cost-effective option for many businesses.
Who Requires Level-Funded Health Insurance
Level-funded health insurance is typically offered to small and mid-size employers with 10-300 employees. These plans appeal to businesses that want the cost savings of self-insurance but also desire a more predictable monthly expense. Additionally, level-funded plans are often higher than expected claims and are best suited for companies with good claims experience in the past few years.
Understanding Level-Funded Health Insurance
Level-funded health insurance is a unique approach to providing health coverage, particularly suited for specific individuals and groups. It combines elements of both self-funded and full health benefits, self funded plan offering a middle ground that can be advantageous for particular entities. Let’s delve into who might find level-funded health insurance beneficial.
Small And Medium-Sized Businesses
Level-funded health insurance caters to small and medium-sized businesses seeking cost-effective health coverage options for their employees. These businesses often face financial constraints but want to provide comprehensive healthcare benefits to attract and retain talented employees. Level-funded plans allow employers to customize coverage according to their workforce’s needs while maintaining predictable monthly out-of-pocket costs.
Budget-Conscious Employers
Employers with budgetary concerns can benefit from the predictability of level-funded plans. These plans typically involve a fixed monthly cost, including administrative fees and the expected claims. This structure helps employers avoid the financial volatility of traditional self-funded plans, where unexpectedly high claims could lead to significant financial strain.
Employee Wellness Advocates
Organizations that prioritize employee wellness may find level-funded health insurance appealing. These plans often come with wellness programs and preventive care initiatives. Employers aim to reduce overall healthcare costs and enhance productivity by promoting a healthier workforce. Level-funded plans provide an avenue for employers to invest in the well-being of their employees actively.
Startups And Growing Companies
Startups and rapidly growing companies looking for flexibility and scalability in their health insurance plans may find level-funded options advantageous. As these businesses evolve, their workforce and healthcare needs may change. Level-funded plans offer adaptability, allowing employers to adjust coverage levels and costs to align with the organization’s growth trajectory.
Entities Seeking Transparency
Transparency in healthcare costs is crucial for some entities, and level-funded plans provide just that. With a clear breakdown of administrative fees and claims costs, employers have better visibility into where their healthcare dollars are spent. This transparency can empower organizations to make informed decisions and negotiate more effectively with healthcare providers.
Groups With Favorable Risk Profiles
Entities with a favorable risk profile may be well-suited for level-funded health insurance. Since these plans involve a fixed monthly fee and a predetermined level of risk, organizations with healthier employee populations may benefit from potential cost savings. This can be particularly attractive for groups with a history of lower-than-average claims.
Level-funded health insurance is a versatile option that caters to the needs of various entities. Small and medium-sized businesses, budget-conscious employers, those advocating for employee wellness, startups, growing companies, entities seeking transparency, and groups with favorable risk profiles can all find value in the features offered by level-funded plans. Understanding an organization’s specific requirements and priorities is crucial in determining whether level-funded health insurance fits them.
Step-By-Step | Level Funded Health Insurance
To provide a comprehensive understanding, let’s break down the critical steps in setting up and effectively managing a level-funded health insurance plan. This breakdown will encompass the necessary actions, considerations, and strategic approaches to implement and maintain such a plan successfully.
- Introduction To Level-Funded Health Insurance
Level-funded health insurance is a hybrid insurance model that combines aspects of both fully insured and self-funded plans. It particularly appeals to small and mid-sized businesses seeking cost savings and more control over their healthcare expenses. The plan blends a self-funded structure with a stop-loss component, providing financial security for unexpectedly high claims.
- Assessing Eligibility And Employee Participation
Before implementing a level-funded health insurance plan, assessing eligibility and employee participation is crucial. Businesses typically consider factors such as the number of employees, their health status, and willingness to participate in the plan. Adequate communication and employee education ensure a smooth transition to the level-funded model.
- Determining The Funding Structure
The heart of level-funded health insurance lies in its funding structure. Employers must decide on the appropriate funding level based on risk tolerance and budget constraints. The plan typically consists of a fixed monthly fee for administrative costs and a variable component for claims funding. This allows for more predictability in budgeting while still providing flexibility for unexpected claims.
- Securing Stop-Loss Coverage
Businesses opting for level-funded health insurance secure stop-loss coverage to mitigate the financial risks associated with high claims. This acts as a safety net, limiting the economic impact of huge claims. Employers must carefully determine the appropriate stop-loss limits to balance cost savings and adequate protection.
- Customizing Plan Design And Benefits
One of the critical advantages of level-funded health insurance is the flexibility it offers in plan design. Employers can customize benefits to align with the unique needs of their workforce. This may include selecting specific coverage options, setting co-pays, and tailoring deductibles. Customization ensures that employees receive comprehensive coverage without unnecessary expenses.
- Engaging A Third-Party Administrator (TPA)
To streamline the administration of a level-funded health insurance plan, businesses often engage a Third-Party Administrator (TPA). The TPA manages day-to-day operations, including claims processing, member services, and compliance monitoring. Selecting a reputable TPA is crucial for the smooth functioning of the plan.
- Implementing Wellness Programs
Many level-funded health insurance plans incorporate wellness programs to promote employee health and reduce long-term healthcare costs. Implementing preventive screenings, fitness programs, and lifestyle coaching initiatives can contribute to healthier employees and, consequently, lower healthcare expenses.
- Monitoring And Adjusting The Plan
Continuous monitoring is essential for the success of a level-funded health insurance plan. Regularly assess claims data, utilization patterns, and employee feedback to identify areas for improvement. Adjust the plan as needed, whether it involves modifying benefits, negotiating with providers, or refining wellness initiatives.
Level-funded health insurance offers a middle ground between traditional fully insured plans and self-funded models. NPA Benefits has extensive experience setting up and managing level-funded health insurance plans for businesses of all sizes.
The Benefits Of Level Funded Health Insurance
Now that we’ve covered the basics of level-funded health insurance let’s explore some of its benefits for employers and employees.
- Cost Predictability And Control
One of the primary advantages of level-funded health insurance is the ability to predict and control costs. Unlike traditional fully insured plans, where employers pay a fixed premium regardless of their employees’ health utilization, level-funded plans involve a combination of fixed and variable costs. Employers pay a set monthly premium covering administrative fees, stop-loss insurance, and other fixed expenses. The remaining funds go into a claims account, which protects employees’ medical expenses.
- Customization And Flexibility
Level-funded plans offer a high degree of customization and flexibility. Employers can tailor the plan design to meet the specific needs of their workforce, adjusting features such as deductibles, co-pays, and coverage levels. This flexibility allows businesses to create a benefits package that aligns with their budget constraints while providing meaningful employee coverage. Additionally, employers can add wellness programs and other initiatives to promote employee health and well-being.
- Potential Cost Savings
One of the most significant attractions of level-funded health insurance is the potential for cost savings. In a fully insured plan, the insurance carrier retains unused premium dollars. However, new claims funds are typically returned to the employer at the end of the policy year in a level-funded plan. If employees are healthier than expected, the employer may recoup some funds, contributing to overall cost savings.
- Transparent Claims Data
Level-funded plans provide employers with access to detailed claims data, offering insights into the health utilization patterns of their workforce. This transparency enables employers to identify areas for improvement and implement targeted wellness initiatives. By understanding the specific health needs of employees, employers can make informed decisions to enhance the overall well-being of their workforce, potentially reducing long-term healthcare costs.
- Risk Mitigation Through Stop-Loss Insurance
While level-funded plans introduce risk, they also incorporate stop-loss insurance to mitigate potential financial exposure. Stop-loss insurance kicks in when claims exceed a predetermined threshold, protecting the employer from catastrophic financial losses. This combination of risk-sharing and stop-loss protection creates a balanced approach that allows businesses to take advantage of the benefits of self-funding while minimizing economic uncertainty.
- Employee Engagement And Satisfaction
Level-funded health insurance can contribute to increased employee engagement and satisfaction. The flexibility to customize benefits and the potential for cost savings demonstrate a commitment to employees’ well-being. This, in turn, can enhance employee morale, retention, and recruitment efforts, creating a positive work environment.
Level-funded health insurance offers a compelling alternative for businesses seeking cost predictability, customization, and potential savings. As the healthcare landscape evolves, level-funded plans stand out as a strategic option for businesses navigating the complex realm of employee benefits.
Final Words
Level-funded health insurance provides businesses with a cost-effective and flexible option for providing healthcare coverage to their employees. Organizations can make informed decisions that align with their unique needs and priorities by understanding the steps involved in implementing and managing such a plan.
With its customizable benefits, financial predictability, and potential for cost savings, level-funded health insurance continues to grow in popularity as an alternative to traditional insurance models.
Please consider consulting with a trusted insurance advisor, like NPA Benefits, to determine if level-funded health insurance is the right fit for your organization. Your employees’ health and well-being are worth the investment. So go immediately; explore your options and see how level-funded health insurance can benefit your business today!
