Level-funded plans offer a strategic blend of employer-sponsored health coverage, combining the predictability of fully insured plans with the economic benefits of self-funding. These innovative plans allow employers to set a fixed monthly payment to a carrier, which can help simplify the budgeting and financial planning process. The monthly fee covers estimated costs for expected claims, administrative costs, and stop-loss insurance, which limits the total annual losses for self-funded plans.
Level-funding was previously only used as a strategy for larger corporations but has expanded to become an accessible option for businesses as small as two lives, including startups and small companies. This evolution allows brokers to educate their clients on the advantages of level funding, showcasing it as a forward-thinking choice for managing healthcare costs effectively. It also unlocks the potential for businesses of all sizes to benefit from a model that was once out of reach.
Who Should Consider Level-Funding
Level funding is ideal for all types of small and mid-size businesses that find traditional, fully insured plans cost-prohibitive but still want to offer health benefits. These businesses seek more control over their healthcare costs, preferring a predictable, fixed monthly payment that helps with financial planning. Level funding is also attractive for companies that value transparency and want to see where their healthcare dollars are going. For those not quite ready to transition to an entirely self-funded plan but still want some advantages, level funding is a middle ground offering both cost savings and predictable expenses.
Benefits of Level-Funding
Unlike self-funded plans, the cost of a level-funded plan is consistent from month to month, creating more stability in financial planning for the year. At the end of the plan year, carriers make adjustments based on whether the total claims costs are higher or lower than what was projected for the year. Groups that experience lower-than-expected claims may be eligible for a refund of the surplus premium at the end of the year, another cost-saving mechanism of these plans.
As part of their level-funded plan offerings, some carriers include services and programs that make it easier for employees to make informed healthcare decisions and adopt healthy lifestyle practices. For example, telemedicine offers virtual visits that can be easier to schedule, more convenient, and less expensive than visiting an urgent care clinic or doctor’s office. Similarly, implementing wellness programs as part of a level-funded plan can help employees and their families build and maintain healthy lifestyle habits that lead to lower claims costs over time.
Though there are some cost-saving benefits to level-funded plans, businesses should consider the potential drawbacks of level-funded plans before making a commitment. Unlike fully insured plans, level-funded plans require the groups to go through underwriting. Smaller groups often have to get employees to complete individual medical questions, and the health of the group can significantly impact the rates. Unexpectedly high medical claims can also lead to large rate increases at renewal and no opportunity to earn back surplus premiums. There are also some additional regulatory burdens on the employer as level-funded plans are regulated differently than traditional fully insured options. Level funding offers an attractive alternative for savings, but companies need to think carefully about these risks and be ready to manage them. Working with a trusted insurance agent familiar with these options will help in assessing if level-funded is a good fit.
Considering the Transition to Self-Funding
Level-funding can be an excellent way for employers to test the waters of self-funding, but with lower risk and no long-term obligations. With self-funded health plans, employers must pay claims as they are received. The number and cost of claims can vary wildly from month to month, with no way to predict spending, creating risk and financial uncertainty that can be daunting for employers accustomed to predictable monthly costs. With a level-funded plan, employers will not have these concerns.
After a few years and a better understanding of the health of their employee base, some employers may want to move to a true self-funded model. Others may find that, for one reason or another, they are more comfortable offering fully insured health plans despite the higher costs and more stringent regulatory requirements. Still, others may find level funding to be the “just right” balance that’s right for their business and employees. The only way to find out is to start the conversation.
