Level funding is becoming more popular with employers, especially with recent changes to healthcare insurance and legislation surrounding it. As the situation continues to evolve, it could be a good option for many more firms.
Is it right for your business, though? Not all solutions are created equal, and every business has unique needs. Level funding might be right—but you need to be sure.
Level funding is a self-insuring option for employers, which has become more popular in recent years as it combines the simplicity of a fully insured plan with the upside of a partial self-funded plan with no additional risk. Instead of paying a monthly premium to a commercial insurer, which is based on an arbitrary set of rating restrictions, self-insuring options allow businesses to take advantage of cost-containment efforts and potentially retain a portion of the premiums in their claim fund.
Level funding allows companies to pay a regular monthly rate, while also only paying for the healthcare costs incurred by employees.
With this type of plan, the company pays a set monthly fee to a healthcare services company. The fee covers administrative costs, fees, and stop-loss coverage, which is embedded in the plan. It serves as a financial buffer for the employer should a covered employee incur large claims.
The company then sets aside cash to cover anticipated healthcare costs. At the end of the year, if the company has overpaid, a surplus is available to be used to reduce employee benefit costs. The surplus stays with your company, rather than going to your fully insured carrier as an underwriting profit. If claims go over the anticipated amount, the organization is protected by the stop-loss insurance, which covers additional claims. In a best-case situation, you get to keep some or all the surplus. In a worst-case situation, you know exactly what your maximum cost is just like your fully insured plan.
Level funding is for any employer looking to take control of group medical insurance costs. Companies with only two employees may qualify for a plan, but ideal groups will have at least 10 full-time employees and be in overall good health. Rates and plan designs are based on the demographics of your group, which means more flexibility and customization to meet your business needs.
Obviously, the biggest advantage of this option is that it makes self-insuring more predictable. Self-insurance is often a more economical option for some companies, but few of them have the liquidity to deal with highly variable monthly payments. This option takes all the guesswork out of those monthly payments.
Like other self-insurance options, level funding allows the employer to pay only for what the employees use. In traditional fully insured plans, most employees don’t claim all of their entitlements each and every year. The employer is almost always overpaying their premiums in this situation—and the money is lost. Level funding helps employers lower the cost of healthcare benefits and get more money back in the company’s pockets.
Self-insured plans are exempt from many of the federal regulations on healthcare; given the current upheaval in federal healthcare legislation, these exemptions allow self-insured plans to continue operating uninterrupted even as the law changes. Self-insured plans are also exempt from state-mandated benefits and state taxes, resulting in savings for the firm. Little wonder their growth with employers in the past 4 years has been tremendous.
This type of plan is a great option for companies that invest in employee wellness. They can help their employees stay healthier longer through preventative care, thus limiting healthcare expenses for both the employee and the plan. It also offers almost instantaneous and sustainable savings for employers.
