6 Reasons Your Business May Want to Consider Level Funding - Healthcare Insurance
Jeffrey D. Minuto, Business Contributo
6 Reasons Your Business May Want to Consider Level Funding - Healthcare Insurance
Level funding is a type of self-funding. But with this approach, you pay a fixed amount each month to the insurance carrier to cover administrative and claims costs rather than paying for your employees’ medical costs directly.
What are the advantages of a level-funded plan for businesses?
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLAST1. Your premiums are fixed. After medical underwriting, your premiums are fixed – or “level” – similar to a fully-insured plan. That makes your payments predictable each month, which can be better for budgeting purposes than a self-insured plan by alleviating the inconsistency of paying claims as they arise.
2. There’s the possibility of a surplus. With level funding, you only pay for the healthcare costs your employees actually incur. That means that at the end of the year, you’ll get a refund based on any unused claims reserves rather than the insurer retaining the amount, as is the case with a fully-insured plan. Keep in mind, however, that if any of the funding was paid with employee contributions, part of the rebate may be considered plan assets under ERISA. Also, your company would be responsible for paying taxes on the refunded surplus since you took a deduction on earlier premiums.
3. It doesn’t need to be community-rated. With fully-insured coverage, premiums are community rated to spread out the risk so your costs are based on the entire group’s risk factors. With level funding, your premiums are solely based on your employees rather than including workers from other companies, which can lower your costs if you have a healthy population.
4. The plan includes built-in stop-loss coverage. Your monthly payments for a level-funded plan cover embedded stop-loss insurance to protect you against excessively high individual and group claims that exceed what you paid into the program. This integrated feature limits your financial exposure for catastrophic claims, for example, if an employee is diagnosed with cancer.
5. It’s exempt from certain regulations. Compliance may be easier with level-funded plans because they may not be subject to state-mandated benefits required of fully-insured plans and, if you have less than 50 employees, aren’t covered by the ACA’s community rating rules or age banded employee rates. The plans are, however, governed by ERISA, and have the same filing requirements of larger self-funded plans. BENEFITS NEWS MARCH 2021
6. Access to aggregate claims data. With fully-insured plans, claims data is typically not available for employers with less than 100 employees covered by the health plan. With level-funded plans, aggregate claims data is available for employers regardless of the number of employees covered on the plan. This information, which is de-identified to protect employers from HIPPA violations, can be critical in evaluating future plan design and employee communications.
While these plans offer a lot of benefits, there are also potential downsides you should consider when evaluating different level-funded programs.
For example, each state may have its own regulations for re-entering the small group marketplace. This may put some employers in a tough situation if the level-funded plan were to be non-renewed for poor claims experience.
Additionally, each level-funded carrier will have different “run-out” or terminal liability provisions built into their contracts. Terminal liability is the period of time after the plan year ends where the carrier will still pay claims that were incurred during the plan year. Understanding the terminal liability requirements within each contract is important in order to properly evaluate your assumed risk.
Level-funded programs can be a great cost containment option for some businesses, offering lower premiums for both employers and employees. They offer better insight into the overall health of your population and more flexibility in offering different plan designs. But as with any contract, it is important to understand all the benefits as well as risks when evaluating whether it is the best option for your company.
