What is a level-funded plan?
- Hybrid of traditional group and a self-funded medical plan.
- Allow small businesses to step outside of the Affordable Care Act to provide medically underwritten health benefits.
Potential benefits of adopting this sort of health plan can include:
- Monthly premium savings (in some cases as much as 20% or more).
- Level premiums for each 12-month contract with no exposure to shock claims.
- A potential year end refund – around 50 percent of businesses enrolled in a level-funded program receive a year-end refund – due to unspent claim funds.
- Fewer mandated benefit requirements and ACA taxes.
How does a level-funded plan work?
Much like a self-funded plan a level-funded plan requires the employer to pay for all claims with their own funds. A level-funded plan does a few things differently than a self-funded plan.
- Level-funded plan separates the premium dollar into fixed cost, claims fund, and reinsurance reserves. (much like a self-funded plan)
- A level-funded plan does a few things differently than a self-funded plan.
- In the case of a self-funded plan the employers’ ultimate costs are variable and unknown, being based on the cost of claims. The differentiating factor with a level-funded plan the employers’ ultimate costs are capped and limited to a specific dollar amount.
- Self-funded plans are typical for organizations with 100+ full time equivalent employees. Level-funded plans are available for groups with as few as 2 employees (typically 5 -10).
- The stop-loss insurance policy.
- Self-funded plans are often ridiculed due to the employer’s potential to lose money. The stop-loss policy included in a level-funded plan eliminates this risk.
- What is a stop-loss policy? An insurance policy that relieves a great deal of potential risk to the employer. This policy is generally provided by the group’s Third Party Administrator (TPA).
- What is the purpose of a stop-loss policy? This policy guards against abnormally large individual or group claims.
- The stop-loss policy means employers will never have to pay more than the maximum monthly premium.
- Also, unlike fully insured (traditional group health plan), level-funded plans are not subject to paying state premium taxes, as well as exempt the newly introduced Annual Health Insurance Industry Fee.
- Like a fully-insured (or traditional group health plan), a level funded plan offers employers the benefit of predictable monthly costs via a fixed monthly payment that does not fluctuate based on claims activity.
- PCORI (Patient Centered Outcomes Research Institute) Fee is a per member per year fee paid by the employer.
- 1095 Reporting is responsibility of employers who are insured on a level funded plan.
The benefits of a level-funded plan
- Year-after-year, the employer has greater control over healthcare dollars, because the costs associated with a level-funded plan are based on its employees as opposed to the costs incurred by the general public as is the case with most Obamacare plans.
- If you have a healthy group, premiums and associated healthcare costs are much lower than that of a traditional (fully-insured) group healthcare plan.
- Employers are not required to include all state mandated benefits, and can customize their benefit plan to best suit their needs.
- Money is refunded at the end of the year if the total amount of claims is lower than projected.
Why aren't all companies switching to a level-funded plan?
- Level-funded plans are not a one size fits all. If your group is unhealthy or on numerous medications, this type of plan may not provide you with the best rates.
- What does this mean?
- Level-funded plans underwrite each group based on its employee’s medical history to determine final rates or if coverage will be offered at all.
- A company with a higher risk whether due to medical conditions, business type, age of the workforce, or some combination of these, would see higher rates once underwritten.
- A company with a healthy workforce would likely benefit from a level-funded plan.
- Depending on the state, there is a required minimum number of employees or minimum participation requirement for an employer to apply for a level funded policy.
- What does this mean?