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.