A level funded health plan combines cost-savings and a high level of customization similar to self-funded health plans with the financial safety and predictability of fully-insured plans. They are growing in popularity very quickly among small business employers. This type of health plan still fully utilizes contracting with health insurance companies, but the employers agree to assume more financial risk.
What are the Components of a Level Funded Health Plan?
There are four main components to a level funded health plan:
- Administrative Costs — Under a level funded health plan, the administrative costs are fixed costs and charged on a per-employee basis. No matter what a claim may be, the cost will remain the same. It provides benefits such as network availability, a prescription network, claims adjudication, and more.
- Individual Stop Loss Coverage — In the event that an individual claim is exceptionally high in a single plan year, this feature helps ensure employers are protected. It is a form of stop loss insurance, and when an individual claim meets the maximum threshold, it is activated to reimburse the employer for claims.
- Aggregate Stop Loss Coverage — Similar to the individual stop loss coverage, this stop loss insurance covers the employer’s entire workforce. When the combined claims reach the maximum threshold, it activates to reimburse the employer for claims.
- Claims — While this component is subject to many variables, it is also the component that offers the highest potential for cost savings. To calculate the total premium for each person under the plan, the insurance company will estimate how much they believe the group will claim per year and divide it by the number of employees. The difference between a fully funded plan and a level funded plan is that if claims are lower than expected, the difference is refunded.
How Does a Level Funded Health Plan Benefit Employers?
There are numerous benefits for a level funded health plan for both employers and employees. In addition to those mentioned above, level funded health plans offer:
- Cost savings — The trade-off for the employer assuming more risk is a significant amount of cost savings. Unlike fully health plans, the costs associated with a level funded health plan will not rise on an annual basis if claims are high. A self funded health plan offers even more cost savings, but with much higher risk taken on by the employer. A level funded health plan is the middle-ground.
- Plan Design — Like the self funded health plan, a level funded health plan gives employers more flexibility in the features and benefits they want. Additionally, they are exempt from some ACA regulations. Lastly, they give employers insights into data such as prescription costs, claims information, and more to help them design plans that are best suited for their employees.
- Regulation – Because of the exemption from some ACA regulations, level funded health plans can help reduce administrative costs, thereby reducing overhead. This is especially helpful for smaller businesses that do not have large administrative departments to handle the burden of processing claims.
DesignTM Health is here to answer your questions about the benefits and drawbacks of a level funded health plan. We provide you with the information you need to make an informed decision and can help you compare plan features that will cover the needs of your employees while staying within a budget you can afford.
We encourage you to TM Health Insurance Advisors” href=”tel:7203302283″>() to discuss your business’ needs and goals and experience the DesignTM Health difference!