Health insurance is ranked among the most important factors that employees consider when choosing to accept a job position. Most job seekers understand that the individual marketplace is volatile and that the most cost-effective and reliable healthcare options come directly from employers.
Level funded health plans are suitable for smaller employers that want the customization and cost savings of self-funding with the predictability and financial safety of fully funded plans. Here is a closer look at how does level funding work. So, how does level funding work?
What Is Level Funding?
Also referred to as partially self-funding, level funding occurs when employers take on extra risk for claims than they ordinarily would with a fully insured plan. In return for this additional risk, employers can enjoy financial predictability and cost savings.
When an employer chooses level funding, the insurance company determines the amount of funding for the year based on its past experience, similar to a self-funded plan.
Employers pay a specified amount per month to the insurance company, some of which is collected via payroll deductions from employees to pay for administrative expenses and other fixed costs. If the total claims and other relevant costs are less than the business’s contributions at the end of the year, the company receives a refund.
The Basics Of Level Funding For Employers
Health insurance costs continue to rise, impacting businesses and their bottom line. To combat against these rising costs, employers are seeking alternatives to fully-insured healthcare coverage to provide employees with more benefits at a reduced cost. Level funding provides a happy-medium, providing the benefits of both fully-funded and self-funded health plans.
Allows For A Level Of Predictability
One of the top reasons why many employers choose level funding is due to predictability. Level funding results in pre-set monthly payments that are based on the number of covered employees and the total cost signifies the maximum that an employer pays. With level funding, payments do not fluctuate based on a company’s claims experience, which can provide peace of mind.
Employers Pay A Set Amount
Under level funding, employers pay a specified amount each month to the insurance company. This amount generally includes the cost of administration, administrative fees, stop-loss coverage and the maximum claims based on underwriting projections. Businesses that want a predictable plan in which they pay a set amount each month may benefit from level funding.
Includes Admin Costs, Stop Loss And Claim Coverage
There are several main components of level funding that should be considered before deciding to switch to this type of insurance. Administrative costs are fixed and charged per employee. These costs do not change regardless of claims. Aggregate stop-loss coverage covers an entire workforce and acts similar to a family deductible for employees. Claims coverage offers the most cost savings and an employer may receive a refund at the end of the year if there are any unused funds.
Advantages of Level Funding
Level funding plans have become increasingly popular among small businesses and can be found throughout every industry. Switching to level funding insurance can provide both employers and employees a wide range of benefits. Some of these key advantages include the following:
Claims Experience Determines Rates
When determining the amount of money that a business will need to pay for health insurance, the health insurance company looks at the employer’s prior claims experience. If a business has a relatively healthy workforce, this can result in a more favorable premium amount. These lower premiums can lead to significant savings for businesses.
Refund Of Surplus
With level funding insurance, the portion of the level-funded premiums paid into the claims fund through the year and go unused are refunded back to the business. This differs from traditional health insurance plans in which the insurance company keeps any unused claims. This refund amount can be useful for many small businesses that require extra funding at the start of the year.
Detailed Reporting On Utilization Trends
Another major benefit of level funding is the delivery of detailed reports. Under level funding, businesses are provided with detailed reporting on utilization trends. This can provide employers with valuable insight on where employees may be contributing to overspending, such as going to the emergency room instead of urgent care.
Speak To The Level Funding Experts For More Info On How Does Level Funding Work
Level funding insurance is an effective way to achieve the independence from a self-funded insurance plan, while still retaining the predictability of a set monthly premium. These premiums are divided in three ways. Some of the premium is used to pay for employee claims, some is set aside for plan administration and the rest is invested in stop-loss coverage to protect the business against risks. Learn more about how level funding works or speak with an experienced level funding professional at New City Insurance.