Small businesses that wish to manage their health insurance costs are now considering a unique funding strategy known as level funding. Level funding is a self-funding solution that works in conjunction with most standard health plans to deliver predictable plan costs. Employers only pay for health care that employees actually use.
Will Level Funding Work For My Company?
Level funding is not the right solution for every business but can be highly advantageous to companies that meet basic requirements. For example, this insurance is best suited for employers with a healthy workforce as this helps to keep the cost of premiums to a minimum. Level funding insurance is also a great choice for companies that want payment predictability and do not want to pay for unused coverage.
Understanding This Insurance
It combines the cost savings of self-funding with the predictability of fully-funded plans, giving employers the best of both worlds. A level-funded health plan consists of four main components, including administrative costs, aggregate stop-loss coverage, individual stop-loss coverage and claims. Together, these components offer businesses a range of benefits, such as cost savings, flexibility and looser regulatory requirements compared to traditional, fully insured plans.
What Should I Ask When Considering Level Funding?
Many small businesses are not large enough to operate with the risks involved with a self-funded plan. What makes this insurance option so attractive to these smaller businesses is that it includes built-in stop-loss coverage that can help cover larger, unforeseen claims. In simple terms, a business that chooses level funding insurance will never pay more than their monthly premium. However, they can enjoy a surplus if they experience a good year.
When deciding to switch, consider the following questions:
How Many Employees Do You Have?
Level funded health plans are based on the underwriting of a workforce’s claim experience and health status. The cost of premiums is also based on the number of employees a business has, as this can alter aspects like the cost of stop-loss coverage. Businesses that benefit most from level funding include those with relatively stable workforces, allowing for great predictability of future claims.
Are Your Employees Healthy?
When considering whether to acquire level funding insurance, businesses should always consider the health of their employees. With level funding, an employer only pays for claims that the group actually makes. This means that if an employer has relatively healthy employees who do not visit the doctor frequently, premiums can be kept relatively low.
Do You have Experienced Benefits Brokers?
Working directly with experienced benefits brokers can make a significant difference in the outcome of a business’s group health insurance efforts. Businesses that partner with a knowledgeable broker can enjoy strategic health and benefits solutions that aim to save money and keep employees happy and healthy. Benefits brokers can recommend plans based on unique factors that impact the business and can help negotiate contracts to ensure that the business secures the best pricing possible.
Can You Accommodate To A Variation in Claims?
Predictability is one of the top reasons that many businesses select level funding. Businesses can enjoy pre-set monthly payments that are based on past claim experience and number of employees. However, that does not mean that the cost of insurance never changes. While the premium will not go up in the middle of the year, there is potential for changes in price resulting from high claims the previous year.
Finding Your Level Funding Plan
Businesses that want to operate a level-funded health plan must consider all aspects of their decision, such as their company’s cash flow, employee numbers, risk tolerance and preferred budgeting methods. Having an experienced benefits broker that an employer can look to for guidance can be highly advantageous when comparing group health plans.
Consider Drawbacks, If Any
There are drawbacks to any type of health or medical plan, regardless of the number of advantages. Review these potential downsides to determine if the good outweighs the bad. One of the biggest issues is that this type of plan does not follow the ACA’s medical loss ratio (MLR) rule. Also known as the 80/20 rule, this rule states that carriers must spend a minimum of 80 percent of collected premiums on health care. Any excess premium charged must be rebated.
Talk To The Level Funding Professionals
Level funding insurance can offer many benefits to businesses, but employers need to understand the potential trade-offs they are making when switching to level funding. To learn more about this insurance or to speak with insurance professionals about acquiring a plan, speak to New City Insurance’s self-funding insurance experts today.