Small employers are always on the lookout for ways to control their group health insurance costs better. Funding options in the current insurance market, such as level funding, enables employers with at least ten full-time employees to achieve lower premiums and gain more control over their group health insurance policies. Level funding insurance is essentially a hybrid of self-funded employee health insurance and traditional small group health plans.
How Does Level Funding Work?
Level funding, also referred to as partially self-funding, occurs when an employer takes on additional risk for claims than they would with a fully insured insurance plan. However, employers gain greater financial predictability than they would by paying claims directly. Under a level-funded plan, insurance companies determine a funding amount for the year based on the employer’s experience. The employer then pays a specified amount to the insurance company on a monthly basis to pay for fixed costs, administrative expenses and claims.
At year’s end, the insurance company compares paid claims to the amount contributed by the employer. The employer receives a refund if the total claims and expenses are less than the employer’s contributions for the year.
Works To Save Money
Level funding insurance provides key benefits to both employers and employees, including cost savings. Fully insured health plans eliminate most of an employer’s risks, making the cost of the insurance plan higher for employees. In comparison, self-insured health insurance plans place the majority of risk on employers, and employees enjoy savings in the form of lower premiums. Insurance provides the best of both worlds by introducing money-saving features for both employers and employees.
Allows For Easier Flexibility
Level funding insurance plans offer far more flexibility in plan design compared to alternative options. Businesses are better equipped to manage their budget and prepare for claim costs. They also benefit from a smoother cash flow and do not fear that a large claim at the start of the year will negatively impact the business.
Level funding insurance plans are also exempt from certain ACA regulations, such as the ACA’s 80/20 rule that requires carriers to spend at least 80 percent of premiums on medical care or to improve quality of care in some way.
Businesses That Should Consider Level Funding
Level funding insurance may be the right choice for small and mid-sized businesses that want to gain more control over their insurance plans. It is also a suitable option for businesses that want access to claims data and to pay a consistent monthly premium. Level funding is an excellent option for businesses that want to operate a self-funded plan that will align with their risk tolerance, cash flow, budgeting methods and employee numbers.
Companies Look for Better Flexibility
With level funding insurance, companies have the benefit of consistent and predictable health costs. In addition, they only pay for healthcare costs that their employees actually incur. Level funded health plans enable employers to combine administrative expenses and claims coverage to create a regular monthly premium. This option takes all the guesswork out of monthly payments.
This kind of insurance offers the advantages of self-funding while limiting its disadvantages. For lower-risk groups, monthly premiums are generally much lower than the premium a group would need to pay for the same benefits under ACA community rating rules.
Why Should You Switch?
There are several key reasons why a business may choose to switch to level funding insurance. First, employers struggling to find affordable group health insurance for their employees may favor a plan that requires them only to pay for the health care claim the group actually uses. It is also a great choice for employers with young or relatively healthy employees.
Save Time And Money
Level funding insurance often saves companies time and money in the long-term. These plans do not need to be community rated like fully insured plans do, saving companies money. However, these savings are only noticeable when claims stay low. This means that level funding insurance is best suited for a company with a healthy workforce.
Improve Your Employee Satisfaction
One of the biggest advantages of this kind of insurance is lower premiums for employers with relatively healthy employees. In turn, lower expenses can lead to greater employee satisfaction. Larger claims are also not a major issue as a level-funded plan generally includes built-in stop-loss coverage that comes into play when unforeseen large claims arise.
Contact Our Level Funding Insurance Agents
Level funding insurance can be a highly advantageous funding option for employers with self-funded plans that wish to streamline their health coverage budgeting and funding efforts. Contact the insurance agents at New City Insurance to learn more about insurance or speak with an insurance agent to discuss insurance needs.