HR departments are charged not only with finding employees comprehensive and affordable benefits including health insurance coverage, but also watching their part of the overall company bottom line.
With rising healthcare costs, it can be challenging to find a solution that meets the needs of your business and your employees. This is where level funded health plans can come into play.
What is a Level Funded Health Plan
Level funded health plans took off in early 2021, and can be a good way for small- to mid-sized businesses to find a good balance between self-insurance and larger plans that cost more. They are a hybrid approach to providing healthcare coverage that combines elements of traditional fully-insured plans with those of self-funded plans.
With a level funded plan, your business pays a fixed monthly amount (a level fee, similar to a premium) to an insurance carrier or third-party administrator. This amount is calculated based on the employees’ expected healthcare costs, administrative fees, and a stop-loss insurance component.
The monthly fee is fixed for a 12-month period. The employer pays the fee regardless of claims activity and usually collects some of the cost through pre-tax payroll deductions.
The stop-loss insurance component is a crucial aspect of level funded plans. It provides protection to the business by limiting the amount it has to pay in the event of high-cost claims. If the total claims costs exceed a certain threshold, which is predetermined in the contract, the stop-loss insurance kicks in and covers the excess amount.
Cost Control — With a fully-funded plan, businesses pay a fixed premium regardless of the actual claims costs. However, with a level funded plan, the employer pays only for the expected claims costs, administrative fees, and stop-loss insurance. This means that if the claims costs are lower than expected, the business retains the surplus funds. This can result in significant cost savings, especially for businesses with healthier employee populations.
Flexibility and Customization – Employers can tailor the benefits package to meet the specific needs of their workforce. This includes options for different deductibles, coinsurance levels, prescription drug coverage, and wellness programs. By customizing the plan, businesses can provide a more targeted and suitable health insurance coverage for their employees.
Transparency and Data Insights – With level funded plans, employers have greater transparency into the healthcare costs of their employees. This transparency allows businesses to identify areas of high utilization, trends in healthcare expenses, and potential opportunities for cost savings. By gaining insights from the claims data, employers can make informed decisions about their benefits offerings and implement cost-saving measures.
Expert Support – Many level-funded plans come with comprehensive administrative services, reducing the administrative burden on your HR team. Additionally, experienced insurance carriers can provide guidance on risk management strategies and cost-containment measures
Employee Engagement and Satisfaction – Employees have more control and choice over their healthcare, as they can select plans and benefits that align with their individual needs. The transparency and customization options offered by level funded plans can improve employees’ understanding of their healthcare options, leading to higher satisfaction levels and more engaged employees.
Before making the switch to a level-funded plan, it’s crucial to carefully evaluate your specific needs, engage with reputable insurance carriers, and consider the unique characteristics of your workforce.
You also need to review the compliance requirements. Many of the requirements that apply to self-insured health plans under federal law also apply to employers offering level funded health plans.
We outlined the five areas your business would need to start when reviewing how to maintain compliance with these plans. Download the ebook now to further educate yourself on these plans.