Level Funding: The Perfect Middle Ground
Due to the increasing costs of healthcare, self-funding has become a popular option for large employers to reduce and take control of their costs. It’s a great model, but not a fit for everyone. What about the smaller employers that want the financial benefits of self-funding, but can’t or don’t want to cover the additional risk? What if you want stable premiums and the peace of mind that comes from working with a large insurance company on a fully insured basis, but know your premiums greatly exceed your claims every year?
Small and mid-sized companies listen up: there’s an option available that’s the best of both worlds. Picture this. You get all the benefits of being fully insured: consistent monthly premiums, no risk of owing more money than expected and a large insurance company administering the benefits and dealing with claims. Plus, there's all the benefits of self-funding: reducing the profits an insurance carrier would get if you had a low claim year and access to your claim data, so you can analyze claims and take control.
It’s called level funding, and it’s here to stay. In this arrangement, your company still works with a large insurance carrier that handles all the payment and processing of claims. The insurance company charges a fixed fee for these administrative services. They then underwrite your group, and based off the risk, determine what your expected claims are for the year. They put in stop-loss insurance to cover you if claims go too far over the expected amount. There’s specific (per individual) and aggregate (total claims for the year) stop-loss for which the insurance company charges a premium. The monthly premium your company now owes for its health insurance is the cost of the administrative fee, plus the cost of the stop loss insurance, plus the amount expected to be paid out in claims. If your group is of average health or better, this total premium could be as much as 15-30% less than your fully insured rates.
The great part is to your employees it looks and feels just like it did when you were fully insured, and if you have a low claim year, you can get money back. Your premiums are fixed, and you’ll never end up owing more than your monthly premium, even in the worst of years. It’s all the benefits of self-funding without the risk. Level funding provides ease of use, peace of mind and the same networks of fully insured arrangements.
Level funding isn’t a great fit for every company, and not all companies will be eligible. The coverage can also be different than that of fully insured. When evaluating this option, it’s important to work with a broker who’s experienced with level funding and can properly guide you on the differences between level funding and fully insured. Want to see if level funding is a good fit for your company? Reach out to a member of our ‘A’ Team.
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