Introduction
Level funded health insurance is a type of health insurance plan that combines the benefits of self-funding with the stability of traditional fully insured plans. It is designed to provide employers with more control over their healthcare costs while still offering comprehensive coverage for their employees. In this article, we will dive deeper into the concept of level funded health insurance, exploring how it works, its benefits, and its potential drawbacks.
Understanding Level Funded Health Insurance
Level funded health insurance is a hybrid insurance model that is gaining popularity among small and mid-sized employers. It combines elements of self-funding and fully insured plans to create a more flexible and cost-effective option. With level funded plans, employers pay a fixed monthly premium to a third-party administrator (TPA) who manages the plan on their behalf.
Unlike traditional fully insured plans, where premiums are based on the average risk of the entire insured pool, level funded plans are based on the specific risk profile of the employer’s group. The TPA collects the premiums and uses them to pay for claims and administrative costs. If the claims expenses are lower than expected, the employer may receive a refund or credit at the end of the year. Conversely, if the claims exceed the premium payments, the employer is protected by stop-loss insurance, which limits their financial liability.
Benefits of Level Funded Health Insurance
Cost Control: One of the primary benefits of level funded health insurance is cost control. Since the premiums are based on the employer’s specific risk profile, they have more control over their healthcare expenses. This can be particularly advantageous for employers with a relatively healthy employee population, as they can potentially save money compared to traditional fully insured plans.
Transparency: Level funded plans offer greater transparency compared to fully insured plans. Employers have access to detailed claims data, allowing them to identify trends, manage costs, and implement targeted wellness programs. This data-driven approach enables employers to make informed decisions about their healthcare benefits and tailor them to the specific needs of their employees.
Potential Cost Savings: In addition to cost control, level funded plans can offer potential cost savings. If the employer’s claims experience is favorable, they may receive a refund or credit at the end of the year. This can provide a financial incentive for employers to actively manage their employees’ health and wellness, as it directly impacts their bottom line.
Considerations and Drawbacks
While level funded health insurance offers several benefits, it is not without its considerations and potential drawbacks. Here are a few points to keep in mind:
Financial Risk: Level funded plans expose employers to some level of financial risk. If claims expenses exceed the premium payments, the employer is responsible for the excess costs. However, stop-loss insurance helps mitigate this risk by limiting the employer’s liability.
Smaller Employee Pools: Level funded plans may not be suitable for employers with small employee pools. Since the premiums are based on the specific risk profile of the group, a small number of high-cost claims can significantly impact the overall costs. Employers with smaller employee populations may be better served by traditional fully insured plans.
Administrative Complexity: Level funded plans require more administrative involvement compared to fully insured plans. Employers need to work closely with their TPAs to manage claims, analyze data, and implement wellness programs. This additional administrative complexity may not be suitable for all employers, particularly those with limited resources or expertise in healthcare management.
Conclusion
Level funded health insurance offers a middle ground between self-funding and fully insured plans, providing employers with more control over their healthcare costs while still offering comprehensive coverage for their employees. It offers benefits such as cost control, transparency, and potential cost savings. However, it also comes with considerations and potential drawbacks, including financial risk, suitability for smaller employee pools, and administrative complexity. Employers should carefully evaluate their specific needs and consult with experts to determine if level funded health insurance is the right choice for their organization.
References
– Society for Human Resource Management (www.shrm.org)
– National Association of Health Underwriters (www.nahu.org)
– Employee Benefit News (www.benefitnews.com)
