Introduction
Level funding health insurance is a type of self-funded health insurance plan that is gaining popularity among small and mid-sized businesses. This innovative approach offers employers the benefits of self-funding while providing financial protection through stop-loss insurance. In this article, we will delve into the concept of level funding health insurance, its advantages and disadvantages, and how it differs from traditional fully-insured plans.
Understanding Level Funding Health Insurance
Level funding health insurance is a hybrid model that combines the advantages of self-funding with the stability of fully-insured plans. With this approach, employers pay a fixed monthly amount, known as a level premium, to a third-party administrator (TPA). The TPA then uses this premium to cover employees’ healthcare expenses, administrative costs, and stop-loss insurance premiums.
Advantages of Level Funding: One of the primary advantages of level funding health insurance is cost control. Employers can predict their monthly healthcare expenses more accurately since they pay a fixed premium. Additionally, any unused funds at the end of the plan year can be returned to the employer, providing potential cost savings.
Another advantage is the flexibility to customize the plan design. Employers can tailor the benefits, deductibles, and copayments to meet the specific needs of their workforce. This customization allows employers to offer competitive benefits while maintaining control over costs.
Disadvantages of Level Funding: While level funding offers many benefits, it is not without its drawbacks. One potential disadvantage is the financial risk associated with self-funding. If the healthcare expenses exceed the level premium, the employer may be responsible for covering the additional costs. This risk can be mitigated by purchasing stop-loss insurance, which limits the employer’s liability.
Another disadvantage is the administrative burden. Employers who choose level funding must work closely with a TPA to manage claims, handle paperwork, and ensure compliance with regulations. This additional administrative responsibility may require dedicated resources or outsourcing to a professional TPA.
Level Funding vs. Fully-Insured Plans
Level funding health insurance differs from traditional fully-insured plans in several ways. In a fully-insured plan, the employer pays a fixed premium to an insurance carrier, who assumes the financial risk for employees’ healthcare expenses. The insurance carrier is responsible for managing claims, providing customer service, and handling administrative tasks.
On the other hand, level funding shifts some of the financial risk to the employer. While the employer pays a fixed premium, they are responsible for covering the healthcare expenses up to a certain threshold. Once the threshold is reached, the stop-loss insurance kicks in to protect the employer from excessive costs.
The key difference between level funding and fully-insured plans lies in cost transparency and potential savings. With fully-insured plans, employers have limited visibility into the actual healthcare expenses and administrative costs. In contrast, level funding provides employers with detailed reports on claims utilization, allowing them to identify cost drivers and implement cost-saving measures.
Conclusion
Level funding health insurance offers a middle ground between self-funding and fully-insured plans. It provides employers with cost control, plan customization, and potential savings while offering financial protection through stop-loss insurance. However, it also comes with the risk of unexpected healthcare expenses and additional administrative responsibilities.
By understanding the advantages and disadvantages of level funding, employers can make an informed decision about whether it is the right approach for their organization. As the healthcare landscape continues to evolve, level funding health insurance presents an alternative worth considering.
References
– www.shrm.org/resourcesandtools/hr-topics/benefits/pages/level-funding-health-insurance.aspx
– www.peoplekeep.com/blog/bid/312683/what-is-level-funded-health-insurance
– www.insurancejournal.com/news/national/2016/07/19/420367.htm
