There are three types of group health plans that most employers use: self-funded, level-funded, and fully-insured. Though self-funded and fully-insured descriptions match their names, what in the world is a level-funded insurance plan? In this blog, we’ll tell you what you need to know about level-funded insurance.
What does it mean to be “level-funded?”
A level-funded plan is a good blend between self-funded and fully-insured. The employer pays a monthly fee to cover administration, claims, and stop-loss costs, but this fee isn’t as high as one for a fully-insured plan. This makes it easier for employers to offer health benefits to their employees at a more affordable price.
The monthly fee is not directly paid to the insurance carrier; it is split between the aforementioned administration costs, claims payments, and stop-loss insurance. The employer is able to see these divisions and how the money is being used.
Let's see an example.
What are administration costs?
This refers to the fee you’d pay a third-party administrator who provides their service by managing the plans like paying claims, providing customer service, and doing other designated tasks.
Claims payments?
This portion of the funds involves managing the money within the claims account.
What about stop-loss insurance?
Stop-loss insurance helps to reimburse an employer if their claims go over a pre-specified amount. It’s useful because it protects you against catastrophic claims, where the cost is higher than expected.
You can read more here: Understanding Stop-Loss Insurance.
Why should I go with level-funded insurance?
Common reasons to choose a level-funded plan include:
- Opportunity for Savings: If your employees are pretty healthy and you don’t have to pay many claims, your costs will be lower than if you had a fully-insured plan. A portion of the difference between the anticipated and actual claims will be refunded to you.
- Control & Transparency: You can see where your money is being allocated and designate certain amounts.
- Predictability: You have a general idea of how much you’ll pay each month, with the fixed monthly fee.
Are there any downsides to level-funded insurance?
- Cost: If your employees are relatively healthy, a level-funded plan may be more costly than a self-funded one. Also, if your employees experience more claims than expected, there may be significant increases to the monthly fee the next time.
Who generally has a level-funded plan?
Small groups with healthy individuals tend to save the most with a level-funded plan. Older groups or groups with many high-risk individuals (those who take lots of prescriptions or with frequent doctor's visits) should consider a fully-insured plan, as costs might be high with a level-funded or self-funded plan.
I still have questions. What should I do?
We’re here to help. If you want to know more, check out some more of our blogs: Self Funded vs Fully Insured vs Level Funded Plans | Blue Ridge Risk Partners, All About Self-Funded Insurance, What to Know About Fully-Insured Insurance, or Understanding Stop-Loss Insurance.
Contact us! We’ll get you the right information to help you on your insurance journey.