Introduction
What if you could lower your company’s healthcare costs and even get a refund at the end of the year? That’s what level-funded health plans can promise. These plans are growing in popularity among small and mid-sized businesses because they offer more predictability and control over costs than traditional group health plans. By combining elements of fully insured and self-insured models, and including stop-loss insurance, level-funded plans can reduce financial risk while still offering comprehensive health benefits. In this article, we’ll break down the pros and cons to help you decide.
What is a Level-Funded Health Plan?
A level-funded health plan is a hybrid option that blends features of both fully insured and self-insured plans. It allows employers to pay a fixed monthly premium to cover employee health costs, with the possibility of receiving a surplus refund if claims are lower than expected.
Combining Fully Insured and Self-Insured Models
Level-funded plans offer predictability through fixed monthly costs, like fully insured plans, while giving employers more control over claims expenses. Stop-loss insurance caps the financial risk for employers, ensuring that large claims don’t exceed a set limit.
Key Components
- Monthly Premium: A fixed cost paid by the employer, covering claims, administrative fees, and stop-loss insurance.
- Stop-Loss Insurance: Protects employers from high medical claims, reducing their financial exposure.
- Third-Party Administrator (TPA): Handles plan administration and claim processing on behalf of the employer, simplifying management.
By combining predictable costs with the flexibility of self-insurance, these plans provide a middle ground for companies seeking to balance risk and savings.
How Level-Funded Health Plans Work
Level-funded health plans offer a flexible approach to providing employee health benefits while controlling costs. Employers make fixed monthly contributions, which cover claim expenses, administrative fees, and stop-loss insurance.
Employer Funding and Monthly Contributions
Each month, the employer pays a premium that funds employee health coverage, including expected claims and plan administration. This fixed premium provides predictability for budgeting.
Role of Stop-Loss Insurance
Stop-loss insurance protects the employer from unexpectedly high claims by capping financial risk. If claims exceed a certain amount, the insurer covers the additional costs, ensuring the business doesn't bear the full burden.
Third-Party Administrators (TPAs)
Third-party administrators handle the day-to-day operations of the health plan, including claim processing and plan management. This reduces the employer’s administrative workload and ensures smooth operation.
How They Differ from Fully Insured Plans
Unlike traditional fully insured plans where the insurance carrier assumes all the risk, level-funded plans share risk between the employer and the insurer. If claims are lower than expected, the employer may receive a surplus refund, creating potential savings. However, if claims exceed expectations, the stop-loss insurance limits the employer's liability, reducing overall risk.
By balancing flexibility, control, and financial protection, level-funded health plans give employers more options compared to fully insured or self-insured plans.
Incorporating Direct Primary Care (DPC) into Level-Funded Plans
Direct Primary Care (DPC) provides employees with unlimited access to primary care services for a flat monthly fee. This approach ensures that employees can visit their doctor whenever needed without worrying about co-pays or claims, promoting better overall health.
How DPC Reduces Claims and Costs
DPC emphasizes preventative care, addressing health issues early before they become more serious (and costly). This reduces the number of large medical claims, lowering overall costs for insurers and employers. By catching problems early, DPC helps reduce the financial risk of higher claims under a level-funded health plan.
Benefits of Combining DPC with Level-Funded Plans
When DPC is integrated into a level-funded health plan, it improves employee health while reducing premium costs. Healthier employees mean fewer claims, and that leads to the potential for a surplus refund at the end of the year. For employers, this combination brings both cost savings and improved care for their workforce.
Pros of Level-Funded Health Plans
Level-funded health plans offer several advantages that can benefit both employers and employees. Let’s explore how these plans can lead to savings, flexibility, and better health outcomes.
Cost Savings Potential
One of the main attractions of level-funded health plans is their potential to reduce costs. Employers often enjoy lower premiums compared to traditional fully insured plans, and if employee health claims are low, the employer may receive a surplus refund. This refund is a significant financial incentive, as it allows employers to recoup some of the unused funds from the year.
Direct Primary Care (DPC) can be added to a wellness program within the health plan, further reducing claims by keeping employees healthier. This focus on preventative care leads to fewer expensive medical issues down the line, which ultimately lowers the total claim amount.
Predictability and Flexibility
Level-funded plans provide employers with a fixed monthly premium, which offers predictability for budgeting purposes. This is especially beneficial for small businesses that need to carefully manage their finances. Stop-loss insurance adds another layer of security, limiting the employer’s exposure to large claims and reducing financial risk.
Flexibility is another key advantage. Employers can customize health benefits to suit the needs of their workforce, whether it’s adding wellness programs or integrating Direct Primary Care. This flexibility allows businesses to create a health plan that meets their goals and supports employee wellness.
Surplus Refund Opportunities
A surplus refund is a unique feature of level-funded health plans. If claims are lower than projected, the employer can receive a refund of the surplus funds. This gives businesses a chance to benefit financially from maintaining a healthier workforce. However, even in years with high claims, stop-loss insurance helps cap potential losses, ensuring that employers are not left with unpredictable costs.
By combining cost-saving opportunities, predictable premiums, and customizable coverage, level-funded plans offer employers a balanced approach to providing health benefits while managing risk.
Cons of Level-Funded Health Plans
While level-funded health plans have advantages, they also come with some downsides.
Financial Risk
Although stop-loss insurance caps large claims, there’s still financial risk for employers if claims are higher than expected. In these cases, the employer might need to cover more of the costs, which can strain budgets.
Administrative Complexity
Managing a level-funded plan can be complicated. Employers often rely on third-party administrators to handle claims and stop-loss insurance, adding layers of complexity to plan management.
Not Ideal for Smaller Employers
For small businesses, high-risk employees can drive up premiums. This unpredictability makes it harder for smaller companies to manage cash flow, especially if claims exceed the surplus refund potential.
Key Considerations for Employers
When choosing a level-funded plan, it’s important for employers to weigh their tolerance for financial risk, the specific health needs of employees, and the size of the company. Combining Direct Primary Care (DPC) with a level-funded plan can boost wellness and reduce overall costs by lowering claims.
Additionally, understanding stop-loss insurance is crucial. This coverage protects against high claims, while surplus refunds offer financial benefits if claims are low. Employers should carefully evaluate how these factors fit within their group health plan strategy.
Conclusion
Level-funded health plans offer a mix of benefits and risks for employers. They provide the potential for cost savings through lower premiums, surplus refunds, and wellness programs that reduce overall claims. However, financial risks exist if claims exceed projections, especially for smaller companies.
Incorporating Direct Primary Care can help employers insure health more effectively by keeping employees healthier and lowering claims. Understanding stop-loss insurance and administrative services is essential to managing the plan effectively. Overall, level-funded plans offer flexibility and savings but require careful planning.
