How Level Funding Helps Employers Gain Control Of Health Care Costs
With a switch, group plan transparency and savings are at your fingertips
Posted on 07-25-2021, Read Time: Min
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Level funding is a group health plan design in which the employer contributes a steady monthly payment to cover costs for administration, claims payments, and stop-loss insurance. Level funding has its advantages when compared to fully insured plans and programs. Level-funded plan designs often cost less, making it easier for small and mid-sized employers to offer their employees high-quality health care benefits.
Fully Insured vs Level Funding: What’s the Difference?
Fully insured plans offer little transparency on how premium payments are used and often cost more to the employer. All premiums are paid directly to the insurer, which they then use to pay health care providers.
With level funding, monthly payments are divided among:
With level funding, monthly payments are divided among:
- A claims account
- Stop-loss insurance
- Administrative costs
Claims Account
A claims account is exactly what it sounds like. A portion of the monthly payment is used to pay for claims submitted by plan members.
Stop-Loss Insurance
Stop-loss is an employer’s safety net. This protects the employer against higher-than-expected claims. There are two types of stop-loss insurance.
- Specific stop-loss insurance protects the plan against high claims incurred by a single individual.
- Aggregate stop-loss insurance protects the plan against total high claims incurred by the entire group.
Administrative Costs
Administrative services are provided to the employer so they can spend their time focusing on their business while a third-party administrator handles plan management such as paying claims, customer service, and other administrative tasks.
Opportunity for a Refund
This part of level-funded plans is really what grabs employers’ attention. Say a group submits fewer claims than expected in a year. A portion (or all, depending on the plan selection) of the difference between the group’s anticipated and actual claims is refunded back to the employer.
Not only can employers reduce their health care costs by switching to a level-funded program, but the potential refund acts as additional savings on top of that.
Not only can employers reduce their health care costs by switching to a level-funded program, but the potential refund acts as additional savings on top of that.
Making the Switch
According to a survey conducted by WellNet, 98% of respondents (brokers and consultants) believe a level-funding strategy will be the best long-term solution for their clients. However, only 58% surveyed say that at least half of their clients ask about a level-funded strategy and half of the respondents still have 60% or more of their written business coming from fully insured plans.
If level funding is such a great option, why are so many employers sticking with their fully insured plans? Well, many factors can contribute.
Business owners:
If level funding is such a great option, why are so many employers sticking with their fully insured plans? Well, many factors can contribute.
Business owners:
- Might not know that level funding is an option.
- Are still clinging to their old plan, not wanting to try a new program.
- Are reissuing with their current plan because rates didn’t go up a significant amount, not realizing that they may already be overpaying.
Finding a quality level-funded program is the hardest part. A top-notch benefits adviser can help employers find plans that have:
- The flexibility to customize the plan design to fit the needs of the group.
- Quality products and customer service to match.
- Proven success, experience, and reputation.
Level funding used to be an option only available to large employers. However, as the market grew, this option is now available to small and mid-sized groups to help them gain control of their health care costs.
Author Bio
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Kristina Lazzara-Saari is a Marketing Communications Specialist at National General Insurance. She is an experienced narrator with proven success in digital and print creation and strategy. She writes about complex group benefits topics to make them more understandable to a wide audience. Connect Kristina Lazzara-Saari |
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