What is level-funding? A level-funded plan is a type of health insurance where employers pay a fixed monthly amount to cover claims and administrative costs, with the potential for a refund if claims are lower than expected.
Healthcare benefits are a significant consideration for businesses of all sizes. With costs steadily rising, finding a solution that balances budget control with quality coverage can be a challenge. Enter level funding plans: a smart insurance alternative—a middle ground between fully insured and self-insured options. But what exactly are level funding plans, and are they right for your business? We’ve partnered with Cypress Benefit Solutions Account Executive, Megan Coker, SHRM-CP, to take a deeper dive into the world of level funding. Megan will break down how level funding plans work and how it can give your small business a competitive edge. Whether you're a small business owner ready to take control of your benefits or just want to stay ahead of the curve, this information will equip you with the knowledge and confidence to make the best decision for your team.
What is a level funding plan, and how does it differ from traditional insurance plans?
A level funding plan is a type of health insurance plan that combines the cost predictability of fully insured plans with the customization and potential savings of self-funded plans. Unlike traditional fully insured plans, where the insurance company assumes all risk and sets a fixed premium, a level funding plan involves the employer paying a set amount each month. This amount covers claims funding, stop-loss insurance, and administrative fees.
The key difference lies in the structure. If actual claims are lower than expected, employers may receive a refund or credit. Conversely, if claims are higher, stop-loss insurance kicks in to cover the excess, protecting the business from unexpected costs.
Who can benefit the most from implementing a level funding plan, and why?
Level funding plans are particularly beneficial for small to mid-sized businesses that want more control over their healthcare spending without taking on the full risk of self-insurance. Companies with a relatively healthy workforce or those seeking more flexibility and transparency in their health plan costs can find level funding an attractive option.
By allowing businesses to only pay for the healthcare their employees actually use, rather than a flat rate based on broad risk pools, these plans can lead to significant savings. Plus, they offer more detailed reporting on claims, giving companies insights into their healthcare spending.
What are the key advantages and potential drawbacks of level funding plans?
Key advantages:
Cost Savings: Potential for refunds if claims are lower than expected.
Predictability: Fixed monthly payments can help with budgeting.
Transparency: Detailed reporting on claims data will allow for better plan management.
Flexibility: Plans can be tailored to fit the specific needs of your business.
Potential drawbacks:
Risk of High Claims: While stop-loss insurance mitigates this, there’s still some financial risk if claims exceed projections.
Complexity: Level funding plans can be more complex and require robust administration & management compared to traditional plans.
Suitability: Not ideal for companies with a high-risk or older workforce where claims might be consistently high.
How can a company get started with a level funding plan?
Getting started with a level funding plan involves a few key steps:
Conduct an Analysis: Assess your company’s health benefits needs, including employee demographics and budget constraints.
Consult a Broker: Work with an experienced health insurance broker who understands level funding and can guide you through the selection process.
Analyze Quotes: Gather and compare quotes from different providers to find the plan that best aligns with your business goals.
Implementation: Once a plan is selected, roll it out to your employees with clear communication on how the plan works and its benefits.
Monitor and Adjust: Regularly review your plan’s performance and adjust as needed to ensure it continues to meet your needs.
What should businesses consider when selecting a provider for their level funding plan?
Businesses should consider the provider’s experience and reputation. You want a provider with proven experience and a solid reputation in managing level funding plans. A strong history in this area ensures they understand the nuances and can effectively support your business.
Ensure the provider can give you flexibility in plan design, allowing you to tailor the plan to your business’s specific needs. The ability to adjust coverage levels, stop-loss insurance, and administrative services is crucial.
Select a provider that offers detailed, transparent reporting on claims and costs. Access to comprehensive data helps you manage your plan effectively and make informed decisions.
Verify the financial stability of the stop-loss insurance carrier associated with the plan. This is critical for ensuring they can cover high claims if necessary. Understand how the provider manages costs and risk, including their approach to underwriting and handling unexpected claims spikes.
Consider the quality of customer service and support offered by the provider, including ease of access to assistance and resources. Ensure the provider’s systems are user-friendly and offer resources to help employees understand and maximize their benefits.
Level funding plans offer a compelling alternative to traditional insurance, providing a balance of predictability, potential savings, and flexibility. While they may not be the right fit for every business, those that are a good match can enjoy significant advantages. By understanding how these plans work and taking a strategic approach to implementation, your company can navigate the complex world of healthcare benefits with confidence.
A special Thank You to Megan Coker with Cypress Benefits Solutions for her contributions on this topic! Cypress Benefit Solutions offers tailored benefit plans to small businesses, handling everything in-house to make sure employees get the coverage they need. As an independent agency, they specialize in group insurance and retirement benefits, providing expert guidance and support to make employee benefits easy to manage. To connect with Megan, you can find her details here.
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