As an agent, it is important to explore and understand all of the options that you can offer clients. Many clients come to their agent for guidance about their assets, their future, and recommendations for which plans are right for them. Today, we want to break down all aspects of a level-funded plan from its definition, its benefits, and potential drawbacks for a client. In today’s world, there are much more options and many details to wade through when it comes to coverage. We want you to feel confident in helping your clients make the right choice for them.
What is a Level-Funded Plan?
A level-funded health plan, also known as a partially self-funded plan, is a health insurance plan that combines the cost savings and customization aspect of a self-funding plan with the financial safety and predictability of fully funded plans. Level-funding is a form of self-insurance because an employer pays a steady fee each month. Employers will still contract with insurance companies in a level-funded plan but they take on more of the financial risks associated. It’s important to note that these policies are underwritten either by medical conditions or RX claims depending on a group size.
There’s growing interest in this type of plan because it helps with cost predictability. Some of the top carriers we use for level-funded plans at AgentLink include: Aetna, Humana, National General Insurance, All Savers Insurance, and Trustmark Life Insurance Company.
Level funded health plans have recently been attracting more attention among smaller employers because there is little to no risk involved and they are exempt from ACA-mandated requirements. Here are the four main components that make up a level-funded plan:
- Administrative Costs: Administrative costs are fixed and charged per employee and will not change regardless of claims. Employers must pay these costs for network availability, claims adjudication, and prescription network.
- Aggregate Stop Loss Coverage: Aggregate stop loss coverage covers the entire workforce and acts similarly to the way a family deductible would for employees. Once either the group’s aggregate stop loss or an employee’s specific stop loss has been met, reinsurance takes over and pays the claims from there.
- Claims: This is the variable portion of level-funded health plans, but also where the most cost savings can occur. Unfortunately, this is an area where level funded health plans provide opportunities for carriers to increase their profits at the expense of an employer. As with a fully-insured plan, the insurance carrier estimates the cost that an employer’s group policy will charge for the year (including all four components) and then divide that number by the total number of employees. This number equals each person’s total premium, before it is split between the employer and employee. The difference with level-funded health plans is that if the claims are lower than originally expected, the insurance company will refund part or the full amount of the unused funds back to the employer.
- Individual Stop Loss Coverage: Employers pay this stop loss insurance to remain protected in the event that an individual claim is extremely high in a given plan year. If this individual claim hits the stop loss deductible, the reinsurance reimburses the employer for the claims.
Now we want to share some benefits of level-funded plans that would easily allow an agent to propose this coverage and persuade a client to pick this insurance plan over another. The following statements are easy to include in conversation with any clients you may already have in mind.
Benefits of Level-Funded Plans
There are many benefits of level-funded plans, to both employees and employers, including:
- Cost Savings: Fully insured health plans remove most of the risks from the employer, making the cost of the plan much higher for the employee. In contrast, a self-insured plan places the most of the risk on the employer, but has the greatest chance for producing savings in the form of claims being lower than premiums for the employee. Therefore, Level-funded health plans are the best of both worlds, making partial self-funding an easier and attainable option for a larger portion of employers, like small businesses. These plans save money for both the employee and the employer!
- Plan Design: Level-funded health plans provide employers with far more flexibility in plan design and are exempt from some ACA regulations such as the 80/20 rule we talk more about below.
- Regulation: Level-funded plans, even for small groups, do not have the same regulatory requirements as traditional, fully insured plans. This usually means that less administrative work is required from smaller companies who don’t have the same staffing size as larger ones.
What are some potential drawbacks of a Level-Funded Plan?
Some argue that because level-funded plans do not stick to the ACA’s 80/20 rule, it is considered a downfall of the plan. This rule deems that carriers must spend at least 80 percent of collected premiums on medical care and/or attempt to improve the quality of care. In addition, if they do not follow the 80 percent rule, they must rebate any excess amount that was charged, capping out carrier profits at 20 percent.
Due to self-funded and level funded plans being exempt from this rule, carriers often take liberties in defining claim expenses. To protect against this practice, employers should work with employee benefits specialists who know to look out for these hidden costs, that can often be overlooked.
We hope this blog will act as a guide to all the details to know about level-funded insurance plans and will help aide in the process of helping your client pick a plan that is right for them. Even if you are looking for a plan yourself, we hope the benefits and potential draw backs we mentioned here empower you to make a more informed decision for your health care. Contact our team at AgentLink to assist with any other questions you may have about level-funded insurance plans or other products that may interest you or your clients.