Level-Funded Health Plans and Increasing Popularity Among Small Businesses

Funding is just one more glaring question surrounding the already complicated decision of the type of insurance plans to offer employees. Full funded, self-funded, and level funded health insurance plans can be found within any industry, making it so there isn’t exactly one standard to go with. However, smaller businesses often face different challenges than their big business counterparts, making the funding question one of their own not to be compared to those of super-sized companies even within the same industry.

Many small businesses are not required by law to offer health insurance plans to their employees, but that doesn’t mean they don’t have reasons to feel inclined to do so. Recruitment and retention strategies are difficult to map out without some health insurance benefit packages offered, and other small businesses simply prefer to make sure their teams are taken care of. Those looking for employment know well how volatile the individual marketplace can be, so they’ll typically place a business that offers insurance above all others.


Getting To Know Level-Funded Health Plans

Fully funded health plans might be an option for the bigger guys, but they tend to be too expensive for smaller businesses to handle. Because of this, many small businesses are turning to level-funded health plans, which combine the financial advantages of self-funding with the financial stability of fully funded plans.

A level-funded plan, in short, is a partially self-funded plan. It combines the cost-savings and customization benefits of a self-funded plan, with the financial safety of a fully funded option. An employer is still contracted with an insurance company, but they do agree to take on more of a financial risk than is found with a fully funded plan.

The average level funded health plan is comprised of 4 main components. These components include:

  • Administrative costs- Administrative costs are fixed and charged per employee and remain fixed regardless of any claims made. Administrative costs are the costs paid for a prescription network, claims adjudication, and network availability.
  • Aggregate stop-loss coverage- Stop-loss insurance will cover a business’s entire workforce. Acting in a similar way as a family deductible, if your employees incur a number of claims that they reach the aggregate stop loss deductible, reinsurance will kick in and reimburse the employer.
  • Individual stop-loss coverage- This type of stop-loss coverage covers employers in the event that an individual claim is exceedingly high during any given year. If an individual claim reaches the stop loss deductible, individual stop-loss coverage allows reinsurance to kick in and reimburse the employer.
  • Claims- The claims portion can have the most cost-savings, but it’s also the most variable portion of a level-funded health plan. In a level-funded plan, if the claims are lower than predicted for the year, an insurance company may well reimburse part or all of the unused funds back to the employer.

Level Funding For Every Small Business

Regardless of industry, it’s important for small businesses to find insurance plans that work for them. To learn more about level-funded health plans, contact us today.