Why Level-Funded Group Health Insurance Plan?
Getting away from the traditional fully insured health plans has been a goal for many employers since the Affordable Care Act (ACA) took full effect in 2014. Once the ACA was fully implemented, small employers were abruptly put into a community rating pool with all the other small groups in their geographic area. Previously, they had been paying health insurance rates based on the health risk of their individual group. The result was that employers with a relatively healthy employee population were now paying more, sometimes up to 40% more in Minnesota. Health insurance companies have been looking for ways to offer more attractive rates to employers with a healthy population, and created “level-funded” plans.
How do they work?
Level-funded plans are essentially self-insured plans without the risk of conventional self-insurance. With conventional self-insurance plans, the employer takes on most or all the risk for their health insurance. They set the premiums for the employees, pay the claims, and do all the administration of the plan. The only insurance the employer has is stop-loss insurance, which can be purchased to protect the employer from extremely high catastrophic claims incurred by both one individual and or the group.
What is stop loss?
With level-funded plans, the stop-loss insurance is set by the health insurance carrier in a way which the carrier guarantees that the most the company will pay are their rates. Many times, the rates are less than fully-insured rates because the carriers quote level-funded plans based on the health risk of the group. So even if one or all employees have catastrophic claims, the employer will only pay the premiums billed by the carrier. If the employees have a relatively healthy year, there is the possibility that the employer may receive a refund of premiums once the plan settles.
How does my company qualify?
Your group must qualify for the plan based on health risk. Level-funded carriers can turn your group down. And when it comes time for the plan to renew, they can also increase your rates or even not offer a renewal. While level-funded plans may be a great option for your company one year, it may mean you will have to hop around to different carriers from year to year.
Pros vs. Cons
- Rates could be lower than fully insured plans
- Premium payments can be returned if claims are low enough in the coverage year
- Health History is needed for group rates. Each employee must complete a health history questionnaire
- Rates can change drastically from year to year based on the overall claims of the group
- Insurance carrier can choose to not renew the coverage to their group each year.
Still have questions or wondering what the costs are for your company? Reach out to our team for a quick consultation and rates estimates from multiple carriers. We do not charge for our services. One of the most important resource any employer can have is a trusted broker who can walk them through the complexities.