Offering adequate health benefits in the era of the Affordable Care Act (ACA) is not an easy task. Health benefits must meet minimum essential coverage (MEC) requirements. They need to be affordable enough for employees to utilize them. They must also be responsive enough to meet a variety of needs. For some employers, the best way to go is a level-funded health plan.
Level-funded health plans are an alternative to fully insured plans. They are similar to fully insured plans in some ways but different in others. Level-funded plans also share some similarities with self-insurance. Indeed, saving employers money tops the list.
Almost a Hybrid Product
A level-funded health plan is an employer-sponsored plan modeled almost as a hybrid between self-insurance and fully insured plans. A well-crafted plan gives employers the best of both with as few negatives as possible. Level-funded plans are characterized by three key components:
- Third-Party Administration – A level-funded plan is managed by a third-party administrator (TPA). This can be a standalone company, like ours, or even an insurance carrier. The TPA pretty much runs and manages the whole plan.
- Fixed Administrative Costs – The administrative costs attached to a level-funded plan are usually fixed. They are charged on a per-employee basis and do not change regardless of the number or value of claims made against the plan.
- Stop Loss Insurance – Level-funded plans are protected by stop loss insurance. The insurance kicks in if an employer underestimates its costs for the year and runs out of money to pay medical bills. The cost of the insurance is rolled into monthly payments.
The level-funded model gives employers the kind of flexibility that comes with being self-insured along with the predictability and stability of a fully insured plan. As for saving money, success lies in how level-funded plans are designed.
Level-Funded Plans Contain Costs
The financial savings realized from a level-funded plan are related almost entirely to cost-containment. Controlling costs may not be glamorous or sexy, but it does lead to less money being spent. Lower spending equals money saved.
There are four ways level-funded plans contain costs. The first two have already been discussed in part:
- Predictability – Payments made toward level-funded plans are consistent throughout the plan year. This offers a level of predictability that allows a company to budget for its healthcare expenditures.
- Administrative Costs – By paying fixed administrative costs rather than adjusting them based on claims, companies can spend less on administration and more on actual coverage. Managing coverage needs over budgetary constraints is easier as a result.
- Regular Reporting – Unlike fully-insured plans, level-funded plans are supported by robust reporting. Employers can look at all sorts of reports to better understand how employees are utilizing their benefits. This allows them to tailor benefits in each successive year to better meet worker needs and contain costs.
- Benefit Flexibility – Level-funded plans are more flexible in that employers can offer options that might not be available through a fully-insured product. Options that promote overall health and wellness can help contain costs by keeping employees healthier.
As an alternative to traditional health benefits, level-funded plans offer the stability of being fully insured with the flexibility and cost savings of self-funded plans. They are a hybrid option that tends to be attractive to employers who want to escape the fully insured model but aren’t quite ready to go fully self-funded.
If nothing else, level-funded plans tend to save money by containing costs. That is a pretty strong incentive at a time when healthcare costs just keep rising.