Health insurance carriers often offer a variety of product types for employers to select from for health coverage for their employees. These options including different ways to fund the health plan, ranging from full-risk, to self-funded, and level-funded. Each product has its own advantages depending on the size of the business, the healthcare needs of the employees, and a company’s budget. In recent years, however, there’s been a noticeable shift toward level-funded health plans. Read more to understand what a level-funded health plan is and why employers find them to be a good fit for their business.
What is a level-funded health plan?
Before we dive into the reasons, let's briefly explain what level-funded health plans are. Level-funded plans are a type of self-funded health insurance plan designed for small to mid-sized companies. In a level-funded plan, the employer pays a steady monthly payment to cover costs for administration, claims payments, and stop-loss insurance. If actual claim costs are lower than expected, the employer can potentially get a refund or keep those dollars in a claim fund. If claims are higher, the stop-loss insurance protects the employer from catastrophic costs.
Why the shift to level-funded plans?
- Cost Control: One of the primary reasons employers are switching to level-funded health plans is cost control. With traditional group health insurance, premiums are often fixed and can increase significantly from year to year. In contrast, level-funded plans provide greater predictability in budgeting. Employers can better estimate their annual health insurance expenses, making it easier to manage their budgets.
- Customization: Level-funded plans offer flexibility and customization options that traditional group plans often lack. Employers can tailor their health benefits to meet the specific needs of their employees. This flexibility allows for the inclusion of wellness programs and other value-added benefits.
- Transparency: Transparency in health insurance costs is another driving factor. Employers get more access to data and can see a breakdown of expenses, such as administrative costs and claims costs. This transparency helps them understand where their premium dollars are going, which can lead to more informed decisions.
- Reduced Overhead: Level-funded plans are exempt from state premium taxes and ACA (Affordable Care Act) health insurance taxes. This reduction in overhead can result in significant savings for employers, which can then be reinvested in other areas of their business or used to enhance employee benefits.
- Potential for Savings: As previously mentioned, if claims costs are lower than expected, employers retain those funds for future expenses or potentially receive a refund. This provides the opportunity for cost savings, which is an attractive feature for many businesses.
- Employee Engagement: Level-funded plans often include wellness programs and incentives that promote employee engagement in their health. These programs can lead to healthier, more productive employees and, in turn, reduced healthcare costs.
- Compliance and Regulation: Level-funded plans can also offer employers more control over compliance and regulatory requirements. This control can simplify the management of health benefits and reduce the risk of non-compliance penalties.
- Long-Term Strategy: Employers are increasingly viewing level-funded plans as a long-term strategy for managing healthcare costs. This approach allows them to take a proactive stance in managing healthcare expenses and providing valuable benefits to employees.
The shift to level-funded health plans by employers in recent years can be attributed to their desire for savings, control, and access to data, among other reasons. These plans offer a more predictable and flexible approach to employee healthcare, benefiting both employers and their staff. As the landscape of employee benefits continues to evolve, level-funded plans are likely to remain a popular choice for many businesses for the foreseeable future.
If you are considering making the switch, contact your benefits advisor and ask about getting a quote from PHP. If you are not working with a broker, contact PHP at sales@phpni.com or at 260-432-6690.
