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Refreshing Insights

Consumers in the U.S. pay more for healthcare than any other country in the world. Despite efforts by regulators to level the playing field, health insurance premiums have seen steady increases in recent years, and plans under the Affordable Care Act are expected to jump anywhere from 35–94% around the country within the next three years.

Some businesses are anticipating similar increases in their employer-sponsored plans, which simply isn’t sustainable for the long term, and it’s leading them to look for ways to mitigate the risks. One option is shifting from a traditional group insurance model to a Level Funding model. 

What is Level Funding, how does it work, and when should it be considered? Let’s dive in.

What is Level Funding?

Level Funding is a hybrid of self-funded and fully insured health plans, and is a great way to introduce the concept of self-funding without taking on too much risk. Level funding allows a company to have more control over large increases and to monitor the overall health of its employees. As an employer, you're essentially able to understand what is going on within your group and can be better prepared for upcoming renewals. 

How Does Level Funding Work?

Level Funded plans are offered through health insurance carriers. Your broker will work with your company to evaluate your employee population, recommend a provider and determine your monthly costs for health insurance, which is comprised of three basic elements:

1. Estimated monthly claims allowance. Placed into an account to pay employee medical expenses.

2. Premium for stop-loss coverage. An additional layer of protection in the event claims exceed the amount paid into the account.

3. ADMIN fees. Pays for administration of the program. 

Once these costs are determined, the company pays a consistent amount each month, just like you would if you were fully insured. When claims are filed, the health insurance carrier pays them from the money that was deposited into the account. Sometimes, however, an excessive claim may exceed the amount paid into that account. That’s when the stop-loss coverage kicks in. Each year, the health insurance carrier will evaluate how well the group performed to help determine rates for the coming year. If there were fewer claims than were paid into the account, some of the excess funds may be returned to the employer. If the group performed well, premiums could remain relatively stable for the next yearly cycle. Conversely, if there were a lot of expensive claims that ended up requiring the stop-loss coverage to make ends meet, the coming year’s monthly payments will likely reflect that with higher premiums.

A Strategic Approach to Health BenefitsHow to Know if Level Funding is Right For Your Business 

If the following rings true for your organization, Level Funding may be appropriate: 

  • You have less than 50 employees and are subject to community rating
  • You have more than 50 employees but desire more control over your healthcare costs
  • You are interested in the concept of self-funding but concerned about the ‘risk’
  • You promote wellness initiatives and make employee wellness a priority
  • You have an open mind and are willing to consider non-traditional solutions

As premiums continue to climb among traditional group plans, it’s important for employers to evaluate their health care coverage options to see if other models might be more appropriate. Start by consulting with a broker who is well-versed in each type of coverage and is familiar with your industry and size of business.

It makes sense to explore whether Level Funding is right for you, or if more traditional fully funded group coverage is the way to go. Contact one of our strategic risk advisors who can guide you through the complex world of employee health benefits and find the best solution for your unique situation.

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A collection of articles from the McClone team with the helpful knowledge and insights to ensure your organization is well protected.