What is Level-Funding?
More and more employers have been choosing level-funding as an option for their group health plan. Proponents of level-funding have argued that it offers benefits of both insurance models (fully insured & self-insured plans) without the traditional risk associated with self-funding. Level-funding enables companies to essentially pay for healthcare costs as incurred by its employees. The “level” in level funding refers to the fact that you self-insure, but pay a level or steady fee each month as determined by your third party administrator. Level-funded plans also come fully integrated with individual and aggregate stop-loss insurance. At the end of the plan year, the third party administrator compares what you’ve paid with the actual claims and refunds the difference if you’ve paid more than you’ve spent. If the claims go over the funded amount, companies are protected by stop-loss insurance. Though self-funding has been used typically by large companies, level funding has become a popular alternative for small business owners. Ideal employer size for level-funding is 20-50 employees, but some carriers will write as few as 10 enrolled employees. These plans allow the regular and predictable cost of a fully insured plan, but employers can generate flexible plan options with an opportunity to get money back.
Benefits of Level-Funding Plans
Level-funding plans have become popular because they aren’t subject to some regulations of the Affordable Care Act. For example, employers do not have to offer a package of mandated benefits, which allows them to tailor benefits to the needs of the company and the demographics of its workers. Also, business owners avoid paying the Health Insurance Tax (HIT) under the Affordable Care Act since these plans are technically self-insured. The plan not only avoids certain ACA restrictions but can be combined with Flexible Savings Accounts, Health Savings Accounts and Health Reimbursement Accounts. This hybrid plan will help lower healthcare costs for the employer while appealing to potential employees.
Miller’s Insurance Agency works with several carriers offering level-funding arrangements. Please call us at (610) 269-4500 to speak with someone from our Employee Benefits team for more information!