If you’re an employer considering a health benefits package, you may have heard about level funded insurance. This approach combines predictable costs with the flexibility to pay for actual claims, offering a unique balance between traditional fully insured and self-funded plans. For many businesses—especially small and mid-sized ones—it’s a way to control health plan costs while still providing solid employee benefits.
As level funded insurance becomes more popular, it’s natural to have questions. Maybe you’re wondering if it’s too risky, too complicated, or more costly. Let us unpack common myths and provide a clear understanding of how level funded insurance can benefit your business.
Common Myths and Misconceptions
As level funded insurance becomes more common, myths and misunderstandings often lead employers to overlook its advantages. Here are some frequent questions and level funded insurance myths—and the truth behind them:
Myth 1: Is level funded insurance the same as traditional, fully insured plans?
While both provide health benefits, level funded insurance is a hybrid approach, combining elements of both fully insured and self-funded plans. Employers pay a fixed monthly premium, but unlike traditional plans, they may receive refunds on unused funds, creating potential savings that are not typically available with fully insured health plans.
Myth 2: Can only large organizations benefit from level funded insurance?
This isn’t true—level funded insurance is designed to be accessible for small and mid-sized businesses. By allowing businesses to manage health care costs through a more controlled, partially self-funded model, even smaller employers can offer quality employee health plans without the full financial risk of self-funding.
Myth 3: Is implementing a level funded plan too complex for most employers?
For companies new to this approach, level funded plans may seem complicated. However, insurance brokers, benefit advisors, and third party administrators (TPAs) guide employers through the setup and management, simplifying the process and providing support to ensure a smooth transition.
Myth 4: Is level funded insurance more expensive than other options?
Level-funded insurance offers a practical and cost-effective solution, allowing many employers to achieve up to 25% savings while providing greater financial control and stability. With a fixed monthly cost that limits unpredictability and potential refunds on unused funds, companies often find that it provides more financial control and savings over time compared to fully insured health plans.
Myth 5: Do level funded plans carry higher financial risk?
Although some risk exists, it’s mitigated through stop loss insurance, which limits an employer’s exposure to high-cost claims. This means that while level funded plans offer self-funded benefits, employers are protected from catastrophic claims, creating a balanced risk profile. An employer will not pay more than their monthly premium, just like a fully insured plan.
Myth 6: Are employee health plans under level funded insurance lacking in benefits?
Employees in level funded plans have access to a wide range of health benefits, including preventive care and wellness incentives, comparable to those provided by traditional health insurance. Additionally, these plans often allow for more customization, aligning benefits more closely with the needs of the workforce.
Myth 7: Is level funded insurance a new or experimental approach?
Level funded insurance has been in use for years, particularly among companies looking for a flexible alternative to fully insured health plans. Its proven track record demonstrates that it is a reliable choice, with many employers successfully implementing it as part of their employee benefits.
Understanding the Facts
To fully understand the value of level funded insurance, it’s essential to separate fact from misconception. Level funded plans offer a unique combination of stability, flexibility, and potential savings that appeal to many businesses.
Fact 1: How Level Funded Insurance Works
Level funded insurance is structured as a blend between fully insured and self-funded health plans. Employers pay a fixed monthly premium that covers expected claims, administrative fees, and stop-loss insurance.
As mentioned, if claims are lower than expected, the employer may receive a refund at the end of the year. This model provides cost stability while offering the potential for savings that traditional fully insured plans may not provide.
Fact 2: The Financial Advantages of Level Funded Insurance
With level funded insurance, companies can benefit from predictable premium costs and the potential for end-of-year refunds on unused funds. Additionally, these plans may offer tax advantages, as they allow businesses to deduct certain expenses that wouldn’t apply to fully insured plans. For companies focused on controlling health care costs, level funded insurance can be a strategic choice.
Fact 3: Customization Options Available with Level Funded Plans
One major advantage of level funded insurance is the flexibility it offers in plan design. Employers can tailor the health plan to meet the unique needs of their workforce, choosing benefits and wellness incentives that promote preventive care. This customization helps businesses align their employee benefits with specific organizational goals and employee preferences.
Fact 4: The Role of Stop-Loss Insurance in Level Funded Plans
Stop-loss insurance is a key feature of level funded plans, protecting employers from significant financial losses due to high-cost claims. This insurance covers costs that exceed a set threshold, reducing the financial risk for companies. Stop-loss coverage ensures that while employers enjoy the benefits of self-funding, they have a safety net in place against higher or unexpected claims. There is not an additional cost to the stop loss insurance, it is included in the monthly premiums.
Fact 5: Regulatory Compliance and Level Funded Insurance
Level funded insurance must comply with regulations governing health plans, including the Affordable Care Act (ACA) requirements for certain benefits and protections. By working with experienced benefit advisors and third party administrators, employers can ensure they remain compliant with all relevant legal and regulatory guidelines.
Fact 6: Case Studies of Successful Level Funded Insurance Implementations
According to the Kaiser Family Foundation’s 2020 Employer Health Benefits Survey, 16% of small firms with 3 to 199 employees have adopted level funded health plans. Adoption rates are slightly higher among firms with 50 to 199 employees (17 percent), showing that businesses across different sizes benefit from this model.
Comparing Level Funded Insurance to Other Options
Understanding how level funded insurance stacks up against other types of health plans can help businesses make informed decisions. Here’s a closer look at how it compares to fully insured and self-funded plans, as well as tips on when it may be the right choice.
Level Funded Insurance vs. Fully Insured Plans
Fully insured plans are straightforward and predictable, with fixed premiums paid to the insurance carrier regardless of claims. In contrast, level funded insurance provides the stability of fixed monthly costs but includes the potential for refunds if claims are lower than expected.
While fully insured plans offer simplicity, level funded insurance offers more flexibility and potential cost savings for businesses willing to manage a slightly more involved plan structure.
Level Funded Insurance vs. Self-Funded Plans
Self-funded plans give businesses complete control over their health coverage, paying for claims as they arise. However, they come with higher financial risk due to the unpredictable nature of claims. Level funded insurance strikes a balance by offering the flexibility of self-funding with added security through stop-loss insurance.
This setup makes it a safer option for companies looking to control costs without taking on the full risk of self-funding.
When to Choose Level Funded Insurance Over Other Options
Level funded insurance may be a good choice for businesses that want a balance between cost savings and predictable expenses. Small to mid-sized companies with relatively healthy employee populations might especially benefit from this model, as they’re more likely to see refunds from unused funds.
Working with benefit advisors can help determine whether level funded insurance aligns with a company’s specific financial and coverage goals.
Implementing Level Funded Insurance
For businesses considering level funded insurance, taking practical steps can ensure a smooth and successful implementation. Begin by assessing your organization’s health care needs and budget, which will help determine if level funded insurance is a good fit. From there, consult with benefit advisors and TPAs who specialize in level funded plans to guide you through plan selection, setup, and compliance requirements.
Selecting the right partners is essential to making the most of a level funded plan. Look for experienced benefit advisors who can offer transparent pricing, administrative support, and flexible plan options. These partners will not only simplify setup but will also support ongoing plan management, ensuring the coverage meets your employees’ needs effectively.
Once the plan is in place, regular management is key to maximizing benefits and potential savings. Review claims data and plan performance periodically, and work with your partners to make necessary adjustments.
Embracing the Benefits of Level Funded Insurance
Level funded insurance provides a unique opportunity for businesses to balance cost control with flexibility in health benefits. By debunking myths, understanding key facts, and comparing options, companies can make informed decisions about whether level funded insurance is the right fit for them.
With the right approach and partners, this type of insurance offers a structured yet adaptable solution that supports employee health while helping businesses manage their bottom line. If you’re considering level funded insurance, take the time to explore how it can meet your needs—both today and as your business grows.
