Level Funded Health Plans: The Definitive Guide [2023]

Healthcare costs continue to rise, leaving businesses and individuals searching for innovative solutions to manage their expenses while providing quality coverage. One such solution gaining popularity is level-funded health plans. Level-funded health plans offer a hybrid approach to healthcare coverage, combining self-insurance and traditional health insurance elements. They are designed to provide employers with a predictable and stable cost structure while offering employees comprehensive coverage.

Level-funded health plans offer several benefits and advantages over traditional health insurance options. They provide employers with greater financial control and transparency. By self-funding a portion of the healthcare costs, businesses can better predict their expenses and save money in the long run.

How Level Funded Health Plans Work

To gain a deeper understanding of what is a level-funded health plan, it is essential to grasp how they operate and the key components involved.

Explaining the Concept of Level Funding

Level funding is based on the principle of allocating funds to cover both expected claims and administrative expenses. Employers contribute a predetermined amount per employee per month (PEPM) to create a fund. This fund is used to pay for the anticipated claims of the covered employees. If the actual claims exceed the allocated funds, stop-loss insurance kicks in to limit the financial risk for the employer.

The Role of Underwriting in Level Funded Health Plans

Underwriting plays a crucial role in level-funded health plans. Insurance carriers or third-party administrators evaluate the employer’s claims history and demographic information to determine the appropriate funding level. By analyzing past data, underwriters estimate the expected claims and establish the funding amount, ensuring that it aligns with the employer’s risk tolerance and financial capabilities.

Key Components of Level Funded Health Plans

1. Administrative Services: Third-party administrators (TPAs) handle various administrative tasks, such as claims processing, customer service, and provider network management. TPAs play a vital role in ensuring the smooth operation of the plan.
2. Stop-Loss Insurance: Stop-loss insurance protects employers from catastrophic claims that exceed a predetermined threshold. There are two types of stop-loss coverage: specific stop-loss, which covers individual high-cost claims, and aggregate stop-loss, which protects against total claims exceeding a certain threshold.
3. Provider Networks: Level-funded health plans often utilize provider networks to control costs and ensure access to a wide range of healthcare providers. Employers can choose between network options based on their employees’ preferences and geographic coverage needs.

Eligibility and Enrollment

Determining eligibility for level-funded health plans involves considering various factors, such as the size of the business and the number of employees. Generally, level-funded plans are said to be more suitable for larger firms due to the financial stability and risk mitigation they provide. However, smaller businesses can also explore level funding options tailored to their specific needs.

The enrollment process for level-funded health plans follows a similar path to traditional health insurance plans. Employers must educate their employees about the benefits and features of the level-funded plan, provide the necessary enrollment materials, and facilitate the selection of coverage options. Working closely with a knowledgeable insurance broker or consultant can simplify the process and help navigate the complexities of transitioning to a level-funded plan.

Cost Structure and Funding Arrangements

One of the primary reasons why level-funded health plans have become attractive to employers is their cost structure.

Level-funded health plans typically consist of two main components: the claims fund and the stop-loss insurance. The claims fund is established based on the expected healthcare expenses of the covered employees, along with administrative fees. This fund is used to pay for employees’ medical claims throughout the year. Stop-loss insurance protects the employer by limiting their liability in the event of high-cost claims.

Benefits and Coverage

Level-funded health plans offer a range of benefits and coverage options to employees. These plans are known for their flexibility, allowing employers to customize coverage based on the needs of their workforce.

Comprehensive benefits of level-funded health plans typically include preventive care, hospitalization, prescription drugs, mental health services, and more. In addition to benefits, level-funded health plans also provide choices regarding network options and provider networks. Depending on cost, geographic coverage, and employee preferences, employers can select from various network types, such as preferred provider organizations (PPOs) or health maintenance organizations (HMOs).

Compliance and Regulation

Employers must be aware of compliance considerations and regulatory requirements when considering level-funded health plans. While level-funded plans offer flexibility, they are still subject to certain regulations to protect employees and maintain fairness in the healthcare market.

Compliance considerations for level-funded health plans include adherence to federal laws such as the Affordable Care Act (ACA) and the Employee Retirement Income Security Act (ERISA). Employers must ensure their plans meet the minimum essential coverage standards, offer essential health benefits, and comply with other ACA provisions. Additionally, ERISA imposes reporting and disclosure obligations to ensure transparency and accountability.

Pros and Cons of Level Funded Health Plans

It’s important to weigh the pros and cons before deciding if level-funded health plans fit your organization. Let’s explore these plans’ advantages, potential drawbacks, and risks.

Advantages of Level Funded Health Plans for Employers:

1. Cost Control and Potential Savings: Level-funded plans give employers more control over their healthcare costs. By self-funding a portion of the claims fund, employers can avoid the higher premiums associated with fully insured plans. If claims are lower than expected, the employer may retain the surplus funds, resulting in potential cost savings.
2. Flexibility in Plan Design: Employers can customize benefit plans to meet the specific needs of their workforce. This flexibility allows for tailored coverage, providing employees with the most valued benefits while excluding those they may not need. It can also help employers attract and retain top talent by offering competitive benefits.
3. Transparency and Data Access: Level-funded plans provide greater transparency and access to claims data. Employers can analyze the health utilization patterns of their employees, identify cost drivers, and implement targeted wellness initiatives or cost-saving measures. This data-driven approach enables informed decision-making and strategic planning.
4. Cash Flow Stability: Employers make fixed monthly contributions to the claims fund, providing more predictability and stability in cash flow compared to fully insured plans, where premiums can fluctuate based on claims experience.

Potential Drawbacks and Risks to Consider:

1. Limited Coverage: Level-funded plans may not be required to cover all the items a fully insured plan would cover. While these plans often offer comprehensive coverage, certain services, treatments, or medications could be excluded or have limited coverage. It’s essential to carefully review the plan documents and understand what is included and excluded before enrolling in a level-funded plan.
2. Risk of Denial: In level-funded plans, the employer pays a fixed monthly premium, including a funding component for claims and administrative costs. In some cases, if the claims experience of the employees is consistently high and the carrier determines that the risk is too great, they may deny coverage or increase the premium rates for subsequent years. This risk is inherent in self-insured arrangements, including level-funded plans.

Implementing Level Funded Health Plans

Implementing a level-funded health plan can provide numerous benefits when selecting a health insurance plan. However, navigating the complexities of plan design and customization can be overwhelming. That’s where an experienced insurance broker like IXSolutions comes in. They can help guide you through the process, offering valuable insights into what options work best for your company and employees. Additionally, effective employee communication and education strategies are crucial to maximizing your plan’s benefits and ensuring employees fully understand the coverage options available to them.

Evaluating Performance and Managing Claims

Evaluating performance and managing claims is essential for any organization to maintain a healthy and successful business. With a monitoring plan in place, you can keep track of the performance and utilization of your plan as a whole, allowing you to identify areas of strengths and weaknesses.

Similarly, effective claims management and processing are important for ensuring that your employees receive the necessary care without any hassle. This can help support their well-being and improve morale in the workplace. Furthermore, analyzing data and making informed decisions based on that analysis can help you to pivot your strategy when necessary, allowing your organization to remain competitive in a constantly evolving market.

Case Studies: Real-Life Examples

When implementing level-funded plans, it’s important to consider different industries’ unique needs and characteristics. Here are a few examples of how tailored-level-funded plans have been successfully implemented in various sectors:

1. Healthcare: Tailoring level-funded plans for healthcare organizations can lead to significant cost savings compared to traditional fully-funded plans. By adjusting deductibles, coinsurance, and other plan features to meet the specific health needs of their employees, healthcare organizations were able to save an average of 8-10% on healthcare costs.
2. Manufacturing: Level-funded plans can be particularly effective for manufacturing companies. By offering high-deductible plans with lower premiums, manufacturers were able to incentivize healthier behaviors among their workforce while still providing comprehensive coverage.
3. Non-profits: Non-profit organizations often have unique financial constraints, making level-funded plans attractive. By working with an insurance broker to manage claims and monitor utilization, nonprofits can gain greater control over their healthcare spending while providing quality employee coverage.

Comparing Level Funded Plans with Other Health Insurance Options

When it comes to health insurance, many options are available, and it can be overwhelming to sift through the information. Level-funded plans are unique in allowing employers to budget for healthcare expenses while providing employees with comprehensive coverage. One key advantage of level-funded plans is the potential for lower costs compared to fully insured plans.

On the other hand, self-funded plans may offer even more flexibility and control for employers but can also come with more financial risk. Ultimately, exploring alternative health insurance models like level funding can help employers make informed decisions about providing healthcare coverage for their employees.

Conclusion

As we wrap up our comprehensive exploration of Level Funded Health Plans, it’s clear that this innovative alternative to traditional health insurance is rapidly gaining popularity. Its flexibility in plan design and cost control makes it an attractive option for small-to-medium-sized businesses looking to provide quality healthcare benefits to their employees. However, as with any financial decision, it’s important to carefully evaluate all the factors and potential tradeoffs involved to make an informed choice. Whether you’re a business owner or an individual, this definitive guide has given you valuable insights and tools to navigate the complex world of health insurance.