Level-Funded Plans + Health Reimbursement Arrangements

Do you remember the days when employers could change from a $500 deductible plan to a $5,000 deductible plan and save 40-50% on insurance premiums? Then those same employers would offer a Health Reimbursement Arrangement (HRA) to cover most or all of the deductible increase for employees who have chronic conditions or who experience unexpected medical events. The net result provided employers with significant savings while providing employees with substantially similar benefits. Those days still exist.

Level-funded insurance plans have grown in popularity over recent years. A level-funded plan is a type of selffunded plan where employers pay an equal premium payment each month, hence the name level-funded plan.

The premium payments are used to pay for claims and administrative expenses. At the end of the year, the insurance company compares money-in (i.e. premiums paid) to money-out (i.e. claims and administrative expenses). If the total money-in is less than the money-out, the employer gets a refund. The insurance company covers the shortfall if the opposite occurs which provides the employer financial protection.

Level-funded plans are subject to some, but not all, of the Affordable Care Act (ACA) market reforms. For example, level-funded plans cannot have an out-of-pocket maximum limit that exceeds $8,150 ($16,300 for families), but level-funded plans can medically underwrite an employer group to establish premium rates. This flexibility allows for the potential of significant savings opportunities compared to traditional group health plans. In addition, level funded plans provide minimum value, so we are not talking about “skinny,” “barebones,” or “MEC” plans. These are rich health insurance plans that provide generous benefits when high-cost medical events occur.

Now, think about a level-funded plan that has a high deductible and a controlled provider network. The savings continue to accrue for employers and can be passed onto employees. Add an HRA on top of that, and employees now have access to a rich health insurance plan with reasonable out-of-pocket limits and access to elite medical providers. All of this for the potential of half the cost of a traditional group health insurance plan.

Health insurance and health care costs can be very expensive, but with a little creativity a lot of that burden can be alleviated.