Nowadays, businesses trying to balance employee health benefits with budget constraints are exploring level-funded health plans as a flexible option. These plans blend elements of traditional health insurance with the flexibility of self-funded plans, making them an attractive choice for small and mid-sized employers.
However, the financial risk of paying employee health claims directly can be a concern. That’s where stop-loss coverage comes in—it protects employers from unexpectedly high claims while ensuring predictable costs.
In 2024, 36% of covered workers in small firms are enrolled in a level-funded plan, according to the Kaiser Family Foundation. This steady adoption highlights the growing preference for level funding as a practical alternative to fully insured plans.
Importance of Stop-Loss Coverage in Level-Funded Plans
Even with a well-structured funded health plan, a single large claim from an employee facing a serious medical condition can disrupt an employer’s budget. Stop-loss insurance acts as a financial safety net, covering costs beyond a specific threshold so businesses don’t have to absorb them.
Unlike fully insured plans, where an insurance carrier manages all risks, level-funded plans allow employers to pay monthly premiums based on estimated claims. Stop-loss coverage ensures that, even if actual claims exceed those estimates, employers aren’t left with unexpected bills.
How Does Stop-Loss Coverage Work?
Consider a mid-sized business offering a level-funded health plan. The employer sets a specific threshold, known as an attachment point, that limits how much they are responsible for in claims before stop-loss insurance kicks in.
For instance, if the company sets an attachment point of $30,000 per employee, any employee health claims above this amount are covered by the stop-loss carrier.
Let’s say an employee requires surgery, and the total cost reaches $50,000. The funded plan covers up to $30,000, while the stop-loss coverage reimburses the remaining $20,000. This ensures that the employer pays only up to the agreed limit, keeping costs under control.
One of the advantages of a level-funded health plan is that stop-loss coverage is built-in, so employers don’t have to worry about managing large claims on their own. Third-party administrators (TPAs) handle the details, managing claims accounts, processing reimbursements, and overseeing administrative services.
Benefits of Stop-Loss Coverage for Employers
A level-funded health plan with stop-loss coverage offers businesses financial protection and greater flexibility compared to traditional fully insured plans. Here’s why many employers choose this approach:
- Enhanced control over healthcare expenditures – Employers can manage costs more effectively while limiting financial risk.
- Potential for cost savings and refunds – If claims are lower than expected, surplus funds may be returned to the employer.
- Flexibility in plan design and customization – Businesses can tailor health coverage to fit their needs rather than relying on a one-size-fits-all insurance carrier plan.
- Companies can save up to 25% on premiums with level-funded plans – Compared to fully insured plans, many employers see significant cost savings.
Level-funded health plans and stop-loss coverage can be tricky to figure out, but IXSolutions simplifies the process. With access to top funded health plan options in the market, IXSolutions help small and mid-sized businesses find the best health insurance plan options, making it easier to get affordable, flexible coverage that fits their needs.
Considerations When Selecting Stop-Loss Coverage
Stop-loss coverage is built into level-funded plans, but employers should also consider the following factors:
- Assessing the financial stability of stop-loss insurers – The reliability of an insurance carrier is crucial, as they need to cover excess claims when necessary. Employers should review the insurer’s track record, credit ratings, and ability to pay large claims over time.
- Coverage needs – The stop-loss limits should align with the employer’s budget and employee healthcare needs. Businesses should consider employee feedback to ensure the health plan supports their medical needs while maintaining cost savings.
- Premium calculations – The monthly premium for stop-loss coverage is influenced by factors such as company size, employee demographics, past employee health claims, and reference-based pricing models. TPAs ensure they get you the best value while keeping fixed costs manageable.
- Risk assessment – Employers must determine their risk tolerance and financial ability to cover claims up to the specific threshold before stop-loss insurance kicks in. This assessment often includes an actuarial analysis using detailed claims data, health plan demographics, and historical claims trends.
- The length of the policy period – Stop-loss coverage is typically structured on an annual basis, but employers should verify contract terms. The policy period determines how large claims are handled within a given timeframe and affects overall plan management.
Why Should Stop-Loss Be Non-Negotiable in Level-Funded Plans?
A level-funded health plan and stop-loss coverage gives businesses the best of both worlds—cost savings and financial protection. It offers predictable costs, potential refunds, and more control over healthcare spending, making it a strong alternative to fully insured plans.
With the added protection of stop-loss insurance, businesses can confidently manage employee health benefits without the risk of unexpected large claims disrupting their budget.
If you’re looking for a better way to manage employee health benefits, IXSolutions can help you find the best level-funded plan for your business. Reach out today and see how you can save money while keeping your team covered!
