Demand increase for level-funded plans: What’s next?

Health care has recently undergone a major transition. Across the board, health insurers are reimaging and reshaping the ways in which they insure people in order to help improve their members’ health. Additionally, employers are looking for ways to better support employees, consumers are prioritizing health and wellness, and brokers and HR managers are searching for new, customizable options.

Stemming from the demand for customization, less risk, and more health care options, insurance brokers are experiencing an increase in demand for level-funded plans, which are an exciting offering providing predictability, funding diversity and innovation to their portfolio. Recently, more and more clients are requesting these plans and looking to implement them for employer customers.

Related: Infographic: Trends in self-funded group health plans

The benefits of level-funded plans are evident and extensive. Through this product offering, companies pay one fixed monthly premium for all costs and at year-end, if claims are less than what was originally projected, the employer will retain the surplus. If claims are more than projected, the employer does not have to pay anything additional to cover the extra costs because of stop loss insurance protections.

By offering the best of both worlds — the peace of mind of a fully insured plan with the flexibility and cost saving potential of a self-funded plan — more employers look to participate in level-funded plans. Specifically, small to mid-sized employers are driving the increase in demand by leveraging level-funded plans as a steppingstone from the financial stability of fully insured plans to the uncertainty and financial instability of self-funded plans. This addition to the portfolio makes it easier for brokers and consultants to offer an assortment of options to their clients, ultimately resulting in attracting new customers.

According to a Kaiser Family Foundation survey in 2020, 13% of small firms use level-funded health plans and 31% of covered workers are in either self-funded or level-funded plans, an increase from 24% the year prior. We anticipate this number will skyrocket as the benefits of these plans become more broadly known.

Here are three things to expect as a result from the rise of demand in level-funded plans.

1. Infusion of transparency, predictability, and control into insurance plans

Employers constantly note the most desirable aspects of a level-funded plans are transparency and predictability. Unlike typical insurance plans, level-funded plans are unique, offering insight into the maximum cost for the year. This allows businesses to better budget and plan for the year.

Due to fixed rates, the assumption of risk is significantly lower than most, making this an ideal option for small to medium sized businesses needing predictability for their budget. With an increase in flexibility and greater cost control, companies have the potential for higher savings.

2. More employers will want to save money when prioritizing health

Health insurance is often the second highest operating cost for businesses after employee wages. Level-funded plans can offer businesses greater cost control and greater potential savings, especially as the economy recovers post-pandemic.

Finding cost-effective programs remains a top concern for employers. Especially in the wake of a potential economic downfall following the pandemic, businesses continue to seek new options. Fortunately, level-funded plans provide this option.

3. Customizable plans unique per customer

The interest for level-funded plans continue to grow in part because of the abundance of customization to fit the unique health and wellness needs of employers across the two states. Plus, with an integrated pharmacy solution and a cost-controlling strategy, customers can be drivers of their own health care experience.

As employers evaluate health insurance options for their company, the top three questions they ask focus on cost, coverage and out-of-network options. By working with select a level-funded plan, many employers find that they can control costs and maximize coverage for employees and still get a return of dollars not spent at the end of the year.

Kelly Smith is senior vice president at MVP Health Care.