Clients hesitant to self-fund? Take it down a level
If self-funding sounds like too big a leap from a fully insured health plan, level funding is a strong option for your clients or company to consider.
As you may know, employers considering the move are in good company: In 2022, 65% of covered workers in small firms were in a plan that is either self-funded or level-funded (a huge jump from 24% in 2019). Still, despite the many benefits of moving to self-funding, you probably hear from clients and prospects who are hesitant to make the move. Some think it sounds too risky. (It doesn’t have to be.) Some think their company isn’t large enough. (Chances are, it probably is.) And change can be risky. (Running a business is risky, but taking charge of their health plan is often much less risky than expected.)
Companies weighing the move to self-funding may want to consider a midway approach – the level-funded plan.
Self-funding: a quick level set
The key difference between a fully insured and a self-funded health plan comes down to who assumes the risk for paying claims. At the end of a fully insured plan year, all premiums remain with the insurance carrier, whether they were paid out as claims or not. With a self-funded plan, the company pays all the medical and pharmacy claims throughout the plan year for its covered employees, with protection for large claims.
Self-funding gives employers more control, increased transparency, and substantial savings potential. Because the company is paying the claims, it can account for every dollar spent, customize benefits and vendors, avoid state mandates and premium taxes and, in a better-than-expected claims year, reinvest savings.
Level funding: a midway approach
If true self-funding seems too big a leap from fully insured, level funding – technically, a type of self-funded arrangement – offers a compelling option for employers that want to move away from a fully insured plan but aren’t ready to completely self-insure. Highlights include:
- Consistent monthly payments. Like an all-in self-funded plan, the employer is responsible for paying claims. But instead of the typical pay-claims-as-you-go self-funded model, an employer in a level-funded plan pays a set monthly amount to cover the estimated cost for expected claims, plus any premiums for stop-loss insurance and plan administration costs – just like the budgeting consistency fully insured to which employers are accustomed.
- Stop-loss guardrails. Level-funded plans include extra controls at the stop-loss level that self-funding plans don’t require. If plan members have more claims than planned for, stop-loss kicks in to cover any costs over the preset capped amount – making level funding an attractive middle ground between fully insured and self-insured.
- You don’t lose what you don’t use. If total claims costs are lower than expected, employers may get a rebate or refund from their carrier or third-party administrator (TPA) – something they won’t find in a fully insured arrangement.
- Decision-making data. Just like self-funding, level funding gives companies more access to robust claims data (not typically provided in a fully insured arrangement). Such transparency allows benefits consultants and employers to manage risk more effectively.
Find the right fit
If your company or your clients are looking to explore level funding, it’s also important to acknowledge that not all carriers are created equal. Some important considerations include whether companies get to reap the full benefit of any plan year savings, and whether the plan is a good fit for employees overall.
Self-funding and level funding offer exciting savings potential for small and mid-size businesses. With health care continuing to eat away at company budgets, there’s no better time than now for companies and their advisors to examine all their funding options and make an informed choice for their business and their employees.
Drew Burns is Mid-Market Sales Lead for Centivo.