Presenting level-funded health plans can increase your value as a trusted advisor and strengthen client relationships. This innovative approach is particularly attractive to small and mid-sized employers who want to enhance their health benefits without straining their budgets. Level funding merges the financial stability of fully insured plans with the potential savings of self-funding.
Level funding is rapidly becoming more common in the small-to-mid-size market. In fact, 38% of small and mid-size firms offer a level-funded plan, compared to only 7% just three years ago, according to a Kaiser Family Foundation survey. Employers are more willing to try these plans now that they understand the reinsurance protection that comes with level funding.
Recommended For You
What is level funding?
Level funding combines elements of fully insured and self-funded insurance models. Unlike strictly self-funded plans, the monthly cost of a level-funded plan is predictable, creating more stability in financial planning. Under a level funding arrangement, the employer pays a fixed monthly fee (equivalent to premiums) to an insurance carrier, covering anticipated claims, administrative expenses and stop-loss insurance. The monthly fee is based on the estimated risk profile of the overall group population or, in some cases, individual medical questionnaires.
If the employer ends up having claims that exceed the estimate, they don’t owe anything more, and they’re protected by the stop-loss insurance. If claims are lower than expected, they get a refund of the surplus amount (or a portion of the surplus amount), depending on the contract terms. Alternatively, if the claims are higher than expected, the stop-loss insurance covers the excess, so the employer only ever pays the fixed monthly fee.
Reasons to consider a level-funded plan
Employers find level-funded plans attractive for several reasons:
- Lower monthly premiums: Level-funded health plans can offer lower premiums compared to traditional fully funded plans. The fixed monthly fee is based on expected health care use, rather than worst-case scenarios, as seen with fully funded plans. This structure allows employers to save up to 30% on their health care costs.
- Potential cost savings: Employers love the idea of getting some of that premium back if their claims are lower than expected. For a business with a relatively healthy population, it can be a great way to reduce their overall health care spending.
- Increased transparency: With level-funded plans, employers can access very detailed claims reporting to see how the health plan is being utilized and where they're spending the most money. The employer can then adjust their health plan accordingly at the next renewal date. For example, if employees are having a lot of emergency room visits, the employer can implement a telemedicine program to steer them to more appropriate and cost-effective care. They can also steer employees toward certain providers or networks that have been proven to reduce claims utilization. Transparency helps advisors and employers understand their group’s health trends and make informed decisions about future benefits.
- Cost containment strategies: Certain level-funded programs offer programs that can significantly reduce medical and prescription claims. For example, reference-based pricing (RBP) models can drastically reduce health care claims by utilizing a schedule based on Medicare pricing to pay providers for care. Sourcing prescriptions from international markets can also save both employers and employees tremendously when utilized.
- Exemptions from certain taxes: Level-funded plans are exempt from state premium taxes and the ACA's health insurance tax, which provides further savings.
- Customization: Unlike fully funded plans that may be restricted by state mandates, level-funded plans can be tailored allowing for more flexibility in the benefits that the employer can offer.
Factors to consider
Level funding can be an excellent option, but it may not be the right fit for every employer. The key is understanding your client’s needs and guiding them toward the best solution:
- Claims history: Looking at a group’s claims history is crucial. A history of low claims may suggest that a level-funded plan could result in surplus refunds, while a high claims history might indicate that the employer could face financial challenges with this type of plan.
- Cash flow: A level-funded plan typically involves a fixed monthly payment that includes an administrative fee, stop-loss premium, and an estimate for claims. If claims exceed the estimated amount, the employer is protected by the stop loss insurance, but they must still be ready to handle the upfront costs. So companies with a stable cash flow and stable enrollment are often better suited for this type of plan.
- Plan features: Evaluate the specific features of the level-funded plan, such as wellness programs, disease management, and risk management services, to ensure they align with the client’s needs.
- Regulatory environment: Consider any state regulations that may affect level-funded plans. Some states impose specific restrictions, particularly regarding stop-loss coverage.
- Carrier reputation: Investigate the reputation and reliability of the insurance carrier that’s offering the level-funded plan. Strong support and a good claims process can significantly influence client satisfaction.
Dave Cardwell is a Level Funded Product Specialist at Amwins Connect with over 12 years of experience in level-funded and self-funded plans.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
