What is a level premium health plan?
If you desire the freedom of a self-funded insurance plan but need a little more certainty for your budgeting concerns, level funding might be an option for you. Weigh the advantages and disadvantages and decide what’s best for your company.
Level funding is a health plan design option that provides the security of a fully insured plan, while offering the potential cost savings and flexibility of a self-insured plan.
Advantages of level funding
Level funding offers several advantages. Like other self-funded plans, you don’t have to pay premiums that are based on community rates, which might be higher than your employee group’s risk. Instead, you only pay the actual claims and an additional administrative fee.
Another benefit of level funding is that if all the money you set aside each month to cover claims is not used, you will receive a refund at the end of the year from the surplus, instead of paying expensive premiums for a fully insured plan and essentially using or losing that money.
If you are already self-funded, then you will enjoy a more budget-friendly method of monthly claims payment, with stop-loss insurance to protect you from unexpected high costs.at provides the security of a fully insured plan, while offering the potential cost savings and flexibility of a self-insured plan.
How level funding works
“Level” fee
In a level-funded plan, an employer pays a “level” fee each month to a carrier.
- This fee typically covers the cost of administrative fees, third-party administrators (TPA) and stop-loss insurance.
- This fee is determined by the carrier and is often based on a variety of factors, including company size and past claims data.
Plan facilitation
The carrier or TPA will handle facilitating the health plan, including paying out claims.
Surplus refund
At the end of the plan year, employers may be entitled to a surplus refund if their actual claims are less than projected.
Stop-loss insurance
If the actual claims exceed what was expected, the employer is protected from the unexpected cost with stop-loss insurance.
Level premium and stop-loss insurance
Similar to self-insured (self-funded) health plans, level-funded plans use stop-loss insurance for protection against unexpectedly high claims and catastrophic losses under the plan.
With stop-loss coverage, the employer’s medical plan limits its risk but accepts the responsibility for paying providers’ claims for individuals.
There are two types of stop-loss insurance:
- Individual (specific) stop-loss
- Aggregate stop-loss
Other group health insurance plans
Fully insured
A traditional group health insurance plan. The insurance company assumes the financial and legal risk of loss in exchange for a fixed premium paid by the employer. The insurance carrier pays health care claims as outlined in the policy.
Self-funded/Captive
Employers retain the risk of paying for their employees’ health care claims themselves, either from a trust or directly from corporate funds. Stop-loss insurance helps limit your exposure in the event of a catastrophic claim.
