Level Funded/ Self-Funded

One of the top concerns for small business is the cost of providing group health insurance.  Under the Affordable Care Act, small groups have seen rates almost double. The insurance industry answer to reducing small group health insurance cost is the introduction of level funding.  Level-funding is also known as partially self-funded, Alternate Funding, Fully Funded, & Self-Funded.

The current level funded market for a small group is an exciting one. Our average savings vs. fully insured rates are 31%.  Not all groups are eligible for a level-funded plan, and we do pre-screen/field underwrite cases to determine if level funding is an actual option.  All small groups with a group health plan should entertain if level funding worked for them. I

The self-funded medical plan pays for all covered medical expense in which members incur.

A third-party administrator (TPA) will administer all customer service, claims processing, eligibility, and additional admin services.  The TPA can be the insurance company, or it could be an outside entity.

There will be a Stop-loss Insurance policy that protects the plan from large or catastrophic claims by either a covered individual or the entire group.  The stop-loss policy can be provided by the insurance company offering the plan or it can be from a separate insurance company. This really depends on where the self-funded plan is coming. Large insurance companies will provide everything in-house where smaller companies will piece the policies together.

With level funding, the group will have to go through underwriting to finalize the rates.  The group that has low risk could see a substantial saving vs. fully insured.

On a level-funded plan, the company will make the premium payment each month very similar to a fully insured premium. The difference is that the group will see the break down of fixed costs and claims funding.  Under this arrangement, if medical claims are higher than expected the group is still only responsible for the premium. If the group has lower than expected claims through the year, they could receive a credit back from the claims fund — the group shares in the savings on a good year.

With level funding plans being considered Self-Funded they are not subject to most state mandates, some insurance premium taxes, which can produce savings.

The level funded plan can produce upfront saving in the form of reduced premiums and additional saving if the company has a good claims year.   There are multiple insurance companies offering level funded health plan. There large health insurance companies that now offer these plans. There are also a lot of small companies whose names are not recognized.  With medical underwriting, each company has a different tolerance to risk. One company may not take a risk, where another’s view the risk as acceptable.

The health insurance industry has gone through a massive amount of merger and acquisitions, and this has led to a lack of competition especially in the small group market.  With the introduction of level funding, there is now some level competition in the market, and we enjoy brokering the different carriers to deliver our clients with the best plan possible.