LEVEL-FUNDED FAQs
What are level-funded health programs?
Level Funded Health Programs are a unique blend of traditional small group health insurance plans and self-insurance that offer mid-sized businesses an alternative to the Affordable Care Act (ACA) by allowing them to provide their own health benefits. These programs are administered by reputable health insurance carriers with a rating of A- or better from A.M. Best. Additionally, they typically include a stop-loss insurance policy to mitigate the risk of claims exceeding the total funded amount each month.
One of the primary benefits of Level Funded Health Programs is the potential for monthly premium savings of 30% or more, as well as the possibility of a year-end refund. In fact, approximately 50% of businesses throughout the United States receive refunds from these types of programs, with refund amounts typically equal to two months of premiums.
How does level funding work?
Level-funded benefits programs operate similarly to traditional group plans, with a consistent monthly premium throughout the year. Premiums are divided into three parts: one-third covers employee claims, another third goes towards plan administration, and the final third pays for stop-loss coverage, which protects business owners from self-insurance risks.
Any unused portion of the claims fund may be refunded at the end of the year, but plan administration costs and stop-loss premiums are not eligible for refunds.
Level-funded programs typically have utilization-based pricing, which means businesses with healthier or younger employees may enjoy even greater savings. Additionally, in the event that a business exhausts their claims fund, the stop-loss policy ensures that employers are fully protected from claims that exceed the annual funded amount.
What are the advantages of level funding?
Unlike traditional group health plans, level-funded programs do not calculate premiums based on a community risk pool. Under the Affordable Care Act (ACA), traditional group plan participants are combined into a larger, potentially riskier group when forecasting claims, which can be particularly challenging for mid-sized businesses. In contrast, level funding allows for lower premiums in some cases because a company's risk level may be lower than that of the general population.
Another benefit of level-funded programs is the ability for businesses to recover unused claims set aside at the end of the year, whereas traditional group plan premiums are nonrefundable. Additionally, level-funded programs offer utilization reports, providing business owners with detailed information about overspending. This information can help businesses reduce costs even further, such as by encouraging employees to use urgent care facilities rather than emergency rooms, which typically have lower claims.
