A Whole new world...

By Todd Anderson on November 1, 2019

I'm not sure which saying to kick this article off with, I'm split between "Be careful what you ask for" and "The times they are a changing...". But up until now things just seemed to be getting worse for companies like yours trying to figure out how to manage their employee benefits and the rising costs. It seems like everyday some insurance company is either dropping out of the market or changing their networks so it seems nearly impossible to find a doctor or hospital. When talk of the Affordable Care Act started there were a lot of employers excited at the prospect of finally getting better coverage at a better price. Unfortunately, now that it's come to fruition, that's just not the reality most of us are facing.

Level Funded Health Insurance, Employee Benefits, Self-Funded. ACA

Everything Old Is New Again

Once upon a time, every business had to complete medical questionnaires just to get an insurance company to give them a quote for their benefits. This tended to be a double-edged sword. If your demographics matched up with the insurance company's concept of an ideal group you were rewarded with favorable rates. If something was "off" your company could have ended up paying tens of thousands of dollars more than your neighbors.

Well now, we can have the best of both worlds.

There are a number of insurance companies that are now offering what they are referring to as, Level Funded or Partial Self Funded insurance plans. (These are concepts that have been around along time. But up until now, they were only available for really large employers. Now, groups as small as 5 employees can take advantage of these benefits.)

So How Does It Work?

This concept is so simple, it's genius. Groups complete either individual health questionnaires or simply supply generalized medical information for the entire group (The specifics depend on which insurance company you're working with). The insurance company then assesses what they project the claims will be and prices the coverage accordingly. When next year rolls around and it's time for your renewal, if the insurance company overestimated the claims (Meaning they collected too much money), they will generally give a portion or the overage back to the group in the form of a credit to offset the next year's premiums. If they underestimated, generally they have to absorb the excess claims (A part of the premiums you pay is for something called the Stop-Loss that covers this)

So What Does All Of This Mean To You?

Level funded plans (and generally, most self-funded plans) deliver three primary benefits to small employers: the potential for cost savings, more opportunities for plan customization, and reduced regulations.

Cost Savings: It’s true that fully insured health plans remove most of the risks from the employer, but as a result, the cost of the plan is much higher. And while the cost of a fully insured plan is predictable for the plan year, rates can and will rise in subsequent years, should your claims surpass those forecasted by the carrier. On the other hand, a self-insured plan leaves the most risk with the employer, but also has the greatest chance for producing savings in the form of claims being lower than premiums. Level funded health plans attempt to combine the best of both worlds, making partial self-funding a more viable option for a larger portion of employers, such as small businesses.
Plan Design: Level funded and self-funded health plans also provide employers with far more flexibility in plan design and are exempt from some ACA regulations, such as the requirement to offer essential health benefits, or the requirement to follow the three-to-one rating formula, for example. Additionally, self-funded plans give employers access to invaluable data which can inform plan design, such as claims information, unit cost of healthcare statistics, utilization frequency, and prescription data.
Regulation: Lastly, because of an ACA exemption, level funded and self-funded health plans (even for small groups) enjoy the benefit of not having the same regulatory requirements as traditional, fully insured plans. Oftentimes, this means a lesser administrative burden on small companies who don’t have the same staffing resources as large employers. Therefore, level funding helps reduce overhead expenses