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Pros and Cons of Level-Funded Health Insurance Plans

The cost of health insurance continues to rise each year, creating significant financial challenges for both employers and employees alike. As a result, employers are searching for new and innovative ways to offer attractive health insurance plans to their employees that don’t break the bank. 

One recent trend in this regard is level-funded health insurance plans. They are an alterative type of health insurance plan companies can offer to their employees that can help them control costs. 

Below are some of the pros and cons of level-funded health insurance plans. 

What is a Level-Funded Health Insurance Plan? 

A level-funded health insurance plan is a combination of a fully-insured plan and a self-funded one. Companies will pay into stop-loss insurance, a claims account, and for the health plan to be administered by a third-party company. 

Employers will directly fund the health claims of their employees to a set annual threshold for each person. This typically ranges anywhere from $10,000 all the way up to $100,000. 

Once claims exceed the set threshold, the stop-loss insurance will kick in and cover the excess until the plan year ends. This stop-loss plan will come with a monthly premium. 

The premiums are held in an account to cover the cost of claims, stop-loss coverage and administrative services. If health costs end up being lower than they were expected to be, the group will receive a refund for the excess amount paid — which will be split with the insurance carrier. 

Pros of Level-Funded Health Insurance 

There are many pros of level-funded health insurance, including these points below. 

Rates based on members 

A main pro of level-funded health insurance is that the premiums are based on the specific members in the pool. In a traditional fully-insured plan, the rates are based on the risk pool that the general population provides, or on a much larger sampling of people than just the members enrolled in your plan. 

The group rate is created in this type of plan based on analysis of the actual enrolled members only. This can result in premiums that are much lower. 

Predictable premium 

One aspect that level-funded plans take from fully-insured plans is the stable and predictable premiums. The cost for the plan will remain the same all year long, which provides cost certainty for employers and employees alike. 

In this way, it’s a nice combination of the lower costs of self-funded plans with stable costs of fully-insured plans. 

Exemption from regulations 

Legally speaking, level-funded health insurance plans are considered self-funded. What this means is that they’re exempt from many state regulations as well as taxes that accompany them. This can result in huge cost-savings to employers that might make looking into them worth it all on its own. 

Cons of Level-Funded Health Insurance 

At the same time, there are some cons of level-funded health insurance, including these points below. 

Higher cost than self-funded 

Employers looking for the lowest possible cost should probably turn to self-funded plans. Even with the refund available, there are additional fees on top of the cost of claims that make the overall expense of level-funded plans higher than self-funded ones. 

Limited choice 

Another major downfall is that there is a limited choice in health plan designs. Level-funded plans health insurance plans don’t enjoy the same freedom and autonomy that self-funded insurance plans do.  

This means that you won’t have complete control over selecting the stop-loss carrier and TPA, to even how the structures, copays and deductibles are designed. 

Rates still increase 

While level-funded plans help to control premium costs, they’re not immune from rate increases. In fact, it’s common that rates can increase from one year to the next. 

This increase can even be significant, should claim costs from the previous year end up coming in much higher than initially expected. This makes these plans very similar to fully-insured health insurance plans. 

Refund isn’t simple 

While it’s possible to receive an annual refund from level-funded health insurance plans, it’s not as straightforward. Getting a refund could be contingent upon renewing with the health carrier, meaning if you want to switch carriers, you would be forfeiting your refund. 

The refund also isn’t completely yours, as you’ll have to split the amount with the carrier. 

Consider Level-Funded Health Insurance with Beckham Insurance Group 

Level-funded health insurance plans could be a solid consideration for employers that are looking to reduce the cost of health benefits they offer to their employees. There are many advantages to offering these plans that could be very attractive for employees, too. 

If you’re in the Georgia or South Carolina region, partner with Beckham Insurance Group if you’re considering level-funded health insurance plans. Our team of experts can analyze your situation and help you decide whether this type of plan would be right for you and your employees. 

Contact us today to learn more.