Self-Funded vs Level-Funded Health Plans: What’s the Difference?
Self-funded and level-funded health plans are two very popular options for businesses to pursue today. Each has a plethora of offerings that can draw companies in, and a few disadvantages that may discourage certain employer types.
But before you can know which health plan type is right for you, you need to know and understand the nuances between them. Learn which benefits are associated with each, so you can choose what your business needs most, and learn their disadvantages so you can safeguard against possible issues.
For more information about level-funded health plans, self-funded health plans or to request a quote, contact Beckham Insurance Group today.
Self-Funded Health Plans
Self-funded health plans, also known as self-insured health plans, are group health care plans that have an employer take on the full financial responsibility of paying for their employee’s medical expenses through a centralized cost-sharing plan. However, they also end up taking home the majority–or entirety–of benefit claims awarded to a claimant. In the case of this health plan, it is a more traditional insurance company that handles the payment processes, and it’s the employer’s duty to cover the claim cost.
Self-funded health plans have many advantages any company would be happy to enjoy. Let’s take a look at a few top-ranked qualities of this plan type:
Employers Have More Control
With Self-funded plans, employers are virtually solely responsible for choosing, monitoring, and managing everything associated with their employee’s health plans. This gives employers far greater freedom when it comes to determining which healthcare plans they want to provide.
Employers Keep Leftover Funds
They get to keep leftover funds when claim predictions are estimated at a higher rate than they are filed in a year, and there are virtually no profit or risk fees that must be paid to an insurer.
These plans are usually a cheaper option when compared to competitor types because of how minimal associated profit and risk fees are, but also because state-level premium taxes on these plan types are virtually nonexistent.
While there are many benefits to enjoy with self-funded health plans, there are also a few disadvantages you need to be on the lookout for when choosing a plan.
High Risk of Lawsuits and Penalties
Because this plan type has many regulations attached to it, there are several different ways that simple mistakes can be made that may end up costing your company a lot of money in the long term.
Yearly Expenses Aren’t Predictable
It’s incredibly difficult to make a budget when you don’t know what you’re budgeting for, and this is a key aspect of self-funded health plans.
Level-Funded Health Plans
Level-funded health plans, or partially self-funded plans, are health plans in which an individual’s employer will pay a predetermined amount for each of their employees’ benefits each month. This payment covers the funding of a reserve account, any necessary administrative fees, and various premiums for stop-loss coverage. And, if the claims filed by employees come in under the expected amount, then the company will be able to have those extra payments refunded to them when the contract ends.
There are several key benefits associated with level-funded health plans.
Fixed Administrative Costs
Unlike other program types, level-funded health plans have fixed administrative costs that will not change no matter what claims are filed or how many claims are submitted. Employers will, instead, invest a flat rate to cover several necessary network costs including claims adjudication and prescription networks.
This kind of plan gives you, the employer, and the employees significantly larger amounts of freedom in the flexibility of your health plans than other types allow. This is largely due to certain Affordable Care Act regulations that level-funded plans are exempt from.
Even if your employee pool is incredibly small, level-funded plans will still have more regulatory flexibility than more traditional health plan types. Because of this, they are far easier to regulate. After all, if there is not much that needs to be overseen administratively with a health plan, companies–even those with smaller staff sizes–will find keeping up with required regulations far easier than staying on top of the laundry list necessitated by more traditional programs.
While there are many benefits to level-funded plans, let’s also peruse a few key disadvantages.
Employers Take More Financial Risks
Even though level-funded plans are still partially contracted through insurance companies, employers still take on a greater amount of financial risk in offering these program types than others.
There May Be Hidden Fees
Because these health plan types are not regulated by the ACA, insurance agencies can take advantage of loopholes and define certain claim types and expenses in a way that can end up leaving you with several surprise charges.
There are many factors to consider when choosing a self-funded or level-funded health care plan. If you’re ever unsure, the representatives at Beckham Insurance Group are here to assist you with their knowledge and expertise. Contact us today to learn how we can help you choose the best health care plan for you and your business.