Seven Advantages of a Level-Funded or Self-Funded Small Group Health Plan
1. Underwriting Based on Type of Business, Age, Sex, Health, and Lifestyle - With a fully funded plan, the healthier and younger groups must subsidize the cost for older and less healthy groups. The underwriting process used for self-funded plans allows you to be charged the correct amount for your group, rather than being included in a community rated traditional plan.
2. Tax Savings - Employers with self-funded (ERISA) plans save on state insurance taxes and some ACA taxes. The ACA "HIT" tax does not apply to self-funded plans. This is a large cost to insurers of fully insured health plans.
3. Not Subject to State Mandates - Carriers selling fully insured plans must spend large amounts of resources just to comply with the hundreds of different state mandates. With a self-funded plan, the employer selects benefits that work best for the employees. This feature creates savings similar to those that are promised through being able to "buy across state lines".
4. More Latitude in Plan Designs - With a self-funded plan an employer is allowed to select the benefits that work best for their specific business. There are a large number of deductibles, copays, prescription benefits, and other options that allow for custom designing a plan that works best. The employer is not limited to the "one size fits all" metal plans.
5. "Money Back" from Claims Fund - In years that claims are less than funded for, the money left over in the claims fund belongs to the employer.
6. Monthly Claims Reports - The employer receives monthly claims reports showing where healthcare dollars are being used. This information can be used by the employer and advisor to design a plan that works best for the specific business and its employees.
7. Lower Costs - Savings may result from underwriting, fewer mandates, more latitude in plan design, tax savings, and a refund of claims funds. In many cases, these savings are significant.
Level Funding is a type of partially self-funded plan. For more information, see the article below. Most Level Funding plans require ten enrolled employees, however some will accept a minimum of five in Georgia.
December 23, 2014
By Joseph Berardo Jr.
More employers are opting to self-insure their employee benefits in order to gain more flexibility and control in plan design and financing. A well-designed self-insured plan enables companies to reap the benefits of their cost containment efforts and wellness activities, rather than having to pay a monthly premium to a commercial insurer based on an arbitrary set of rating restrictions.
Level-funding, a self-insurance hybrid, further enables companies to benefit from the regular and predictable cost of a fully insured plan, while only paying for the healthcare costs actually incurred by employees. This approach can potentially provide a 30 to 40 percent annual refund on health benefit costs.
With level-funding, employers pay a set amount each month to a healthcare services company to cover administrative costs, fees and embedded stop-loss insurance. Stop-loss provides for risk retention limitations and serves as a financial buffer for the employer if, for example, an employee is found to have cancer or needs an organ transplant.
Companies put aside enough cash to cover anticipated claim expenses, and the monthly premium remains level for the entire year. If claims are less than the funded amount at the end of the year, a rebate or credit is issued. If claims go over the funded amount, companies are protected by stop-loss. For companies that already self-insure and then switch to level-funding, they can expect to benefit from a more budget-friendly method of monthly claims payment. The only caveat to be aware of is that each state mandates a set minimum employee count in order to get stop-loss coverage, so this option will not be open to extremely small employers.
Why Level-Funding Is Advantageous
Level-funding delivers all of the same advantages of self-insurance, including greater flexibility than commercial insurance, as well as a number of cost-saving benefits, such as:
Helping employers tailor plans to the specific health needs of a workforce population, especially if guided by the right healthcare services company
Generating as much as three percent immediate savings because state taxes are eliminated on most self-insured plans
Eliminating carrier profit margins and risk charges
Furthermore, level-funded plans are exempt from many of the federal healthcare law’s health insurance taxes, which will be onerous for the fully-insured market, exceeding $100 billion over the next several years. Companies that opt to level-fund their health benefits are precluded from offering the government-mandated "essential health benefits," which allows them to tailor benefits to the needs of a company and the demographics of its workers.
Additionally, level-funded plans are not subject to state-mandated benefits, the jurisdiction of the states and, for the most part, litigation in state courts or the appeal and complaint procedures of the insurance departments of each of the states.
With level-funded plans, employers only pay for claims and the cost of administering them, and they can conveniently be combined with Flexible Savings Accounts (FSA), Health Savings Accounts (HSA) and Health Reimbursement Accounts (HRA), which means that, in addition to lowering healthcare costs, level-funding helps companies remain competitive and gain an edge in attracting and retaining talent.
Ideally, level-funding works best for companies that are:
Looking for an affordable option that makes it possible for them to continue offering an employer-sponsored benefit
Interested in self-insuring, but want to avoid the risk of unpredictable monthly costs
Establishing a culture of health and wellness -- and have 25 or more employees
How to Make the Most of Level-Funding
In order to simplify the transition to and administration of a level-funded plan, companies should turn administrative responsibilities over to a healthcare services partner that has considerable expertise and a proven track record for:
Providing customer service
Adjudicating and paying claims
Preparing claim reports
Negotiating, obtaining and renewing stop-loss placement
Conducting enrollment information meetings
Arranging managed care services, such as access to preferred provider networks, coverage for alternative treatment programs including acupuncture and chiropractic services, prescription drug card programs that offer cost-saving opportunities and utilization review
Therefore, look for a healthcare services company that offers secure data analytics for both remote and real-time care. They should also provide an inexpensive vehicle for coordinating online tools that identify at-risk members, their patterns and treatments for various ailments – from diabetes to heart conditions. Robust data analytics allow level-funded plan managers to evaluate employee information, including age, chronic illness, risk factors and gaps in care, and update medical conditions, compare previous costs to projected expenditures, and intervene with optimal prevention and wellness programs.
A healthcare services company that focuses on population health and excels at risk analysis is critical because high-risk patients create higher costs. An employer needs to be able to identify at-risk individuals in order to develop a cost-effective care strategy. This means working with a healthcare services company that is able to stratify risk across a patient population to determine where and how to allocate limited resources. Health conditions are often tied to an individual’s ability to follow a treatment plan, comply with recommended medications or therapies and do what is necessary to stay healthy.
Healthcare data analytics plays an important role in level-funding by providing information relevant to population health management, such as determining the chances of a relapse, the likelihood of noncompliance, and the progression of chronic disease. The key to making the most of level-funding is to streamline access to care with customizable care plans based on an individual’s risk profile and needs. Targeting health issues, rather than simply implementing a general health and wellness program, is essential for effective long-term population health management.
By partnering with a healthcare service company and provider group, employers can also take advantage of deep discounts and give employees greater access to coordinated care. Some plans are designed exclusively around chronic disease and include educational materials, one-on-one counseling, transportation to a hospital or doctor’s office, and assistance in coordinating care among physicians and other caregivers. Health claims and other medical data are used to identify members with chronic conditions and provide them with the tools and support they need to better manage their health.
Berardo is chief executive officer of MagnaCare.