Maximizing Health Insurance Benefits: Level-Funding vs. Fully-Insured Health Plans

In the world of health insurance, businesses have the crucial task of providing healthcare coverage for their employees. To make informed decisions in this realm, it’s essential to understand the differences between traditional fully-insured health plans and the innovative approach of level-funding health plans.

Traditional Fully-Insured Health Plans: Predictable But Limited

Fully insured health plans have long been the standard for employer-sponsored healthcare coverage. Under this model, employers pay a fixed monthly premium to an insurance carrier, providing stability but limiting flexibility. The insurance carrier takes on the financial risk and claims administration. While predictable, fully insured plans often lack the ability to customize plans for specific employee demographics and claim histories, which can lead to higher costs for employers.

Level-Funding: The Best of Both Worlds

Level-funding offers a hybrid approach that combines self-funding and fully insured plans. Employers contribute a fixed monthly amount to cover claims and administrative costs in this model. Stop-loss insurance is included to protect against high claims, ensuring financial stability. The beauty of level funding is that if claims are lower than expected, employers may receive a portion of the unused funds back, mitigating costs when employees are healthy.

Key benefits of level funding include premium transparency, potential cost savings, flexibility in plan design, and access to valuable claims data. With a data-driven approach, businesses can tailor benefits to their employees’ healthcare needs, making it a cost-effective and strategic choice.

Financial Risk and Control

The fundamental difference between fully insured and level-funded plans is the allocation of financial risk. Fully insured plans leave the risk to the insurance carrier but come at the expense of control and flexibility. In contrast, level funding allows employers to share in the financial risk and potentially reap rewards if claims are lower than anticipated.

Case Study: Realizing Cost Savings

Let’s consider a hypothetical case study to illustrate the cost-saving potential of level funding. A mid-sized company with 150-200 employees transitions from fully insured to a level-funded plan, experiencing lower-than-expected claims in the first year. This results in a surplus in their claims fund, which can be carried over to the next year, used to reduce premiums, or reinvested into employee wellness programs, benefiting both the employer and employees.

Navigating the complex landscape of health insurance requires a deep understanding of funding options. Level funding offers businesses greater control, flexibility, premium transparency, and potential cost savings compared to traditional fully insured plans. Engaging with knowledgeable health insurance advisors is essential to choosing the funding model that aligns best with organizational goals, risk tolerance, and financial objectives. Prioritize your employees’ well-being and explore your health insurance funding options. If you need guidance, don’t hesitate to reach out.

For more information on this topic, check out Kellen Stanford’s original article.