When was the last time you received a refund from your health insurance carrier? Most likely never, but level-funded health plans (LFP's) are changing the game.
One of the biggest attractions to level-funded insurance is the opportunity to receive money back if you have a good claims year. That’s right, you could receive money back from the carrier, which we’ll go into more detail later on.
Health insurance is a complex subject. Should you choose an HSA qualified plan or a standard co-pay plan? Do you want to have 80% co-insurance or no co-insurance at all? Is it better to offer one plan or multiple plans to employees? Oftentimes, the most difficult part of the health insurance process is just starting the process altogether. With over 30 years of experience helping thousands of clients with their benefit needs, Wilson Insurance Group is here to help you through the decision making process.
Employer-sponsored health plans continue to increase at a budget busting pace. According to research conducted by the Kaiser Family Foundation, the average annual premium per worker in 2020 was $7,483. On average, employers paid about 50-75 percent of the total health insurance premium for a staggering per worker total of around $3,750 - $5,615/year.
There is a light at the end of the tunnel, and no, it is not an oncoming train. Employers have the opportunity to reduce costs for employer-sponsored health insurance by enrolling in level-funded health plans.
What Is a Level-Funded Health Plan?
Level-funded health insurance plans fall in the category of self-funded plans. They are an ACA Compliant group health insurance option that combines the predictable costs of fully-insured plans with the advantages of self-funding. These plans are essentially a hybrid between self-funded and fully-insured plans. Unlike traditional self-funded plans, level-funded plans have a fixed monthly premium (hence the name “level-funded”). Consistent payments allow business owners and operators to allocate resources properly and in a timely manner.
Here are three key points of differentiation that separate level-funded health plans with traditional health insurance coverage:
Employers can receive a refund on their premiums
Access to monthly reporting
Plans are medically underwritten
The first point deserves more discussion. By opting for level-funded health insurance, employers receive more stable health care costs because the rates are based on the health trends of employees and dependents. Level-funded monthly premiums are typically broken down into three categories: administrative fees, stop loss coverage, and projected claims. Projected claims are calculated by reviewing the potential health risks of enrolling employees and dependents. At the end of twelve months, if an employer pays more into their claims fund than the carrier paid out in claims, then the employer is eligible to receive money back from the carrier (as long as they renew). As an example, let’s take a look at Aetna’s level-funding book of business, called Aetna Funding Advantage (AFA). From June 2018 - May 2019, > 43% of groups had a surplus and $8,732 was the average payout to employers.
With that being said, it is important to keep in mind that medically underwritten health insurance plans can leave certain businesses ineligible for coverage. Carriers can deny offering level-funded coverage to businesses with workers and/or dependents that have pre-existing medical conditions.
In the Cincinnati, Columbus and Cleveland areas, there are five main healthcare providers for businesses with less than 100 employees. Two of these major carriers currently offer level-funded plans to businesses. Aetna can write level-funded plans with as few as two employees enrolled while Humana can write level-funded plans down to a minimum of five employees enrolled. On the other hand, Anthem, Medical Mutual and United Healthcare provide MEWA insurance as an excellent option for quality and affordable group health insurance.
Pros and Cons of Level Funded Health Plans
Employers that want to enjoy the flexibility provided by a self-funded health insurance plan but also want the stability offered by a fully-insured plan should consider level-funded insurance. Let’s look at both the good and potentially bad elements of level funded plans.
Pros - Why you should Choose a Level Funded health Plan
1. Monthly premiums can be up to 50% less than standard ACA or Grandmothered/Grandfathered (Legacy) plans.
Level-funded rates are based on the ages and health history of employees + dependents, whereas ACA rates are essentially a blended, community rate (no medical questions asked) purely based on ages and location. Having this health data gives level-funded underwriters the necessary information to accurately rate a business. This allows carriers to offer significantly lower rates to businesses that are a good fit for level-funded insurance.
2. Opportunity to receive a refund.
Employers have the opportunity to receive a refund if there is a surplus in the claims fund. On the flip side, if you have a deficit in your claims fund, you do not owe the carrier anything other than the monthly premium. It’s a win-win.
3. No chamber fees and no monthly association fees.
Level-funded plans do not require businesses to join a chamber to be eligible for coverage. MEWA plans require businesses to join either local or state chambers, which can cost anywhere from $50-$1,000+ annually. Also, some MEWA plans have association fees ranging anywhere from $2-$8 per enrolled employee per month depending on the carrier.
4. Receive thorough reports on the trends of employee claim utilization.
Currently, you probably receive your renewal about two months prior to your renewal date and you get slapped with an increase. You are given no claims information as to why you received such a steep increase. Level-funded plans provide monthly reports to employers, which allows them to see claims data. Please note this claims data is HIPPA compliant and does not mention individuals' names. Employers can use the claims data to help educate employees on their health insurance usage. For example, if you notice employees are going to the ER instead of visiting a nearby Urgent Care, you should educate employees by explaining Urgent Care facilities can be a more cost effective solution.
5. Much more consistent cash flow.
6. Fewer government restrictions.
An improved cash flow is a huge pro for small business owners and operators that run on shoestring budgets. Instead of tying up cash in traditional policies that frequently deliver a poor return on investment, a level-funded health insurance plan allows businesses to keep more money to pay for daily, weekly, and monthly expenses.
Cons
1. Can be costlier than other types of health insurance depending on underwriting results.
2. Some contract terms might not be business friendly.
3. Restriction on minimum and maximum number of employees.
The contract you sign to enroll in a level-funded plan typically comes with an early termination provision. Make sure you have a thorough understanding of the termination provision before you sign up or cancel level-funded coverage. Wilson Insurance Group is here to guide you in the decision-making process.
What’s the Difference Between an LFP and a Standard Plan?
One of the most effective ways to learn about level-funded health insurance plans is to compare the insurance model with standard plans. What are the differences between a LFP and a standard plan?
Standard Affordable Care Act (ACA) Insurance
When you hear about standard health insurance policies in today’s marketplace, you should also hear the terms “fully insured” and “guarantee issue.” Employers pay a monthly premium to a health insurance company, and in turn, the insurer pays for medical benefits and procedures covered in the insurance policy contract. Regardless of underlying health conditions of employees and their dependents, a carrier cannot deny ACA coverage. Rates are based solely on age and location, which has caused rates to climb higher and higher. During the course of a year, employers do not have access to any claims data. Then, at the end of the year, employers receive a renewal. ACA renewals usually bring about 20-40% increases every year. The only reason you should have an ACA plan is if your business does not qualify for level-funded or MEWA coverage.
Level-Funded Insurance
Small and medium size businesses view health insurance in three different ways.
The benefits the coverage provides
How the premium investment impacts cash flow
Predicting future costs of healthcare
Enrolling in a level-funded health plan answers all three questions at the same time. LFPs require employers to make monthly premium payments in the same way standard plans call for businesses to fund health insurance coverage. The main difference is the potential savings loaded into both the front end and the back end of an LFP. If the employees and dependents enrolling in coverage receive favorable underwriting, then an LFP can offer up to a 50% savings on monthly premiums compared to a standard fully insured plan. On the back end of things, if your company does not spend all of the money for claims associated within the monthly premium, an LFP can return part of the excess cash as a refund.
What Companies Can Use an LFP?
Because of the advantages of paying a consistent amount of money each month, as well as receiving refunds whenever there is a surplus in the claims fund, an LFP is an ideal health insurance program for small businesses. This is especially true for small businesses that operate on razor thin margins. LFPs have the potential to deliver lucrative savings for employers with anywhere from 2-100 employees. Generally speaking, any company that is subject to ERISA is eligible for level-funded coverage. Municipalities, schools and churches would be ineligible for this coverage.
Conclusion
Unlike a government managed health care plan such as a group Affordable Care Act plan, level-funded health plans give employers more power in making health insurance coverage decisions. This is critically important for smaller businesses that compete with much larger companies.
We realize every dollar spent matters. And when it comes to health insurance, level-funded health plans provide small businesses with the most efficient way to spend health care dollars. Give us a call at (513) 984-5991 or fill out our contact form and we’ll find out if your business is a good fit for level-funded insurance.