February 25, 2016

Level Funded Benefits – One ACA Compliance Solution for SMBs (article)

The Affordable Care Act (ACA) requires businesses with 50 or more full-time equivalent employees to provide "affordable qualified health insurance" or pay fines. As most financial institutions will fall into this category, like other businesses, banks will have to comply with this mandate. Most such institutions historically have provided robust benefits, including health insurance to their employees, mitigating the regulatory impact of this mandate. However, providing a high-quality employee benefits program at an affordable price is a significant issue facing all businesses today, including those in the financial sector.

Implementation of and compliance with the ACA, along with rising costs of health insurance and health care delivery, present multiple challenges, especially for small- and medium-sized businesses (SMBs). Employers are in need of long-term solutions that will help them gain control over health care expense and lower their insurance costs, while at the same time engaging their employees to keep them happy, healthy and productive.

Alternate Funded (also known as Level Funded) programs combine the financial predictability of a fully insured plan along with the flexibility of a self-funded one. With this type of program, the business’ maximum self-funding cost for the plan year is determined up front. These monthly costs are based on the number of covered employees and dependents and cover all claims, premiums and fees. Over the course of the plan year, you only pay for the health care services the employees actually use. Additionally, protections are put in place in the event an individual or the group exceeds the overall expected claims. If the group’s overall claims and expenses for the plan year are less than expected, the company is eligible to receive a refund or credit.

How Does Alternate Funding Work?

Alternate funded plans have three components:

  1. The business’ self-funded health plan
  2. A third-party administration agreement
  3. A stop-loss insurance policy

The health plan is a set of benefits the employer establishes to cover certain medical expenses of its employees and their covered dependents. The self-funded health plan benefits can be set up to look and feel like many of the traditional fully insured plans employees have had in the past

The third-party administration (TPA) agreement is the contract a business enters into for claims administration services. These services include claims processing, billing, reporting, enrollment, membership changes, materials fulfillment, customer services, etc. Additionally, using a TPA allows for simplified billing. One flat monthly payment covers claims fund contributions (the group’s claims are paid out of this fund), stop-loss insurance premium and administrative services fees. The payment amount will only change if a group’s enrollment or benefits change.

A stop-loss insurance policy protects the business from large, catastrophic claims incurred by an individual group member and the group as a whole. If an individual group member’s claims exceed a preselected level (specific limit), the stop-loss insurance covers the remaining portion of the member’s claims for the plan year.

Aggregate stop-loss insurance protects against higher than expected claims by the group as a whole. The aggregate limit is calculated based on the group census and takes into account the number of members, their age, gender, etc. and is based on the total expected claims for the plan year for all group members. The aggregate limit is equal to the total contribution to the claims fund for the plan year. If the group’s overall claims exceed the aggregate limit, the stop-loss insurance covers the remaining portion of the group’s claims for the remainder of the plan year.

Shared Returns

One of the most unique features of alternate and level funded programs is that they offer complete protection on covered claims with the opportunity to receive cash back at the end of the plan year. If claims are lower than expected and there is a surplus in the claims fund at the end of the plan year, a portion of the surplus will be refunded to the plan.

Providing employees with a health care plan that delivers solid coverage at a cost-effective price is a top priority for many businesses. Alternate funded programs offer the predictable costs of a fully insured plan and the flexibility of a self-funded, administrative services only option and more, including:

  • Opportunity to lower health care costs by only paying for claims of your employee
  • Comprehensive medical plans with utilization and cost-containment resources
  • Reduced taxes by only paying premium taxes applicable to stop-loss premium
  • Share the benefits of a positive claims experience through refundable claims account surplus

To learn more about alternate and level funding and how CBIZ can help you build a better health plan, contact Todd Gordon at (770) 858-4801 or todd.gordon@cbiz.com.




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