Level-funded health plans can help employers lower their health care expenses while providing employees comprehensive health coverage and a robust provider network. These plans combine the cost savings and flexibility of a self-insured health plan with the financial predictability of a fully insured health plan.
What is Level Funding?
With level funding, employers pay a set amount each month to a carrier. This amount typically includes the cost of administrative or other fees, the maximum amount of expected claims based on underwriting projections and stop-loss insurance.
How Does Level-Funding Work?
Employers with level funded plans pay a “level” fee to an insurance carrier or third-party administrator (TPA) each month. That level fee includes three components; the maximum claim liability, a health plan administration fee and a stop-loss insurance premium.
- Maximum Claim Liability: Level-funded health plans set an estimated amount for an employer’s maximum claim liability for the year. This amount is typically based on the health status of the organization's employee group.
- Health Plan Administration Fee: Level-funded health plans have an administration fee, which often includes claims processing, billing and customer service.
- Stop-Loss Insurance Premium: Level funded health plans include a premium for stop loss insurance coverage that protects the employer against large claims and high utilization.
Determining the Total Monthly Fee Amount
The total monthly fee amount is determined by the carrier or TPA and remains fixed or level for a 12-month period. The employer pays this fee each month, regardless of claims activity, and usually collects some of this cost from employees through pre-tax payroll deductions. If actual claims exceed projections at the end of the plan year, stop-loss insurance protects the employer from unexpected costs.
Why Switch to a Level-Funded Health Plan?
Level-funded health plans can provide employers with the stability and predictability of a fully insured health plan while offering cost savings, plan design flexibility and useful claims data available under a self-insured plan. A level-funded health plan provides the best of both worlds.
Want to learn more about the benefits of a level-funded health plan and other alternative funding arrangements? Connect with our Health Innovations team today.