For health insurance agents working with small groups, understanding level-funded health insurance plans is essential. Level-funded plans provide an alternative to traditional fully-insured plans, combining aspects of both fully-insured and self-funded plans. In this article, we’ll explore the pros and cons of level-funded plans for small employers to help you guide your clients in choosing the best option for their needs.
Level-Funded Plans Overview
Level-funded plans offer a hybrid solution for small businesses, where employers pay a set monthly premium based on estimated claims. A portion goes into a claims fund and the remainder covers administrative fees and stop-loss insurance.
Pros:
- Cost Savings: Level-funded plans can potentially offer lower costs compared to fully-insured plans, as employers only pay for actual claims, and any surplus funds are returned at the end of the plan year.
- Predictable Expenses: Employers pay a fixed monthly premium, making it easier to budget for healthcare costs.
- Customization: Level-funded plans offer more flexibility in plan design compared to fully-insured plans, allowing employers to tailor coverage to their employees’ needs.
- Stop-Loss Insurance: These plans include stop-loss insurance, which provides financial protection for employers in case of unexpectedly high claims.
Cons:
- Administrative Complexity: Level-funded plans can be more administratively complex than fully-insured plans, as employers take on some responsibility for claims management.
- Risk Exposure: While stop-loss insurance limits the financial risk, employers may still face higher costs in years with higher-than-expected claims.
Conclusion
Level-funded plans can be a suitable option for small employers looking for a more predictable cost structure, cost savings, and customization in their health insurance coverage. By understanding the pros and cons of level-funded plans, you can better assist your clients in making informed decisions about their healthcare coverage.