Today’s blog post is the last in this series of posts discussing the various strategies you can implement to offer solid benefits at a lower cost to your employees. The 4 strategies I’ve outlined in the past several weeks are great ways to contain costs, but Level Funding is by far the best way to do this……why?? Level Funding is more than just a strategy – it’s a completely different way that a carrier can offer you insurance, where you can see you claims data, be rated according to how healthy ( or sick ) your employees are, and you can potentially get money back at the end of the year………and to your employees, nothing seems different. Seems too good to be true?? It’s not – this is legit!!
Most employers have heard of self funding…..you essentially build your own insurance carrier…you set up a TPA to administer your claims, purchase a network, a PBM to manage your prescriptions and you purchase specific and aggregate stop loss ( stop loss is like a really high deductible for each member ). You pay minimal “fixed” costs for these services every month and then pay the claims as they come in out of your company account…some months you may have no claims…some months you may have $20,000 of claims – there are many peaks and valleys that follow how much your employees utilize the plan and how healthy they are. This is a very risky scenario for companies that have less than about 150 employees as the risk of spending a ton of money in one month could practically bankrupt a small company. Smaller companies use the model that most companies use today…it’s called fully insured. These are the ACA and Pre-ACA plans you’re probably on right now….essentially you pay the set premium and you get the plan – the carrier takes care of all the claims and admin on the back-end for you. This is a much less risky scenario as you know how much you’re going to pay for your insurance every month as you’ve agreed to these rates when your agents presents them to you.
Both self funding and fully insured are great – they both have their pros and cons, but are 2 solid chassis for offering benefits. What if I told you that you could combine the best parts of both of these platforms? That’s exactly what level funding is – A self funded chassis with set “level” monthly premiums. How is this possible?
Here’s how it works:
- In the current fully insured ACA model, you are no longer rated for male vs female, the nature of your company’s business, and most importantly you’re no longer rated for the health of your employees. The insurance carriers can no longer rate you up if you’re going to incur large medical claims…..as a byproduct, the carriers had to raise their rates. They can only rate you by age…so a healthy 30 year old would be charged the same premium as an unhealthy 30 year old. This works great for companies that have an older population or that have a ton of claims…..but for most companies, they took a drastic increase with these new “community rates”.
- Since a Level Funded plan is on a self funded chassis, they will take medical conditions into consideration and will give your company a premium based on it’s own health conditions. Part of this premium will go towards your “fixed costs”. The other underwritten part of the premium will go towards what we call a “claims Pre-fund” – essentially, you’re pre-funding the claims that the underwriters expect you to have.
- This monthly premium will be paid just like a fully insured premium is today – it’s based off of the number of employees you have and you pay this same “level” monthly premium every month – the rates don’t fluctuate if you have a good claims month or a bad claims month.
- During the year, the great part about the Level Funded plan is the fact that you get monthly claims reporting! Due to HIPAA, you won’t be able to see who made the various claims, but you’ll see the dollar amounts of these claims so you know where your premium is going!!
- At the end of the year, if your claims ran really high, you’ll get a large renewal increase like you would today on a fully insured plan…..BUT, if you ran better than expected, you can get part of your claims pre-fund money back!!! That never happens in fully insured plans!!!
So, to summarize:
- You receive underwritten rates which can be lower than the set ACA rates
- You get monthly claims data
- Your employee premiums don’t fluctuate during the year
- You can potentially get money back at the end of the year
- The level funded concept is for employers – employees will not see the difference
- If you receive a high renewal, you will know why because of the claims information provided
All in all, this is definitely the way to go if you receive a good rating from the underwriters!! Level funded plans are normally offered to employers with 10 or more on the medical plan…..AND the good news is you can implement any of the previous strategies I’ve blogged about in conjunction with a level funded plan!!
If you have any questions at all about this type of plan, please feel free to reach out!! Have a great week and Go Bucks!!
Joe Blascak IV
Blascak Insurance Services