What do groceries, airfare, gas, automobiles and housing have in common? They’re all examples of things for which the price has substantially increased over the past couple of years.
Even health insurance costs are pricier. Average annual health insurance premiums are $8,435 for single coverage and $23,968 for family coverage. These premiums have both increased seven percent from their levels in 2022.
Employee contributions to health insurance also are high. On average, covered employees contribute 17 percent ($1,401) of the cost of single coverage and 29 percent ($6,575) for family coverage.
Smaller companies aren’t exempt from these high expenditures. The average annual premium for single coverage for covered employees at small businesses ($8,722) is higher than the average premium for those at large firms ($8,321). The costs are a little different for family coverage. The average annual premium for this type of coverage at small companies is $23,621, which is similar to the average premium for covered employees at large firms ($24,104).
These high costs make it especially difficult for small businesses to afford quality health insurance for their employees. That’s one of the big reasons many of these companies select level-funded health plans to provide coverage for their employees. Last year, 36 percent of covered employees working at a small business reported enrollment in a level-funded plan.
What Is a Level-Funded Plan?
Along with a self-funded health plan, level-funded insurance is a popular alternative to a traditional fully-insured option. Employers who utilize level-funded plans pay a monthly set premium amount to a third-party administrator or insurance carrier. These funds are placed in a reserve account for claims, administrative costs and premiums for stop-loss coverage. Stop-loss insurance reimburses employers for claims that exceed a set amount.
Unlike fully-insured health plans, premiums for level-funded coverage are based on the claims history of a business’s employees. For companies with fewer than 50 employees, the premium is calculated using employee zip code, age and a few other factors.
Level-funded insurance is especially beneficial to employers who want more control over their healthcare costs and would prefer to transition to a fully-insured plan but are not yet ready to fully self-insure. This option is also a good idea for smaller businesses who want to offer their employees quality health insurance but cannot afford a fully-insured plan.
How Do Level-Funded Health Plans Differ from Traditional Insurance?
There aren’t staggering differences between level-funded insurance and traditional health plans. A notable one, though, is that the monthly premiums for level-funded plans can be decreased due to a lower actual claims experience. The premiums for fully-insured health plans are fixed.
Another variation is that, in level-funded plans, the responsibility of risk is shared with a stop-loss insurer, whereas in self-funded insurance, the risk falls solely on the employer. And, employers can customize the plan’s options based on available budget and the features and coverage employees prefer.
Level-funded insurance offers almost the same level of predictability as fully-insured plans but at a potentially lower cost. How is this possible? If medical claims under this type of health plan are lower than expected, the employer is eligible for a surplus refund.
Advantages of Level-Funding
If flexibility, predictability and limited financial risk are important to you as an employer, a level-funded health plan might be your best choice. This type of insurance offers greater transparency into how your plan dollars are spent while providing your employees with access to quality healthcare through a broader provider network.
Level-funded plans are also beneficial for small businesses with primarily healthy employees. On the administrative side, this type of health insurance is easier for employers because the insurer often covers not only the third-party administration but also pharmacy benefits, compliance and stop-loss duties.
Now, let’s delve into more specifics about the biggest advantages of level-funded plans.
Less Financial Risk
The stop-loss insurance included in level-funded plans minimizes an employer’s risk exposure by negating excessive claims. Businesses are protected from catastrophic medical claims or a series of them that would otherwise likely severely impact them financially.
Cost Savings
Although level-funded plans certainly can be more expensive, they offer cost savings in other ways. First, there is that potential for a surplus refund. Next, even if the plan is more costly, an employer can spread the payments over a 12-month period.
Then, there are the tax benefits. Level-funded plans are exempt from state taxes, health insurance taxes and Affordable Care Act taxes on insurance premiums.
Increased Flexibility
The flexible structure of level-funded insurance gives employers more control over the customization of their plans. Businesses can select coverage options that best meet the specific needs of their employees.
More Predictability
Employers who prefer the predictability of fully-insured plans can utilize the level-funded option to receive a refund for unused employee healthcare. They know exactly what they are paying monthly for health insurance, enabling them to better manage their budget.
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Cons of Level-Funded Insurance
Almost no product is perfect, and that is the case with level-funded health plans. This type of insurance is typically more expensive than self-funded or fully-insured plans and is not available in every state. Why? Some states have stop-loss regulations. Another disadvantage of level-funded insurance is that it can — depending on the carrier or third-party administrator – be more complicated than a traditional fully-funded plan.
The Role of BUCA Networks
If you didn’t know, BUCA is an acronym for Blue Cross and Blue Shield, UnitedHealth Group, Cigna and Aetna. CVS bought Aetna, so sometimes Aetna is referred to as CVS/Aetna. These are the four largest commercial health insurance carriers in the United States and are the most common choices for employers providing health benefits to their employees.
BUCA insurance is cost-efficient and streamlines administrative tasks for employers. It also typically provides employees with improved access to numerous healthcare services.
Combining Level-Funded Plans with BUCA Networks
By combining level-funded plans with BUCA networks, employers benefit from (need more information on this topic).
How to Implement This Combo in Your Organization
When deciding whether to invest in level-funded insurance, employers should evaluate how the size of their business and the number of employees will affect its cost. Another notable factor is the state in which the company is located.
The Employer Services team at StenTam is here to help guide you in selecting the best health insurance plans for your employees. In addition to giving you access to best-in-class enterprise-level health insurance products, we offer industry-specific solutions for your workforce and will leverage our vast knowledge of tax incentives and programs to help you maximize your benefits while mitigating overall costs. Request a quote today for more details.
