OCTOBER 1, 2022 • ERIC L. REINER
When a Philadelphia law firm was facing a 12% increase in the cost of the health insurance it provided for its 55 employees and their dependents, it needed to explore other options.
With the help of a local benefits consultant, the firm turned to what’s called a “level-funded plan.” This increasingly popular employer health insurance arrangement often boasts attractive premiums for healthy employee groups and, better still, returns premiums to the employer if claims come in lower than expected.
Matt Mink is a managing principal at OneDigital, an insurance, financial services and human resource-consulting firm in Philadelphia, and he was involved in helping the Philly law firm find a better deal. According to him, the firm ended up receiving a refund of more than a quarter million dollars in the first year it used the level-funded plan. If it had renewed its old plan—the fully insured type used by most small businesses—“that surplus would have been retained by the insurance company,” Mink says.
The clients and prospects of financial advisors may not expect help when it comes to employee benefits, let alone advice delivered with self-assured sangfroid. But that’s your opportunity to impress. What business owner wouldn’t delight in the Philly law firm’s story? And such firms might be among your clients.
If so, you can throw out this statistic to them, too: One recent year saw premiums refunded to one-third of the employers in UnitedHealthcare’s All Savers level-funding program. More than $300 was returned per plan participant on average.
Even with your help, however, your clients must still turn to a dedicated benefits specialist when choosing this insurance setup, Mink says. But you can still get credit for starting the conversation, and now is the time to do it. Roughly two-thirds of health plans renew January 1, Mink says. So many owners are now weighing their options for next year, or should be.
Level-funded plans are best for businesses with anywhere from a few dozen to a few hundred workers. They are not particularly good for tiny enterprises. “If you have a very small company and an employee or covered family member develops a serious illness or has a serious injury, the premium is likely to increase substantially at the next renewal,” says Scott Crist, a broker with Colorado Health Insurance Brokers, in Grand Junction, Colo. “For a company with a hundred or more employees, one major claim is not going to affect it as much.”
Technically, level funding is a form of “self-funding.” In traditional self-funding, the employer pays plan participants’ claims out of its own coffers. Naturally, claims vary from one month to the next, sometimes markedly. So self-funding has become notorious for wreaking havoc on a company’s cash flow.
Level funding, meanwhile, eliminates that cash volatility because the employer pays a fixed (or level!) premium to the program administrator. “You never pay more than that level premium,” Mink says. “Level funding is a conservative approach to self-funding,” he says, something he recommends telling business owners.
The level premium is tripartite. One component is set in reserve to cover expected claims based on factors including employee demographics. This lowers the premium for healthier groups to something lower than what they would pay in a fully insured plan, where premiums are equalized for groups with disparate risk profiles, a requirement of the Affordable Care Act. The requirement doesn’t apply to self-insured plans, including the level-funded genus, which gives healthier groups a break on premiums. UnitedHealthcare reports 18% lower premiums for employers who migrated to level funding from its fully insured plans for the last couple of years.
A second portion of the level premium goes toward stop-loss insurance. This coverage starts paying participants’ claims when they breach certain levels known as attachment points (essentially a deductible) that can be as low as $10,000, depending on the plan. The stop-loss insurance is a risk-management tool that caps the employer’s cost of providing the plan, says Brandon Scarborough, executive director of sales and marketing at Allied National, a third-party administrator in Shawnee Mission, Kan.
The level premium’s third piece is an administrative fee that pays for adjudicating and processing claims, plan compliance and more, Scarborough says.
The Rest Of The Story
Level-funded plans provide transparency to employers, who receive detailed information about medical and pharmacy claims. “Employers use the data to bring in cost containment programs to better manage spend on certain chronic conditions, or to make changes to their pharmacy benefit manager to reduce the costs of specialty medications,” says Mink. Carriers don’t disclose claims under a fully insured plan.
Business owners can take comfort knowing that if they choose to move to level funding, it’s usually easy to switch back to a fully insured plan later if conditions warrant. Many carriers offer both plan types and thus can mirror benefits and provider networks, according to Mink.
From participants’ side of the table, a change in the health plan’s funding method is a non-event. Scarborough says, “Employees will not notice a difference.”