Level-Funding is a hybrid employee health plan between a self-funded plan and a fully-insured plan.
Level-Funded plans have fixed monthly premiums to pay for claims, stop-loss insurance, administrative fees and the PBM. That monthly premium is set for the year and goes through a ‘renewal’ similar to a fully-insured plan.
If the Level-Funded plan’s claims come in lower than expected, then the insurance company ‘may’ credit back the employer or give them a refund. If the Level-Funded plan’s claims come in higher than expect, then the stop-loss insurance covers the higher claims.
There may a ‘catch’ where even if the employer’s claims are low, the health insurance company may not give them a credit or refund, but instead just keeps the excess premium collected.
Level-Funded plans have grown in popularity. For employers with 50-500 employees, 10 years ago, about 10% percent of covered lives were on Level-Funded plans. Today, 45% of of covered lives for these size employers are covered by Level-Funded plans.
Lower risk employers have left the fully-insured market to become Level-Funded. As result, the overall risk for fully-insured groups has gone up and accordingly, fully-insured premiums have risen rapidly. Perhaps Level-Funding is creating a ‘Death Spiral’ in the fully-insured market.
Source: Level-Funded Health Plans Explained
