Why more small, midsize employers are turning to level-funding

This article was published on May 22, 2018 on Employee Benefit News, written by John Milne.

Small and midsize businesses seeking flexible benefit plans for their employees that also provide a means to contain costs often feel their options are limited. The fully insured world restricts flexible and creative plan options, and many employers are stuck in a cycle of paying steep increases year over year because they’re being pooled with many other small plans.

A traditional self-funding model might also be out of the question without solid claims data to understand risk and your potential monthly claims.

However, there is another alternative funding strategy that may be right for small and midsize businesses that want to take control of their plans and access claims data while paying a consistent premium each month. It’s called level-funding, and it’s ideal for companies that like the idea of self-funding but want to keep the safety and stability of consistent premium payments.

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Photo Source: Employee Benefit News

In a level-funded plan, employers work with a third-party administrator to determine the expected claims for the year. The TPA adds a “claims corridor” to the expected claims amount, typically between 10-15%. This, along with the stop-loss insurance and administrative fees, becomes the annual premium. This number is divided by 12 to determine the total monthly cost.

Throughout the year, the TPA pays claims as they come in; at the end of the year, if any claims dollars are leftover from the expected claims bucket, the employer receives a refund. However, if the claims exceed the allotted amount, the stop-loss insurance kicks in to pay the difference, rather than the employer having to pay more.

Employers in a level-funded plan get access to detailed claims reporting, which highlights where employees are both overspending and underspending on their health insurance. With this information, employers can customize their health plan to better serve employee needs.

As with any self-funded plan, employee education and communication play a large role in cost containment. Employers have access to claims data and can see trends in their employees’ healthcare that could be driving up costs. For example, employers can look at how employees use urgent care centers, emergency rooms and primary care doctors’ offices, and educate employees on which care center is right for different situations.

Similarly, employers may need to take a bigger role in educating employees about prescription drug plans — from helping them understand a formulary, to discussing mail-in pharmacy plans and generic versus brand name medications.

Disease management programs also help level-funded employers control costs. Employers can help employees manage chronic health issues, or prevent those at risk from developing one.

Employee education and communication plans can take a variety of forms, including intranet messages, emails, posters and postcards — depending on how your employees best consume information.

Employers who understand their employee demographics and emphasize education have saved significantly with a level-funding benefits strategy. We know of one employer with 60 covered participants has saved 35% by moving from a fully-insured plan to a level-funded plan, and they are projected to receive a surplus at the end of the first year.

For financially stable and relatively healthy employers, level-funding is a step in the right direction toward traditional self-funding. While it does require more employee education, the results are access to claims data, plan flexibility and the ability to better contain costs from year to year.

Small Groups Can Combat Rising Healthcare Premiums with Level Funding

The rising cost of employee healthcare has more small employer groups choosing level funding over their traditional fully-insured health plans. What are the advantages of this option for your small business?

Cost Control and Opportunity for Savings

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Level funding is a form of partial self-funding that enables the employer to budget for monthly expenses while enjoying the financial advantages that larger organizations have enjoyed for years. With level funding, the employer pays a set amount each month to cover fixed costs as well as anticipated claim costs. Stop loss insurance funds claims that exceed the employers funding limit. If claims are below the funding limit, the surplus remains in the employer’s claim fund.

Other Advantages of Level Funding Include:

  • Easy to Operate
  • High Performance PPO Networks
  • Expert Administration
  • And More…

Level Funding with DG/25+

dgb-minutemanDiversified Group’s DG/25+ is a level funded health plan that offers flexibility and cost control for employers in Massachusetts and New Hampshire. This plan operates very much like a fully-insured health plan. Employers of 25 or more can establish a monthly health plan budge, while still enjoying the economic advantages of self-funding.

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ACA Fee Moratorium and Self-Funding

acaWhen Congress delayed the Cadillac Tax until 2020, the same law placed a one-year moratorium on the annual fee the ACA imposes on health insurance carriers. While the fee does not have a direct impact on TPAs or self-funded plans, it does sometimes impact stop loss premiums. Since this fee applied to insurance carriers and not the majority of self-funded plan costs claims, some small group plans that moved to level funding may experience a slight cost increase in 2017. When the tax returns in 2018, the revenue targets are expected to increase. If the tax increases from its previous levels of 3% to 4%, the potential savings available to self-funded and level funded plans will increase as well.

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Could You Be Losing 50% of Self-Funded Plan Savings to Your Health Plan Administrator?

level-funding You’ve adopted an increasingly popular new health plan strategy to save money on costs – why would you want to give up half of your plan savings to the company managing your plan? That’s what’s happening to some employers who may be unaware that their plan administration firm has incorporated this 50/50 savings split into their new level-funded health plan contract. At Diversified Group, we believe that you are entitled to ALL of your plan savings and return 100% of your remaining funds to you. Our plan experts can show you how these important differences can impact your benefits costs and your bottom line.

What is level funding?

Level funding is an increasingly popular health benefits option that combines the ease and simplicity of a fully-insured plan’s predictable monthly fees with the flexibility and cost saving potential of a self-funded plan.  More and more companies are adopting this approach because of the significant advantages a level-funded program can provide to an employer who is looking to control costs while delivering excellent benefits coverage:

  • Established monthly fees limit your financial exposure and cover plan risk, while providing the potential for plan savings if health claims are lower than expected
  • You can tailor plan designs to meet the needs of your employee population, as well as your budget – while monthly reports allow you to identify areas to be targeted for plan adjustment and employee education
  • You are able to offer a high quality plan that incorporates the preventive care and wellness programs you expect from a fully-funded plan, at a much lower cost
  • Because this is a self-funded hybrid offering, you are not subject to the Health Insurance Tax (HIT) levied as part of the Affordable Care Act

That’s the good news about level funding. However, many folks have been disappointed when they discover that some administrators keep half their money.

Keep your cost savings in your own company’s bank account. At Diversified Group, we believe in plan transparency. We will ensure that your self-funded and level-funded strategies deliver the highest quality health care to your employees, combined with the greatest possible plan savings to your business – plan savings that are returned to your business in full.

To learn more about the many different level-funded and self-funded health plan products we can offer you, contact a Diversified Group Plan Expert today at (888) 322-2524, ext. 526.

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