The Low-Down on Level Funding – Overview Consulting

Your current broker may have recently provided you with a level-funded quote and explained to you that it is “just like self-funding but without the risk.” To understand how far from the truth that statement can be, let’s step back to understand what level funding actually is. Don’t misunderstand me as we move forward. I am not an anti-level-funding guy. I do believe that level funding is a step above fully insured and has its place. However, there are better alternatives if you can qualify for them. If not, and you would like to move away from traditional fully insured, I believe you should assure that your eyes are wide open.

With level funding, you pay a set amount each month. This usually includes administrative costs and fees as well as the maximum number of expected claims based on underwriting projections and embedded stop-loss insurance. The carrier will pay your employees’ claims throughout the year. At the end of the year, if your payments exceed claims, you will receive a refund from the excess you paid. If the claims go over the amount that was projected, those are covered by the stop-loss. Kind of looks “just like self-funding but without the risk,” doesn’t it?

Let me outline what makes it a lot different:

It provides limited access to data. Yes, better than fully insured, but usually not enough to implement targeted cost-containment strategies
No choice of pharmacy benefit manager (PBM). This limitation severely impacts your ability to implement any type of strategy to rein in spending on prescriptions.
No flexibility. Most level-funded plans are a package deal. You do not get to choose the stop-loss vendor or provider network and typically cannot customize your plan designs.
There are no rate caps for your stop-loss, nor do these arrangements typically provide any new laser provisions For those of you not familiar, a laser is when a Stop Loss carrier increases the deductible on a particular individual based on a diagnosis. Worst yet, they can even tell you that they will no longer cover that individual. The end result could be catastrophic.
Since there is no year-over-year stability, if you have a bad year, you will most likely be faced with a significant increase in claim costs.
When you have a good year, you share the surplus as opposed to holding all of it in a traditional self-funding strategy.

As I mentioned earlier, I am not against level-funding and do not want to scare you away from exploring it as an option. It is better than fully-insured, and, for the small-group market (under 50 employees), it tends to be the only alternative. You will get some actionable data. You will share in a surplus. You are protected if there is a large claim activity. And, if you are in the small group market (under 50 employees) and you get a significant level-funded renewal, you can always go back to the carriers and get a quote based on your demographics just like before.

Let’s Talk

If you would like more information on level-funding or any funding method, do not hesitate to contact me. If you are in a mid-size employer group (50-250 employees on your health plan) and are considering level funding, I urge you to reach out so we can discuss our collaborative, self-funded approach. I am certain that this is a far superior approach for your long-term, cost-containment, and risk-management strategies.

Are you wondering if your business is getting the best deal possible for health insurance?

Schedule a free consultation with Ben Hall and find out how your business can save money on this expense.