As you prepare to navigate the insurance market for small group health, a new tool has come to the market that could help you increase coverage, reduce costs and keep employees satisfied.  Level Funded Small Group Health insurance puts control of your health care back in your hands by having the predictability of a fully funded program with the flexibility of the self funded program. Perfect for companies with 5 employees and up.

One of the known facts among small business is that most are not required to provide healthcare but that recruiting employees is almost impossible without it.  Health insurance is still viewed as the primary benefit employees are looking for in their compensation package due to the current volatility in the individual markets.  There are primarily three types of insurance coverage in health insurance: Fully Insured, Self Insured and new Level Funded Plans  Take a look at the difference…

Fully Funded is the most common path for small business where you are buying a fully managed, premium driven health insurance service from a single carrier.  These plans have higher administrative costs, typically higher deductibles and higher premiums.  While they are easier for your business to manage, they cost substantially more because of all the risk is pushed to the insurer.

Self Funded is often found in larger businesses that essentially pay the health care expenses of employees directly.  These policies require an internal staff to manage claims and there are stop loss insurance policies in place to prevent a major loss from an unexpected health care need.  It’s uncommon to find full self funded business among the Small Group Health market of 1-50 employees because the risk is substantially higher and the company has to be cash rich to manage the claims.

Level Funded programs seeks to bring the two services together.  In Level Funding, you select a policy from a carrier and a third party administrator manages the policy and claims on your behalf and often has dramatically lower administrative costs.  A Stop Loss policy is put in place to prevent financial losses from unexpected major health issues and then a premium is determined for the business.  If the premiums paid in the course of the term exceed the claims paid, then a refund is given to the company. Perfect for companies with 5 employees and up.

Let’s look at how a Level Funded Plan works…

• Administration: Administration costs are fixed by the third party administrator who assesses the potential cost of services to the company for the employees.  The costs do not change and are a per employee cost including network availability, claims adjudication, prescription networks and possibly other services.  The administrative costs do not include the actual cost of claims.
• Individual Stop Loss Coverage: This is the insurance policy that is purchased to protect the company for any employee who might have an exceedingly high volume of claims in a single term.  Once the claim threshold is hit by an individual, the stop loss reinsurance policy pays the difference.
• Aggregate Stop Loss Coverage: Similar to the Individual Stop Loss Coverage, the Aggregate Stop Loss Covers all of the claims for all of the employees in a plan term.  If the claims for all employees exceeds the threshold, the Aggregate Stop Loss Insurance kicks in.  It is not required for any individual to hit the maximum, just the aggregate for all employees during the plan term.
• Claims Adjudication: The insurance carrier will estimate the claims potential for a company and then divide it among all of the employees creating the overall premium per employee before the business opts to absorb any of the premium as a benefit.  However, if the claims that are actually incurred under the plan do not exceed the premium paid, then the insurer refunds part or all of the difference to the company.

Level Funded Small Group Health is complaint with ACA and insurance laws in both Wisconsin and Minnesota and finally returns control of your health insurance to your business.  Level Funded and Self-Funded policies are exempt from the ACA Medical Loss Ratio (MLR) rule that caps insurers profits at 20% of premiums.  The Third Party Administrator works with the insurance carrier to make sure claims are accurate so that they do not rise to take advantage of the lack of a cap on profits in processing claims.

Can a Level Funding Policy Work for Your Business?

Level Funding balances risks with costs for employers and employees and can help you manage the financial profitability of your business by limiting costs with some acceptable risk.  Considering level funding includes taking a look at few issues that can impact your premiums:

1. Number of employees and future growth – after 50 employees Fully Funded plans make the most sense.
2. Can your business absorb variations in claims costs from one term to the next?
3. How much input can your business have on benefit design vs. the carrier?
4. How healthy are your employees and are there risk habits like smoking, tobacco use and weight issues to address?
5. How does the administrator guard against insurance carriers adjusting claims costs to maximize the premiums paid?
6. Can employee benefits help reduce costs in the future (e.g. smoking cessation, gym memberships, healthy eating, etc.)?

Partnership Insurance LLC is an independent insurance agency, find out what we can do to help your business save money and provide better services to retain your valuable employees.