Level funding is emerging as a third option for small group health insurance somewhere in between fully insured and self-insured. Proponents of level funding argue that it offers the benefits of both insurance models with none of the risks. So how does it work?

The “level” of level funding refers to the fact that you self-insure, but pay a level or steady fee each month as determined by your TPA. Level-funded plans also come fully integrated with individual and aggregate stop-loss insurance. Individual stop-loss insurance will kick in if a covered employee or dependent exceeds a certain dollar amount in claims. An aggregate stop-loss will be activated above a certain dollar amount for all claims. After you pay your level monthly fee for a year, your TPA will compare what you’ve paid for the actual claims and refund you any difference if you’ve paid more than you’ve spent. In summary, you get the regular and predictable cost of a fully insured plan, but because you’re actually self-insured, you only end up paying for the healthcare costs actually incurred by your employees.

Benefits of Level-Funding for Small Business

Benefits of Level Funding Insurance Plans for Small Business Level-funding is becoming popular because plans following this model are not subject to several key regulations of the Affordable Care Act. For example, they don’t have to offer a package of mandated benefits. Because plans are self-insured, they can be written to the specifications of the business owner. Also because level funded plans are technically self-insured, business owners also avoid paying the Health Insurance Tax (HIT) levied as part of the Affordable Care Act. Furthermore, self-insuring your plan gives you more control and discretion as a business owner to approve claims outside of the contract. If you have a tenured employee whose medical treatment would be denied under a fully insured plan, a level funded approach would let you choose if you wanted to cover it anyway as a gesture of goodwill.