Business is booming and business owners are enjoying the upswing in productivity and profits. But even when the economy is great, small businesses still face the burden of high health insurance costs for its employees. The rapidly escalating health care coverage costs, which affect their employees, their business, and the economy have business leaders seeking an alternative to the mainstream group health benefit plans on the market. This weight of health coverage and costs that threatens the competitiveness of small businesses has some business leaders turning to an alternative known as Level Funding coverage.
Is Level Funding Right for Your Business?
Purchasing a fully insured health plan may be the traditional route for groups with under 50 employees, but now another option, Level Funding, (also known as Dividend-Eligible), is a great alternative to consider. In a nutshell, Level Funded plans are similar to self-funded plans where employers directly cover the costs of their employees’ medical expenses. They are offered by
insurance carriers and third-party administrators and are plans that are underwritten and are appealing more to smaller employers with relatively healthy employee populations. Think of them as a hybrid of self-funded and fully insured health plans.
In Level Funding plans, the employer pays a set monthly amount to cover claims and fixed costs like
stop-loss insurance. Any unspent funds are kept in the account for future costs, and the stop-loss insurance covers claims that exceed employer funding. This allows for the savings and other benefits of self-insurance without the cost instability. However, if an employer has a high-claims year, the monthly cost the following year may increase.
You can find Level Funding through your health insurance carrier. Your broker should be able to work with your company to evaluate your employee population, recommend a provider and determine your monthly costs for health insurance. The cost is typically based on:
- Estimated claims allowance-This is placed into an account to pay for employee medical expenses.
- Premium for stop-loss coverage-This is in case the claims exceed what is in the account.
- Administration fees-These charges vary depending on the provider.
The determination of whether Level Funding is right for your business depends on several circumstances. For example, if your business employs 50 employees or less and you have considered switching to self-funding, but are concerned about the risks involved, Level Funding may be for you. Or, if your organization is one that promotes wellness initiatives and make employee wellness a priority, Level Funding may be the way to go.
Also, if you are tired of paying for unused coverage because you have a healthy workforce, you may want to consider changing to a Level Funded plan. One of the benefits of switching to Level Funding is that privately held third-party administrators usually provide a refund of 100% of the unused claim surplus to the employer, whether the client renews or terminates their relationship with the third-party administrator.
Many employers are stuck in a cycle of paying steep increases year over year because they’re being pooled with many other small plans and because often the world of fully insured restricts flexible, creative plan options. But new plans are emerging creating big savings for more and more small businesses. In fact, businesses that have switched to Level Funding for their employee health care coverage have seen savings up to 30 percent of their regular health care costs.
But keep in mind, businesses that change to Level Funding usually have an existing healthy workforce and the use of coverage isn’t as great as perhaps in other organizations. These plans are being offered by commercial carriers and by a host of other third party administrators and because of their structure, Level Funded plans do not have the volatility in monthly cash flows, associated with self-insured plans, that can devastate a small business.
Book a demo today to speak with one of our Worksite Pay experts to learn more about level funded plans.
Johnny Duncan is a business writer and consultant partnering with business leaders to provide workforce management solutions including leadership coaching, customer service training, people-to-job matches, and conflict resolution. He can be reached at firstname.lastname@example.org or visiting HRVitamin.com.