What is a "level funded" plan?

A level funded plan is a type of health insurance arrangement that combines elements of both fully insured and self-funded plans. A level funded plan is technically a self-funded plan with a built-in stop-loss insurance component. It is designed to provide employers with greater cost control and flexibility compared to traditional fully insured plans, while also providing some protection against high claims costs.

In a level funded plan:

• Fixed Monthly Payments: The employer pays a fixed monthly premium to a third-party administrator (TPA), which is typically an insurance company or a specialized administrator. This premium includes two components: a pre-determined amount for expected claims costs based on the group's demographics and historical data, and a separate amount for administrative fees and stop-loss insurance.
• Self-Funding for Claims: The TPA collects and holds the premium funds on behalf of the employer. From these funds, the TPA pays for the employees' healthcare claims as they arise. The employer effectively self-funds the claims up to a certain aggregate amount, similar to a self-funded plan.
• Stop-Loss Protection: To mitigate the risk of high claims costs, the level funded plan incorporates stop-loss insurance. Stop-loss insurance provides coverage for claims that exceed a certain threshold, either on a per-employee basis (individual stop-loss) or as an aggregate for the entire group (aggregate stop-loss). The stop-loss insurance provides financial protection to the employer in case of catastrophic or unexpectedly high claims costs.
• Claims and Risk Management: The TPA manages the claims processing, administrative tasks, and provider network negotiations, similar to a fully insured plan. The TPA may also provide access to utilization reports and other data to help employers manage costs, monitor healthcare utilization, and identify opportunities for wellness initiatives or cost-saving measures.

The advantages of a level funded plan include:

• Cost Control: Employers have more control over healthcare costs compared to fully insured plans. Any surplus from lower claims utilization can be retained by the employer, providing potential cost savings.
• Transparency: Employers have access to claims data and utilization reports, enabling them to analyze trends, identify high-cost areas, and implement cost-saving strategies.
• Flexibility: Level funded plans offer more flexibility in plan design, allowing employers to tailor the benefits, cost-sharing arrangements, and provider networks to the needs of their employees.
• Potential Savings: If claims costs are lower than expected, employers may receive a refund or credit at the end of the policy year.

It's important to note that level funded plans are typically suitable for mid-sized to larger employers who are comfortable assuming some level of risk. Employers considering a level funded plan should carefully evaluate their financial stability, claims history, risk tolerance, and regulatory considerations. Consulting with benefits advisors, insurance professionals, and legal experts can provide valuable guidance in determining if a level funded plan is the right choice for their organization.

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