What does "plan funding structure" mean?

When it comes to plan funding structures, employers have several options to consider:

• Fully Insured Plans: In a fully insured plan, the employer pays a premium to an insurance carrier, and the carrier assumes the financial risk for providing benefits to plan participants. This structure provides predictability in costs as premiums are typically fixed, but it offers less flexibility in plan design.
• Self-Funded Plans: Self-funded or self-insured plans involve the employer directly bearing the financial risk for employee benefits. The employer pays for claims as they are incurred, often with stop-loss insurance to protect against catastrophic costs. Self-funded plans offer greater flexibility in plan design and cost management but require careful financial planning.
• Level-Funded Plans: Level-funded plans are a hybrid of fully insured and self-funded plans. Employers pay a fixed premium to an insurance carrier, which covers administrative costs and stop-loss insurance. Any surplus funds at the end of the plan year may be refunded to the employer. This structure combines cost predictability with potential savings.
• Captive Insurance: Some larger employers opt for captive insurance arrangements, where they create their own insurance company to underwrite their employee benefit plans. Captive insurance offers a high level of customization and control over plan design and financing.
• Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs): These are tax-advantaged accounts that can be used to fund specific healthcare expenses. HSAs are typically paired with high-deductible health plans, while HRAs are funded by the employer and can be used for various healthcare expenses.
• Voluntary Benefits: Voluntary benefits are typically funded entirely by employees through payroll deductions. These include options like supplemental insurance, critical illness coverage, and dental or vision plans. While employers may facilitate these benefits, they do not contribute to the premiums.

The choice of funding structure depends on factors like company size, risk tolerance, budget considerations, and the desire for plan customization. Employers should carefully assess their options and consider consulting with benefits experts to determine the best fit for their organization.

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