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How your small business could benefit from a Level-Funded Health Plan

 

For years, large employers with over 100 employees have taken advantage of the many benefits to offering self-funded health plans:

• Lower taxes
• Avoid state insurance regulations
• Benefit from savings on lower claims than the carrier’s pool

 

Small employers have never been able to take advantage of self-funded health plans because they don’t have the cash flow to absorb the downside risk (claims amounts higher than the carrier pool).

 

Obamacare and the Affordable Care Act changed this because self-funding gave the largest loophole for employers to avoid most of the negative consequences of the Affordable Care Act.  As a result, insurance carriers created self-funded programs for small employers where they could enjoy the benefits of self-funding without the financial risks resulting from high claims.

 

An (Overly-Simplified) Illustrative Explanation:

 

Example 1: Bad Year with high claims

 

Carrier Underwriting:

$800,000 – claims

+ $200,000 Administrative costs

___________

$1,000,000 total annual premiums

 

Actual Claims:

You have a bad year and your claims total $1,500,000 ($700,000 more than underwriting expected)

 

 

Fully Insured Insurance:

 

$1,000,000 in premiums

Carrier Pays the remaining $500,000

 

 

Self-funded insurance (Administrative Services Only)

 

You pay the full $1,500,000 in claims this year plus the $200,000 in administrative costs for a total of $1,700,000.

 

 

Level/Alternatively Funded Insurance for Small Employers

$800,000 – Expected Claims

+$120,000 – Aggregate Stop-Loss Coverage of 115%

+$200,000 – Administrative Costs

__________

$1,120,000 Total Premiums Paid

 

Carrier picks up the remaining $380,000 as part of your stop-loss coverage

 

Bad Year Conclusion

Lease to most expensive cost to your business

Fully Insured ($1,000,000)

Level-Funded ($1,120,000)

Self-Funded ($1,500,000)

 

 

Example 2: Good Year with lower than expected claims

 

Carrier Underwriting:

$800,000 – claims

+ $200,000 Administrative costs

___________

$1,000,000 total annual premiums

 

Actual Claims:

You have a great year.  Your employees are engaged with wellness.  No one has anything major come up.  Your total claims this year are only $650,000.

 

Fully-Insured

You spend $1,000,000 – Since it’s fully-insured the carrier keeps the $150,000 in reduced claims.

 

Self-funded insurance (Administrative Services Only)

You spend $850,000 – It’s self-funded so you get the savings paid back to you

 

Level-Funded

You spend $863,500 – You get all but 5% back either as a credit on your billing or as cash in hand.  The carrier holds 5% to pay out any trailing claims.  You save $136,500 in premiums vs. a fully-insured health plan.

 

 

Final Thoughts:

As you can see, Level Funded Premium plan allow small businesses to get the same advantages large employers get from having low claims while protecting them from having to pay for excess claims.

 

We’ve seen businesses with ACA / Obamacare plans save over 20% on their premiums by moving to a Level Funded Premium plan.  We’ve also seen groups with pre-ACA “grandmothered” plans and Anthem Association plans lower their premiums with level-funding.

 

If you questions about level-funded health plans or your broker hasn’t discussed these options with you before, I’m happy to have a no-obligation discussion with you.  Feel free to email me here.

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