How Does Level-Funding Work?
Level funding offers the same coverage and protection as fully-funded insurance plans, with the opportunity to get a refund on any un-used claims dollars. How does that work? The same as fully-funded insurance plans – a large portion of your premium dollars are put into reserves to pay claims. With level-funding plans, if your group has a healthy year they keep the claims dollars at the end of the contract term. Level-funded can be coupled with a PPO, POS, and HMO service platforms.
The first thing that’s important to know is that your employees will not notice any difference between how their traditional health plan worked and what they’ll experience under your level self-funded plan. They will still have a PPO plan with a deductible, a maximum out-of-pocket limit, copays for office visits and prescriptions if this is the plan design you select. Or if a HSA (Health Savings Account) is preferred, those options are also available under a level self-funded format. As the employer, you’ll have the ability to offer more than one plan for your employees to choose from.
The employer’s role in self-funding is to work with a consultant that will set up a plan administrator that will collect a set amount every month with a portion going to pay the claims of your group. This is your cash reserve. This is one of the features that make self-funded plans more affordable because you only pay your own claims expenses. It is also the majority of where your premium dollars go every month whether in a traditional plan, or a self-funded plan. The difference in a self-funded plan is that instead of GIVING the money to the insurance carrier if you have few claims within a year, that money is refunded to you.
Your exposure, as an employer, is safeguarded at both the individual employee level (individual catastrophic claims) as well as your total overall risk/expenditure, when reinsurance step in and pays all claims. “Stop loss insurance” or “Reinsurance” is just like the insurance that carriers themselves purchase to limit their exposure in case of high claims. It is the second portion of three that your premium is divided into.