Level Funded Health Plans

Level Funding looks and feels like a Fully Insured funding arrangement, but make no mistake, it's a Self-Funding strategy. Think baby steps into the Self-Funding world, with the advantages provided to you from being truly Self-Funded.

Immediate benefits from being on the Level Funded platform include:

• The flexibility and customization of the health plan (size of group plays into this at times for some carriers)
• Avoiding costly state mandates to reduce plan spend
• Transparency amounting to robust utilization reports
• Detailed workup of the annual renewal
• and the biggest benefit, surplus dollars: which is when actual claims are less than projected, and surplus dollars are paid back to the employer so the employer and carrier share in the positive performance.

Potential Downsides

• Surplus dollars can be forfeited if the client does not renew the policy
• Surplus dollars in a form of a credit against future costs is possible
• Often Surplus dollars from previous policy year are not provided until month 3 or 4 in the new policy year
• Percentage of Surplus dollars returned can vary; 100%, 2/3^rd’s, 50% with often 100% only achieved if you pay additional fees
• Client could be required to fund Terminal Reserve via Surplus dollars and ongoing, further reducing the Surplus dollars provided to the Client

How It Works:

The carrier market overall approaches Level Funded Health Plans in roughly the same fashion as it does Fully Insured, determining a claim pick (cost for annual claims) for the plan year based on the typical underwriting criteria and plan design agreed upon, resulting in an expected claims cost. This expected cost then has a corridor (margin on claims) that is applied, usually 10% (some states dictate a higher percentage to be applied such as 20%) and the result is the employer's maximum liability relative to claims funding / spend.

Capped liability translates into a monthly cost that only fluctuates should the group / employer population change in size relative to plan participation. This Max-liability makes life easier for budget purposes and sets up the plan for potential surplus payout. Recall, surplus / unused claim funds will be directed to a surplus "bucket" throughout the year that can ultimately lead to a split in the winnings with the carrier. Full disclosure, some carriers will split the captured surplus only after adjusting terminal reserves (run-out) while other carriers split the money immediately. The split between carrier and employer can be 50-50 or another percentage value that favors the client. The money achieved via the surplus can also be in the form of a credit for future payments (new policy year) to the carrier and/or actual cash that the employer can use as they like. Employers may draw it out of the bank to pay for business expenses or keep it aligned to the health fund to enhance the plan and/or offset future plan spend. It's up to you, the employer, to decide.

Certainly more moving parts are involved with the Level Funding strategy, but I know simply that I like it and see it as a solution (if handled correctly by all parties) that can make going Fully Insured a second option. Your health care (even dental offering) costs are defined and you get to participate in the positive performance of the contract; yet if all goes poorly you are still protected just like a traditional Fully Insured plan. What's not to like?

Carriers all have a wrinkle to this platform offering, yet the constant features that make sense are static. Level Funded Health Plans is a product often for employer group's from 5 to 500 employees.

Questions about level funded health plans? Email us at info@GoCGO.com