There are multiple ways for employers to fund their health insurance plans. For the majority of employers under 150 employees, the two most common types are a traditional fully-insured health plan or a level-funded health plan. The alternative is self-funding, which is typically (but not always) reserved for employers with more than 150 employees. That’s a topic for another post.
When evaluating level funded vs fully insured, there are some key differences to consider.
Key Differences
|
Feature |
Fully-Insured Plan |
Level-Funded Plan |
|
Cost Structure |
Fixed premiums |
Fixed payments |
|
Risk |
Carrier assumes all risk each year (Employer’s risk comes at renewal) |
Employer shares risk with the carrier |
|
Transparency |
Limited claims data |
More detailed claims reporting |
|
Refunds |
None |
Possible refunds for unused claim funds |
|
Compliance |
Managed by carrier |
Some compliance responsibility for employer |
|
Structure |
One carrier owns the entire healthcare supply chain |
Options to have multiple carriers in the supply chain for cost containment |
As you can see from the key differences, a level-funded health plan can afford an employer stable cash flow, just like a fully-insured plan. But it also allows employers to participate in years when claims perform well, just like a self-funded health plan. In addition, it provides access to data that can help you plan for the long-term.
When an employer is evaluating these two options, I would argue that the biggest key difference between these two funding arrangements is related to the “Structure”. Here’s what I mean:
In a fully-insured health plan, the carrier owns the entire supply chain (think medical, prescription drugs, chronic disease management, etc.). This means the carrier is profiting in many different areas, which leads to higher costs for employers. Think of it as a convenience fee for having everything under the same roof.
In a level-funded health plan, the carrier may also own the entire supply chain. Cigna for example offers a fully-insured product and a level-funded product. In this case, there isn’t much of a material difference between fully-insured and level-funded. You might feel like it’s a better option if you get a surplus back, but without changing the underlying structure, the results will be very similar over time.
Where it gets different is when you choose a level-funded option that is not with a major health insurer. In this case, you can look for partners that have some built in cost containment programs. You should also look for one that returns 100% of a surplus (when claims perform better than expected). A major health insurer’s level-funded product will almost always pay only a portion of the surplus, while they retain the difference.
Conclusion
If you want to set and forget a health insurance plan, being fully-insured might be the best option. Just know that it’s not risk free. Sure, you’ll pay a level premium each month, but once your anniversary hits, the carriers will almost certainly ask for an increase. Most of the time, you don’t know what that increase will be ahead of time…hence the risk*. And there isn’t much you can do about containing costs outside of negotiating the renewal, because the carrier controls everything.
If you are fed up with getting the same results year after year in your health insurance plan but aren’t ready to take the self-funded leap, level-funding could be a great option for you. My advice is to make sure that you are willing to looking outside of the traditional, carrier owned level-funded programs if you want different results. Make sure you are getting access to data that can help you make more informed, long-term decisions. If you do this, you’ll win over the long-term.
Questions or want to see a level funded or fully insured quote? Contact us at info@GoCGO.com
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