The Benefits and Risks of Level Funding for Small Employers

Eight tips for brokers

By Nancy Giacolone

Level funding is an increasingly popular option for small employers looking to provide health insurance benefits to their employees. It combines the advantages of self-funding
with the stability of traditional fully insured plans. This article explores the,risks and benefits associated with level funding for small employers, helping agents advise their business clients to
make informed decisions about their health insurance options. Knowing how to guide your clients can really build rapport.

Benefits of Level Funding Agents can bring these rewards to the table

Level funding offers potential cost savings for small employers. Like a fully insured plan, a level-funded plan has traditional tiered composite rates, so budgeting is predictable. In general,
smaller employers find level-funded plans attractive due to the lower monthly premium and the opportunity to share in any claims savings.
Level-funded plans present the opportunity for an employer to receive all or a portion of the claims savings as a refund. Last year, I had a group of eight covered employees receive a $15k refund!

Depending on the size of the group and the vendors, more opportunities for plan customization may be available than community-rated plans. When available, this customization allows small employers to design plans that align with their employees’ preferences and healthcare requirements.

Level funding offers greater transparency compared to fully insured plans. Employers have access to detailed claims data, allowing them to track and analyze healthcare utilization patterns among their employees. Agents can help gather and interpret this information for their clients to help identify areas where cost savings can be achieved or where additional wellness programs may be beneficial.
Transparency enables agents and their employer clients to make informed decisions based on data, leading to more effective management of healthcare costs.

Level-funded plans have terminal liability “built in.” This means that if an employer terminates coverage at the end of their contract period, the plan will continue to pay claims incurred while coverage was in force, but not yet paid.
**Be sure to verify this is included with a minimum of 24 months terminal liability!

This is another opportunity for agents to be of service by ensuring this protection is in place.

Risks of Level Funding Agents can help clients weigh these dangers

Level-funded plans ARE self-funded plans and that means that the employer becomes a fiduciary of the plan and is ultimately responsible for the performance or lack thereof, of the plan.
Several years ago a popular level-funded program went into receivership and many employers were left to cover medical expenses incurred by their employees during the time period they should have been covered.

Additional compliance responsibilities are mandatory as well. The employer will be required to file 1095 forms, regardless of group size. In addition, they must file and pay the annual
Patient-Centered Outcomes Research Institute Fee (PCORI) with their 2nd quarter excise tax filings.

Level-funded plans work off of three buckets of money that are created from the premiums charged, administration expenses, stop-loss premiums, and the claims fund. Since the claims fund is
generally only about 50% of premium in this type of plan, it doesn’t take much to “blow up” a plan like this for groups with less than 25 covered employees. They run the risk of being canceled or receiving an extremely high rate increase the next year.

Employers with fewer than 10 employees generally will have to complete health statements and larger employers are underwritten on a census basis. If there are several large claims or high-risk
members, the insurer may decline to provide an offer or it may be extremely uncompetitive.

The Take Away

Personally, I am a big fan of level funding, but it requires a thorough understanding by the employer of how it works. As an advising consultant to your clients, make sure you are familiar with
how to read proposals and help weigh options based on different components, as well as providing monthly claims reporting and analysis. This is an opportunity to build your relationships,
and show your true value, as well as the value offered by level funding options.

There are many great programs out there for your smaller employers!

In California, there are many options available, including Aetna, UHC, Allstate for groups under 50 members.

Nancy Giacolone is the owner and founder of Olympic Crest Insurance, Inc., a boutique employee benefits consulting agency located in Gig Harbor, Washington.
She has garnered numerous industry awards, the latest being the Lifetime Achievement Award at the YouPowered Symposium and as the BenefitsPro 2023 Broker of the Year.

Nancy has made it her mission to bring viable solutions and attention to the underserved small employer market.