Level-Funding: The Answer for Small Business Health Plans
by Joseph Berardo Jr.
Small businesses have experienced a steep rise in health insurance premiums in the past two years – as high as 50%. At the same time, they’ve been trying to determine what the full effect of federal healthcare reform might be for them. On a positive note, the situation presents health insurance brokers with an ideal proposal: a self-insured health plan combined with level-funding for clients who are seeking to reduce healthcare costs and minimize risk.
How Level-Funding Works
Level-funded plans combine a guaranteed maximum cost plan with self-insurance. Small businesses can cover employees on their own by putting aside enough cash to cover anticipated claim expenses. The monthly premium remains level for the entire year. A rebate or credit is issued if claims are less than the funded amount at the end of the year. If claims go over the funded amount, businesses are protected by stop-loss insurance. Obviously, to make this option fully workable, brokers should recommend that clients partner with a healthcare services company to handle the administration.
All level-funding groups must have stop-loss insurance, which includes both aggregate and specific stop-loss insurance. (As a result, all “small business” references made in this article refer to those that meet their state’s minimum employee count required for stop-loss coverage.)
Aggregate stop-loss insurance sets a maximum claim dollar exposure for a group based on a percentage of expected claims. For example, if underwriting projects medical and Rx claims to be $600,000, and the company purchases aggregate stop-loss of 125%, the company pays no more than $750,000 in claims.
Specific stop-loss insurance limits a group’s financial exposure when a person’s healthcare claims exceed a certain dollar amount during the plan year. For example, if a company has a stop-loss limit of $40,000, and a person incurs $100,000 in claims one plan year, the company would only be responsible for $40,000 of the claims.
Level-funding offers more flexibility compared to commercial insurance. It also offers the following advantages:
• Helps employers tailor plans to the health needs of a workforce population, especially if guided by the right healthcare services company.
• Generates as much as 3% immediate savings because state taxes are eliminated on most self-insured plans.
• Eliminates carrier profit margins and risk charges.
Furthermore, level-funded self-insured plans are exempt from the federal healthcare law’s health insurance tax, which will be onerous for the fully-insured market, exceeding $100 billion over the next several years. In addition, companies that opt to level-fund their health benefits don’t have to offer the government-mandated essential health benefits, so they can tailor benefits to the needs of a company and the demographics of workers.
Also, level-funded self-insured plans are not subject to the jurisdiction of the states, and, for the most part, not subject to state mandated benefits, litigation in state courts, or the appeal and complaint procedures of the insurance departments of each of the states.
With level-funding, companies only pay for claims and the cost of administering them. They avoid being overcharged via premiums based on a community rate of similarly-sized groups, which might have less-healthy employees. Moreover, level-funded plans can be combined conveniently with FSA, HSAs, and HRA spending accounts. All of this means that, on top of lowering healthcare costs, level-funded plans help companies remain competitive and gain an edge in attracting and retaining talent.
Level-funding is ideal for small businesses that are doing the following:
1. Looking for an affordable option that makes it possible for them to continue offering employer-sponsored benefits.
2. Showing an interest in self-insuring, but want to avoid the risk of unpredictable monthly costs.
3. Establishing a culture of health and wellness – and meeting their state’s minimum employee count for stop-loss coverage.
Finding Level-Funding Administration Experts
To help clients administer a level-funded plan, brokers should suggest a healthcare services partner for the following:
• Maintaining eligibility.
• Providing customer service.
• Adjudicating and paying claims.
• Preparing claim reports.
• Negotiating, obtaining and renewing stop-loss placement.
• Conducting enrollment information meetings.
• Arranging managed care services, such as access to PPOs, coverage for alternative treatment programs including acupuncture and chiropractic services, prescription drug card programs that offer cost-saving opportunities and utilization review.
Look for a healthcare services company that offers secure data analytics for remote and real-time care. It should also provide an inexpensive vehicle for coordinating online tools that identify at-risk members, their patterns and treatments for various ailments – from diabetes to heart conditions. Robust data analytics allow level-funded plan managers to evaluate employee information, including age, chronic illness, risk factors and gaps in care. It should also allow them to update medical conditions, compare previous costs to projected expenditures, and intervene with optimal prevention and wellness programs.
The key to making the most of level-funding is to streamline access to care with customizable care plans based on a person’s risk profile and needs. Targeting health issues rather than simply implementing a general health and wellness program is critical for long-term population health management effectiveness. By partnering with healthcare service companies and provider groups, employers can take advantage of deep discounts and give employees greater access to coordinated care. Within this model, healthcare data analytics plays an important role, providing information that’s relevant to population health management, such as determining the chances of a relapse, the likelihood of noncompliance, and the progression of chronic disease.
Some plans are designed exclusively around chronic disease and include educational materials, one-on-one counseling, transportation to a hospital or doctor’s office, and assistance in coordinating care among physicians and other caregivers. Health claims and other medical data are used to identify members with chronic conditions and provide them with the tools and support they need to better manage their health.
Brokers should articulate level-funding as a predictable self-insured health plan that offers fixed monthly payments. When actual claims are lower than expected at the end of the year, employers can then use the credit to pay future health plan costs.
Joseph Berardo Jr. is CEO of MagnaCare, an administrator of self-insured health plans for employers in New York and New Jersey.