Should my business consider a level-funding health plan?

Judy Pershern – jpershern@stall-legal.com
January 13, 2022

Level-funding has recently attracted more attention among smaller employers.  A level-funding health plan is a more budget-friendly method of funding monthly claims payments, with stop loss insurance to protect you from unexpected high claims costs.  With some types of stop loss policies, an employer may be required to pay a high-dollar claim all at once if the policy stop loss limits have not been reached.  With level-funding, this variability in monthly claim costs is avoided. 

What is a level-funding health plan?  

Level funding is a type of self-funded plan that helps an employer in their budgeting efforts.  With level funding, an employer pays a set monthly amount to a carrier.  This amount includes the cost of the maximum amount of expected claims, based on underwriting projections.  If all the money that you pay to cover claims is not used, you will receive a refund at the end of the policy period from the surplus.  Conversely, if the money that you pay is less than the monthly claims costs, the carrier takes on the responsibility of paying the overage.  In addition, since it is a self-funded health plan, you have the option to have greater transparency into costs and claims, allowing you to be more proactive about educating employees about alternative care options. 

Why should I consider a level-funding health plan for my business?

Level-funding health plans are designed to limit the amount of claims responsibility by protecting your health plan from large catastrophic claims through stop loss coverage.  One of the downsides to self-funded plans is that the employer must pay out claims as they come in, leaving itself exposed to fluctuating expenses.  Level funding is an option that offers predictability to health care expenses.  The monthly payment is a function of your group’s size, nature of business, financials and tolerance for risk.  With level funding, you’re paying for the convenience of having equal payments throughout the year and the security of stop loss coverage. 

Are there downsides to level-funding plans?

Although level funding refund features vary by carrier, some carriers will only allow a 50% refund of any surplus paid at the end of a policy period.  The portion of the refund that the carrier retains supports future pricing stability and sustainability.   Additionally, if an employer terminates one plan and moves to another plan, the employer generally forfeits its right to any surplus that may be available.

Conclusion

When considering health benefits plan funding options, it is important to take the time to understand the terms of the agreement and how the contract terms will impact a business of your size.  It is also important to understand the termination provisions and how the coverage for run-out claims will be provided following termination.  The stall Legal attorneys can assist in your evaluation of health benefits plan funding options that you may be considering.