The Agent's Guide to Level-Funded Group Health Insurance Plans

Understanding Level-Funded Health Insurance Plans

One of the biggest buzzwords in the group benefits health insurance space is “level-funded.” Level-funded health insurance plans are created for employer groups seeking more control over their healthcare costs while accessing customized health plans for their employees.

In this blog, we’ll discuss the ins and outs of level-funded group health insurance plans, their benefits and drawbacks, and how they differ from other coverage options, like self-funded and fully-funded insurance plans. Lastly, we’ll discuss how your group benefits insurance agency can efficiently shop, compare, and quote level-funded insurance plans for your employer prospects and clients.

Types of Group Benefits Health Insurance Plans

Before we get started, let’s define the three types of insurance plans we’ll discuss today:

• Level-Funded Insurance Plan: "A level-funded health plan is a policy where employers pay a fixed amount of money to an insurance company every month to cover administration fees, medical claim payments for employees, and stop-loss insurance premiums. They then share the risk of the plan alongside the insurer.” Many carriers consider a level-funded plan a type of self-funded insurance plan.
• Fully-Insured Insurance Plan: “A fully-insured health plan is the traditional route of insuring employees. Employers pay a fixed premium price to a group health insurance carrier for the employees who are enrolled in a health plan, and the company [the carrier] covers those employees’ medical claim expenses.” Often, employees of the group are responsible for a portion of that premium per month.
• Self-Funded Insurance Plan: “Self-insurance is also called a self-funded plan. This is a type of plan in which an employer takes on most or all of the cost of benefit claims. The insurance company manages the payments, but the employer is the one who pays the claims.”

What are Level-Funded Group Health Insurance Plans?

Level-funded insurance plans are a hybrid approach to group benefits insurance plans. They combine the elements of fully-insured and self-funded plans. These plans offer employers a predictable and stable cost structure while also providing comprehensive coverage for employees. To manage a level-funded insurance plan, employers pay a fixed monthly amount to cover medical claims, stop-loss insurance, and administrative fees.

As such, a level-funded insurance plan will include the following key components:

• A claims fund based on expected health expenses
• Stop-loss insurance to protect against catastrophic claims
• Administrative services handled by third-party administrators (TPAs)
• A provider network for cost control and healthcare access

Benefits of a Level-Funded Plan for Employer Groups

When looking at a level-funded insurance plan for an employer group, here are some of the main benefits they could experience:

• Predictable monthly premiums
• Potential for refunds if claims are lower than expected
• Greater flexibility in plan design
• Access to detailed claims data for informed decision-making
• Defined liability risk through stop-loss contracts

The balance of control and protection makes level-funded plans an attractive option for many businesses seeking to optimize their group benefits offerings.

Drawbacks of a Level-Funded Plan for Employer Groups

There are many benefits to having a level-funded health insurance plan; however, there are always drawbacks. Here are some of the most common ones:

• Potential for higher renewal rates if employee claims exceed expectations
• A learning curve for employers new to self-funding concepts
• A requirement for the group to go through medical health underwriting, which can drastically affect the monthly premium
• Additional compliance and regulation requirements

A self-funded or level-funded plan will not be the right choice for every employer group. It’s important to have those conversations as their advisor to determine if it’s the right fit and the benefits or drawbacks they’ll experience. 

Regulation Requirements for Level-Funded Insurance Plans

Having a level-funded plan requires employers to manage more regulatory requirements. These requirements include:

• Report and pay the PCORI fee: “Level-funded plan sponsors are required to report and pay the Patient Centered Outcomes Research Institute (PCORI) fee by July 31st each year. The fee is an applicable dollar amount multiplied by the average number of covered lives during the preceding plan year.”
• Complete ACA employer mandate reporting: “Because level-funded plans are considered self-funded for compliance purposes, employers sponsoring level-funded plans must file and distribute ACA employer mandate returns, even if the employer is not an applicable large employer (ALE). A level-funded plan’s third party administrator (TPA) may complete the ACA reporting on the employer’s behalf, but it is ultimately the employer’s responsibility to ensure that the reporting is completed when the employer sponsors a self-funded plan.”
• Determine COBRA premium rates: “The COBRA premium is determined based on either (1) a reasonable estimate, on an "actuarial basis," of the cost of providing coverage for similarly-situated non-COBRA participants in the current plan year, or (2) the cost of providing coverage for similarly-situated non-COBRA participants for the same period occurring during the preceding plan year.”
• Comply with nondiscrimination testing: “Self-funded (including level-funded) plans are subject to nondiscrimination testing under Section 105(h) of the Internal Revenue Code, which prohibits the plan from discriminating in favor of highly compensated individuals (HCIs).”
• Complete RxDC reporting: “Self-funded (including level-funded) plan sponsors are responsible for completing annual prescription drug data collection (RxDC) reports pursuant to the Consolidated Appropriations Act, 2021 (CAA). RxDC reports must be filed electronically through CMS’s HIOS portal by June 1st each year.”

Comparing Level-Funded Insurance Plans

As we mentioned earlier, there are three main types of insurance plans for employer groups: 

• Level-Funded
• Fully-Insured
• Self-Funded / Self-Insured

We’ve covered the basics of a level-funded insurance plan, but how does it compare to the others? 

Level-Funded vs. Fully-Insured Insurance Plans

There are several advantages to using a level-funded plan over a fully-insured one — especially for the small to mid-sized group insurance market. However, the top three advantages of level-funded insurance plans are:

1. Potential Cost Savings
2. Transparency & Risk Mitigation
3. Plan Customization 

Potential Cost Savings
Level-funded and fully-insured plans both offer a fixed monthly fee that covers claims, administrative fees, and stop-loss insurance. However, the key difference is that level-funded plans also provide the opportunity for a surplus. Carriers retain all of the savings for a fully-insured plan; the employer group manages these savings with a level-funded plan. This means the employer group could collect a surplus on a level-funded plan if the medical and pharmacy claims are lower than expected throughout the coverage year.

Transparency & Risk Mitigation
Level-funded insurance plans can provide greater transparency, allowing employer groups to see exactly how their monthly payments are allocated to claims, stop-loss, and admin costs. This transparency, paired with detailed monthly data reports, enables employers to make informed decisions about managing healthcare costs and utilization for their team. Often, the employees within these groups will be empowered with information from the employer or benefits advisor to learn ways they can be better consumers of healthcare in order to keep costs lower.

Plan Customization
Another key difference is the ability to customize plan designs. Since employer groups with level-funded plans have greater transparency into plan usage and claims, it can help employers build better plans each year that best meet their employees’ needs. 

Level-Funded vs. Self-Funded Insurance Plans

When comparing level-funded insurance plans to self-funded ones, the key differences lie in risk allocation and financial responsibility. Self-funded health insurance plans operate on a pay-as-you-go model and put the full financial risk on the employer. Level-funded plans set a monthly limit on what the employer pays and use the benefit of stop-loss insurance to mitigate potential costs. This gives employers with a level-funded plan the benefits of having self-funded access and customization with the added stability of cost predictability. 

How to Efficiently Shop & Quote Level-Funded Insurance Plans

Once you’re ready to start selling level-funded health insurance plans to group benefits employers, it’s essential to have the tools to simplify the process. AgencyBloc’s Quote+ solution is a small group quoting, proposal building, and enrollment tool that makes this annual process easy.

Follow the six steps to:

1. Fill in employer data 
2. Gather employee data
3. Shop and compare carrier plans
4. Build employer-ready proposals
5. Complete employee health underwriting
6. Manage the employee enrollment period 

Connect Quote+ to AgencyBloc’s AMS+ solution for additional streamlined processes for sales enablement, continued client servicing, cross-selling, retention, and more. The tools your teams use to manage your group benefits clients can mean the difference in winning new sales, retaining existing clients, and finding balance in your day-to-day. 

To learn more about using AgencyBloc’s Plus Suite of industry-specific solutions, schedule a one-on-one personalized demo.

Posted by Allison Babberl on Tuesday, October 22, 2024 in Group Benefits

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