Increasingly popular, level-funded plans often boast attractive premiums for healthy employee groups and, better still, returns premiums to the employer if claims come in lower than expected.
When a client was faced with a double digit increase in the cost of offering employees health insurance, OneDigital Managing Principal Matt Mink explained to Financial Advisor he was able to jump in with an alternative option.
Technically, level funding is a form of “self-funding.” In traditional self-funding, the employer pays plan participants’ claims out of its own coffers. Naturally, claims vary from one month to the next, sometimes markedly. So self-funding has become notorious for wreaking havoc on a company’s cash flow.
Level funding, meanwhile, eliminates that cash volatility because the employer pays a fixed (or level) premium to the program administrator.
Business owners can take comfort knowing that if they choose to move to level funding, it’s usually easy to switch back to a fully insured plan later if conditions warrant. Many carriers offer both plan types and thus can mirror benefits and provider networks.
— Matt Mink, Managing Principal, OneDigital
“You never pay more than that level premium,” Mink says. “Level funding is a conservative approach to self-funding,” he says, something he recommends telling business owners.
Level-funded plans provide transparency to employers, who receive detailed information about medical and pharmacy claims. Employers use the data to bring in cost containment programs to better manage spend on certain chronic conditions, or to make changes to their pharmacy benefit manager to reduce the costs of specialty medications.
Roughly two-thirds of health plans renew January 1, so many owners are now weighing their options for next year, or should be. If you have any questions about alternative funding options, reach out to your OneDigital consultant.
To read the full Financial Advisor article, click here.
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