Level-funded (Partially Self Funded) Group Health Insurance Plans can save Colorado Businesses 20-40% over Community Rated Small Group Health Plans!
Level-funded Group Health Insurance Plans are essentially pre-packaged self-insured health plans, with low attachment stop-loss coverage, that are now being marketed in Colorado to groups as small as 5 employees. Level- funded plans are being offered by commercial carriers and by a host of other third party administrators (TPAs). For the right groups, level-funded plans can save 20-40% percent versus a fully insured ACA small-group plan and 30-50% over a group of employees coming off of individual health plans. And because of their structure, level-funded plans do not have the volatility in monthly cash flows, associated with self-insured plans, that can cripple a small business.
How do Level Funded Group Health Insurance Plans Differ From Community Rated ACA Small Group Plans?
- The plans are all medically underwritten. Groups can be declined for major conditions that are ongoing in the group including expensive tier 3 &4 drugs depending on the size of the group.
- Healthy businesses get the lowest rates. Age, sex and industry demographics are allowed in the premium calculations on a level funded plan. Young and mixed or mostly male employees can have very low rates.
- Transparency in costs:
- Money not spent on claims goes back to the employer! Cash back on the surplus of the claims fund inside the plans. This ranges from 50-100% of the the surplus leftover after the run-out claims period depending on the carrier.
- Capped annual costs-The plan is a hybrid of fully insured and self funded so annual premiums (paid monthly based on premiums that look like fully insured) are limited to a set annual amount.
- Elimination of State Insurance Premium Tax
- Elimination of State Mandates
- Avoids the negative rate impact and annual increases of loaded ACA community rates.
Additional Reasons to Consider Level Funding:
- It is a good first start. If you’re hesitant with moving to self-funding, level-funding is structured similarly minus cash flow volatility and in some cases limits payment of total claims when the plan runs worse the expected.
- The employer will pay lower ACA taxes than under a fully-insured arrangement. In 2015, ACA imposed a health insurance premium tax on medical insurance carriers. The tax increases each year but initially the impact of this tax is estimated to increase fully-insured premiums by 2.5%.
- Plan design options are more flexible since level funding plans are not subject to state mandates.
- Reporting is specific to your organization. Claims are not pooled with other companies like the community rated market. Smaller organizations that do not currently receive claims reporting would be provided information that is specific to the organization.
Potential Drawbacks to Level Funding
- Additional compliance and reporting responsibilities. As with self-funding, employers are responsible for distributing required compliance notices and filings instead of depending on insurance carriers to do these tasks.
- Reserves are funded in the first year of level funding so if the plan experiences favorable results, reimbursements may be less than expected due to the funding for reserves. But, again if the plan runs worse than expected, the employer does not pay any amount above the monthly fixed premium