Level-funded Group Health Insurance Plans are essentially pre-packaged self-insured health plans, with low attachment stop-loss coverage, that are now marketed small business in Colorado as small as 5 employees. Level-funded health insurance 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 in Colorado?
- If your group is currently enrolled in small group health insurance, you are currently paying LOADED premiums for pre-existing conditions for the small group marketplace. These rates are filed with the state insurance department and the actuaries calculate rates based on the previous years claims in their book of business to project what they need to pay future claims. (United Healthcare, Humana, Anthem, Kaiser, Friday Health Plans, Rocky Mountain Health Plan) The premiums are 10-20% less than the individual market because the pool of employer groups is mostly able bodied workers and a healthier pool than the individual market.
- Level Funded Health 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. Typical declines for small groups under 15 employees: Ongoing or recent cancer, heart condition or surgery, insulin for diabetes, rheumatoid arthritis drugs, Tier 3 or Tier 4 (Specialty Medications), any ongoing chronic or critical illness with expensive medications or hospitalizations.
- Healthy businesses get the lowest rates. Age, sex and industry demographics are allowed in the premium calculations on a level funded health plan. Young and mixed or mostly male employees can have very low rates.
- Transparency in costs: Employers know the premium breakdown in the background for the administrative costs and can see the claims in their group (due to HIPPA you will not get information on individual employees/dependents conditions but you will see claims dollars spent)
- 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. We have groups that are getting checks back at the end of the run out period (claims paying after the plan year ends).
- 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. Your premiums look like a fully insured small group health plan bill. You pay just like you are accustomed to paying a monthly bill based on EE, ES, EC, F premiums.
- Elimination of State Insurance Premium Tax
- Elimination of State Mandates
- Avoids the negative rate impact and annual increases of loaded ACA community rates.
- These plans are also known as “Partial Self-Funding
- Level Funded Health Plans are required to comply with ACA for essential benefits (preventative, physicals, mammograms, colonoscopies, immunizations, etc) and for now plans are unlimited just like the small group health plan market.
- Most Level Funded Health Plans utilize Aetna, Cigna networks. Humana, United Healthcare and Anthem have level funded health plans but require a larger number of employees enrolled.
- Some level funded insurance companies will enroll groups as small as 5 employees enrolled. For the premiums to be competitive, it’s best with groups of 7-12 enrolled but a group with 5 employees with a few families enrolled can provide enough funding for the claims fund to work for that size group.
Additional Reasons to Consider Level Funding:
- 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 “Cash Back” on any surplus in the claims fund. If your group stays healthy you may get a check!
- 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.
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. The insurance carriers are providing reports to make this an easy process.
- 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
- A bad claims year for a small group may mean a larger increase at renewal and a need to move back to the community rated small group market. In most cases, if the claims are “one and done” (not ongoing) we are able to negotiate the renewal down as your stoploss coverage is underwritten based on “next year’s potential claims”.
- PCORI Fees must be paid in July every year. It’s just the nusiance of ONE tax document to report all employees and pay a fee of around $2.54 per employee for the year.
