With the current state of our economy and businesses having to perform real market checks on their employee benefit offerings, demand for level funded health plans is continuing to increase, and it's not hard to see why.
In 2021, 42% of small businesses with 3 to 199 employees offered these plans, compared to just 7% in 2019 (according to the Kaiser Family Foundation 2022 Employer Health Benefits Survey). So, what's driving this popularity, and is a level-funded plan the right choice for your clients and their employees? Let's explore recent health plan trends, compare different plan types, and consider the benefits of level-funded health plans.
Health Plan Trends: Rising Costs
Healthcare costs have been steadily increasing over the past decade. According to the Kaiser Foundation survey, costs have risen by 39% in the last 10 years, with employers bearing the majority of the burden. In 2012, the average annual cost per employee was $15,745, with the employer contributing $11,400. Fast forward to 2022, and the average cost skyrocketed to $22,463, with the employer's share exceeding $16,000. Unfortunately, this trend is expected to continue, with forecasts predicting further increases in 2023 and beyond.
Given these escalating costs, employers are actively seeking options that balance employee well-being with financial sustainability. This has led to the emergence of various funding models for health plans.
Health Plan Payment Models: A Closer Look
There are two primary funding mechanisms for health plans:
Fully insured plans: These plans involve fixed monthly premiums calculated based on community risk. Carriers play a significant role in compliance, risk mitigation, and administrative tasks. However, premiums and claims are traditionally high, resulting in employers having limited control over plan design and cost management.
Self-funded plans: Unlike fully insured plans, self-funded plans don't rely on monthly premiums. Instead, costs fluctuate based on employee claims, with the employer assuming responsibility up to a certain threshold. Self-funded plans offer more design flexibility and control over provider networks. However, compliance burdens, such as HIPAA and ERISA compliance and Form 5500 filing, fall on the employer, potentially increasing workload and noncompliance risks.
Enter Level-Funded Health Plans: The Best of Both Worlds
Level-funded health plans have gained popularity as a middle-ground solution that combines the advantages of fully insured and self-funded plans while mitigating some of their downsides. Let's delve into the benefits of level-funded plans:
Financial considerations: Similar to fully insured plans, level-funded plans have a predetermined monthly premium. This premium is determined by estimating maximum claims liability, fixed administration fees, and the cost of stop-loss insurance. Monthly costs are more predictable than self-funded plans, allowing for better expense forecasting and budget management. We’ve highlighted before, the use of Level-funded plans as a Cost Containment Strategy for more information.
Flexibility: Level-funded plans offer greater flexibility in plan design and provider networks, akin to self-funded plans. Employers can choose nationwide networks and tailor contributions to different worker classifications. Participation percentages are typically less stringent than with fully insured plans. This flexibility enables employers to offer customized plans that suit both employee needs and budgetary constraints.
Transparency: Fully insured plans provide limited visibility into specific plan claims history, limiting the employer's ability to negotiate premiums effectively. In contrast, level-funded plans offer more detailed information about plan utilization, enabling employers to negotiate premiums based on actual utilization data. Employers can also use this information to educate employees on cost-saving decisions, such as choosing generic prescriptions or utilizing urgent care facilities instead of emergency rooms. Cost savings benefit both the employer and employees, making the company a more attractive employer and improving retention and recruitment efforts.
Compliance: While level-funded plans require greater compliance responsibility from the employer compared to fully insured plans, a competent broker partner should help navigate these obligations. Working with an experienced broker partner is crucial for understanding and managing compliance matters associated with level-funded plans, ensuring adherence to regulations and mitigating noncompliance risks. Let us help you be that Broker.
Is a Level-Funded Plan Right for Your Clients?
Level-funded health plans are particularly suitable for small to midsize companies seeking flexibility, cost management, and customization options. However, these plans have also proven to be beneficial to carve-out classes of larger businesses to address their needs as well. It's important to consider additional compliance responsibilities, transparency benefits, and the commitment required to review claims data and educate employees to achieve the desired savings. But don’t worry about that; we have you covered.
As a broker serving clients with employer-based insurance needs, consider discussing a Fundamental Care level-funded plan, which has proven to be a good fit for many members. By embracing level-funded health plans, you can help your clients strike the right balance between cost control, employee satisfaction, and compliance.
Fundamental Care® programs are Affordability-Based Medical Plans which are designed for various niche-markets, including: small business and their employees, part-time, hourly, seasonal employees at enterprise-level companies, independent contractors, gig-economy workers, and association members. Fundamental Care is designed to meet the needs of the underserved, by providing access to unique and affordable health insurance benefits on a guaranteed issue basis.
Limited-Day and Limited-Benefit Indemnity plans can be customized and structured with affordable premiums and no deductibles. Coterie Advisor's can also provide Minimum Essential Coverage (MEC) and bronze-level Minimum Value Plan (MVP) options for client's needing a solution for their full-time equivalent employees. The combined offering of the Fundamental Care plans is unique to the marketplace. Through Coterie's Affordability Based Medical Plan Strategy, the plans not only provide needed healthcare to the insured employees but also offer companies a strategy to improve recruiting and reduce turnover by rewarding a carve-out class or more-tenured employees.
Fundamental Care offers two Affordability-Based Medical insurance options which can assist:
An employer-sponsored, level-funded, Limited-Day Health Plan for small to midsize employers and carve-out classes of large employers. Plans cost 30-40% less than HDHPs with no deductibles. A near-comprehensive plan that both employers and employees can afford.
THREE LEVELS OF PLAN
An affordable Bronze MVP plan – with no deductible
An affordable mid-range MEC plan with limited days of hospitalization– with no deductible
A Value priced outpatient expense MEC plan- with no deductible
A Limited-Benefit Indemnity Plan for large employers with part-time, hourly, and seasonal employees; and for associations and affinity groups. An affordable option for the uninsured that provides coverage for basic medical expenses.
Available with or without Minimum Essential Coverage (MEC) and Minimum Value Plans (MVP)
Both can be customized and structured with affordable premiums and no deductibles. The plans are high in potential coverage, guaranteed issue, and include upfront, day-one benefits.
Coterie Advisory Group, Inc. is a National insurance program manager and consultative advisor who delivers Affordability Based Medical Plan Strategies to help benefit brokers, consultants, employers, and associations in the benefits industry.