If you’re unsure about moving from a fully insured health plan to self-funding, level funding is a great option to consider for your company or clients.
Healthcare costs are rising steadily, expected to increase by 7% in 2024, according to PwC. Many employers are thinking about switching from fully insured plans to self-funded ones as a way to manage costs, have more control over expenses, and offer affordable plans for their employees. In 2022, 65% of workers in small firms were in self-funded or level-funded plans, a big increase from 24% in 2019. Despite the benefits of self-funding, some clients might be hesitant due to concerns about risk, company size, and change.
If fully self-funded seems like a big step, there’s a middle ground: level funding. The key difference between fully insured and self-funded plans is who takes the risk for paying claims. Self-funded plans let the company pay all medical and pharmacy claims for employees throughout the year, giving more control, transparency, and savings potential. Level funding is a type of self-funded approach where the company pays a set monthly amount to cover expected claims, stop-loss insurance, and administrative costs. This offers consistent payments and extra protection against high claims.
Level-funded plans have some advantages, including:
- Consistent Payments: Employers pay claims through a fixed monthly amount, similar to fully insured plans.
- Stop-loss Protection: Extra safeguards are in place to cover costs beyond a certain limit.
- Refunds: If claims costs are lower than expected, employers might get money back.
- Data Access: Like self-funding, level funding provides detailed claims data for better risk management.
It’s important to note that not all carriers offer the same benefits. Consider factors like plan savings and fit for employees when exploring these options.
Both self-funding and level funding can save money for small and mid-size businesses. As healthcare costs keep rising, now is a good time for companies and their advisors to carefully examine funding choices and make well-informed decisions for their business and employees.
