There are many different ways to design your businesses’ health insurance plan to get the most out of your coverage. One way is to explore funding options. There is no one size fits all for health insurance, especially when it comes to your business. Deciding on the best funding option for your company will vary depending on your employees, company health care needs and more.
What is a Self-Funded Employer Health Plan?
A self-funded (also known as employer-funded) employer health plan is when your company pays employee health claims as they occur, rather than the company paying the insurance carrier a monthly premium to cover the cost of claims. Each month an amount of money is set aside based on the expected cost of employee health claims. Claims are sent to the health plan who administers your benefits and they process the claims and pay them using the money that was set aside. These plans provide higher levels of flexibility but also increased financial risk for companies since they pay for claims as they occur rather than paying a consistent monthly premium. For example, if claims are higher one month, your company expenses for health coverage are also higher. And, same is true when claims are lower, if claims are low then health care expenses will also be low. Because of this variability, self-funded plans also usually include a form of stop-loss insurance.
What is Stop Loss Insurance?
Stop loss insurance provides protection for your company if claims from employees exceed a certain amount of money. The employer and insurance company will negotiate a maximum amount the employer would pay for employee health costs, and if claims exceed that amount the insurance company will cover costs. Think of it as insurance for your insurance. Having stop loss insurance helps manage the risk that you take on when moving to self-funding. You’ll still see variable health care expenses every month but can rest assured that your expense won’t exceed a certain amount.
What is a Fully Funded Employer Health Plan?
A fully funded employer health plan is a more traditional approach to health insurance for businesses. Your company pays a set monthly premium to the health insurance company, no matter what claims were made by employees, and the insurance company pays the claims from employees as they occur. This option can often be more expensive upfront, but also offers less financial risk since you can rely on consistent expenses per month versus fluctuating monthly expenses.
What is a Level Funded Employer Health Plan?
A level funded health plan is essentially a hybrid between a self-funded and fully funded plan. With this model, companies will pay a fixed monthly premium which includes administrative costs, stop loss insurance costs, and the projected claims. However, this number will not fluctuate each month based on claim experience. Monthly premiums will be lower than that of a fully funded plan and will not vary on a monthly basis like a self-funded plan. At the end of the year, if the company experienced claims below what was covered by their monthly premiums, they will receive a refund for the difference. If claims exceed what was paid in monthly premiums, the company will settle with the insurance provider on outstanding claims.
Benefits of Self-Funded Employer Health Plans
Self-funded plans can be a great cost saving option for companies whose employees are generally healthy and do not have many health insurance claims. These plans can be ideal for businesses with 25 or more engaged employees where wellness is integrated into company culture. Top benefits include:
- Lower monthly fees: Generally, the monthly costs for a self-funded employer health plan will be lower since the company only pays for the expected claims from employees rather than a predetermined premium. However, there is still an amount due each month for administrative fees, stop-loss insurance and more. Be sure to check with your insurance company to see what kind of fees you’ll have every month. With Priority Health Managed Benefits, Inc. (Priority Health), self-funded plans include an all-inclusive administrative fee so you get resources and support in managing your health plan without any hidden costs.
- Less regulation: Since self-funded plans are only regulated by the federal government and not by state or local governments, there are less taxes that need to be paid on these plans.
- More flexibility: Self-funded plans often offer more opportunities for customization so an employer can make the plan best fit the needs of the company and employees in terms of provider networks, pharmacy costs and more.
Benefits of Fully Funded Employer Health Plans
For companies with few employees, who experience more claims, or who experience more high cost claims, a fully funded plan may be the best option. Benefits of a fully funded plan include:
- Stable monthly fees: Whereas the monthly fees of a self-funded plan may vary, fully funded plans have a consistent monthly fee which makes it easier to budget for health care costs. This cost is determined yearly during your renewal with the health insurance provider.
- Low maintenance: Fully funded plans require less attention than self-funded plans since they don’t have as many compliance requirements and have stable monthly costs, making them much easier to manage.
- Less risk: Fully funded plans keep your business protected from large unexpected health claims. No matter what claims are made, you’ll pay the same amount. If you’re worried about the “what ifs” when it comes to health coverage, fully funded may be the way to go.
Benefits of Level Funded Employer Health Plans
Level funded plans can be a great compromise that give your business some of the flexibility and upfront savings of a self-funded plan, with more stability and predictability like a fully funded plan. These plans can be a good fit for small to mid-sized companies interested in the cost savings of self-funding but who don’t want the financial risk of a self-funded plan. Other benefits include:
- Lower, stable monthly fees: You’ll have stable monthly fees that make it easier for you to budget for health care costs, at a lower rate than a fully funded plan.
- Balance of flexibility and risk: Level funded plans meet in the middle for flexibility and risk compared to their self and fully funded counterparts. These plans combine the flexible, unique options of a self-funded plan with the lower risk characteristics of a fully funded plan.
- Opportunity for money back: Level funded plans give your business an opportunity to get money back at the end of the contract year if the amount paid in monthly premiums exceeds the cost of claims experienced. However, the opposite is also true — if the costs of claims exceed the monthly premiums, the company will have to settle the overdue funds with the insurance provider.
Comparing Employer Funded Health Plan Options
Self-funded plans can be a great option to save money, but in the event of expensive claims, they could end up costing more. Fully funded plans cost more upfront, but leave your business protected in case of unforeseen expenses. Level funded plans balance risk and flexibility. To begin learning more about funding options, contact your agent to discuss what might be best for your business.