Pros and Cons of Level Funded Plans
When choosing a health plan to offer to your employees, it’s important to consider the pros and cons of level funded plans so you can find a plan that meets your employee’s needs while keeping your costs low.
Level-funded plans offer predictable monthly costs, stop-loss insurance to protect employers from unexpectedly high claims, potential refunds, and customizable programs. These benefits make level-funded plans an excellent affordable option for small businesses.
But are level-funded plans the right option for you?
To help you find the right health insurance solution, here’s a closer look at the pros and cons of level-funded health plans.
What is Level-Funded Health Insurance?
Level funding is a type of self-funding that allows employers to easily budget for health coverage costs.
With level-funded plans, employers pay a fixed monthly amount into a claims fund, and this fund is used to cover eligible claims made by employees. The monthly amount the employer pays includes an estimate of expected claim costs, stop-loss insurance premiums, administrative costs, and any other fees that the insurer requires. At the end of the year, employers may receive a refund if the actual claim costs are lower than the estimated claims costs.
If actual claim costs are higher than the estimated claim costs, the employer’s stop-loss insurance premiums will likely increase. Stop-loss insurance protects businesses against expensive claims that would deplete the claims fund and prevent the employer from paying out other claims.
Level-funded plans ensure that businesses only pay for what they actually use — helping them save money and more effectively manage their costs.
Pros and Cons of Level Funded Plans
Advantages of Level-Funded Plans
Level-funded plans can be a great option for small businesses due to the variety of benefits they offer.
Level-funded health plans:
- Have fixed monthly costs, making it easier for employers to budget for health coverage. This also allows businesses to have a more predictable cash flow.
- Offer opportunities for refunds if actual claim costs are lower than expected.
- Include stop-loss insurance, protecting employers from having to pay out excessively expensive claims.
- Are often customizable, allowing employers to tailor programs to their employees’ needs.
- Offer transparent reports, allowing employers to see exactly how their funds are being spent.
- Include administrative services, so business owners don’t have to worry about processing claims.
Small businesses looking to save money while still being able to offer high-quality coverage to their employees may benefit from choosing a level-funded health plan.
Disadvantages of Level-Funded Plans
Level-funded plans are cost-effective, predictable, and accessible, but there are still a few potential downsides that businesses should consider before purchasing one of these plans.
- Level-funded plans can still be more costly than self-funded plans. With the former, employers are paying for the convenience of fixed monthly payments and the inclusion of administrative services.
- Level-funded health plans include administrative fees.
- If claim costs are higher than expected, employers may have to pay more for stop-loss insurance.
- Unlike self-funded plans, level-funded plans require employers to pay monthly premiums even if no claims are made.
While level-funded plans can, in some cases, be more costly than self-funded plans, some businesses may find the additional costs worth the added convenience and more predictable costs.
Who Should Consider Level-Funded Health Insurance?
Level-funded health insurance can be a great option for any small business that wants to save money while still enjoying the convenience offered by fully-insured plans.
While businesses looking to minimize their costs as much as possible may benefit more from a self-funded plan, level-funded plans make it easier for businesses to budget their money and manage their costs.
Self-funded plans also require businesses to handle administrative duties themselves, which can be a major burden for small business owners that already have heavy workloads. With level-funded plans, the insurer handles administrative tasks in exchange for a modest fee.
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When putting together a benefits package, employers should do their due diligence to find plan options that meet their needs as well as the needs of their employees. For small businesses looking for affordable health coverage with predictable monthly costs, level-funded plans are often the best choice.
At KSA Insurance, we partner with many major insurance carriers to help small business owners in South Carolina and across the southeastern United States find the right health insurance solutions for them.
Contact us today to get a quote and learn more about level-funded health plans.
