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The unique advantages of level-funded health plans for small businesses

Published on June 17th, 2019 by Triton Benefits & HR Solutions

The employer mandate requires companies with 50 or more full time equivalent employees to either provide affordable health coverage or else pay a tax penalty. For recruitment and retention purposes, many businesses have opted to provide their staff with coverage, even in cases where the workforce is fewer than 50 people. Regardless of what is and isn't required by law, good health insurance remains the most sought after employee benefit. A Harvard Business Review survey found 88% of respondents would consider taking a lower paying job in exchange for better health, dental and vision insurance.

As you know, the cost of providing health coverage can prove burdensome for these small employers, since they lack the scale, funds and other resources needed to pursue self-insured plans, which is how large employers directly cover the costs of their employees' medical expenses.

To avoid this issue, small group employers are taking advantage of the unique funding arrangements offered by our nation's largest carriers to bend the cost curve and lower their annual benefits spend. If you're frustrated with the vicious cycle of higher premiums and increased regulation, you should consider the benefits of level-funded plans.

The advantages of level-funded health plans

Under a level funded plan, the insurance company actuarially determines a funding amount for the entire year based on the employer's demographic and prior experience, just like a self-funded plan. Every month, the employer pays a set, level amount to the insurance company (some of which is likely collected from employees through payroll deductions) to pay for claims, fixed costs, and administrative expenses. This regular, equal payment is why the product is called a "level" funded plan.

After the end of the year, the insurance company compares the claims paid to the amount contributed by the employer. If the total claims, costs, and expenses are less than the employer's contributions for the year, the employer gets a refund. However, if the total claims, costs, and expenses are more than the employer's contributions, the insurance company covers the shortfall. The greater financial predictability and lower dollar threshold makes level funding extremely  attractive to smaller employers.

Protection against extraordinary medical costs is one of the key benefits of level-funded health plans. Protection against extraordinary medical costs is one of the key benefits of level-funded health plans.

In addition to costing significantly less than a fully-insured health plan, level-funded health plans also have the benefit of providing employers with far more control over plan design. This enhanced flexibility comes from the fact that level-funded plans are exempt from certain ACA regulations, such as the requirement to offer essential health benefits and the requirement to follow the three-to-one rating formula. This lighter regulatory burden often translates to lower administrative costs for small companies and reduced overhead expenses. Self-funded plans give employers access to more data, including claims information, prescription data, unit cost of healthcare statistics, utilization frequency and other invaluable information that can inform plan design.

With the guarantees of stop-loss coverage, the ability to fall back on traditional plans if needed and the potential for small businesses to save up to 30% annually while still providing quality coverage, there is no good reason for smaller employers not to consider a level-funded plan. Connect with the experts at Triton Benefits and HR Solutions today to discuss benefits solutions for your business.

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