A level-funded health plan is a type of self-funded health insurance arrangement, often used by small to mid-sized businesses. In this model, the employer pays a fixed monthly amount to fund the plan, which covers their employees' medical claims, rather than paying premiums to a traditional insurance carrier.
The fixed monthly contributions cover several components: the expected medical claims, administrative costs, and a stop-loss insurance policy. Stop-loss insurance protects the employer from unexpected high claims, capping the maximum amount the employer will pay for covered medical expenses. This structured approach allows businesses to better predict their healthcare costs compared to fully insured plans where premiums can fluctuate significantly.
One key feature of level-funded plans is that if the actual claims are lower than the amount paid into the plan, the employer may receive a refund at the end of the plan year. Conversely, if claims exceed expectations, the stop-loss insurance mitigates the financial impact on the employer.
Level-funded health plans typically come with greater flexibility compared to traditional insurance plans, allowing employers to customize benefits to better meet the needs of their workforce. They also generally include additional wellness and preventive care services, which can enhance employee health and potentially reduce long-term claims costs.
For businesses looking for a balance between the predictability of costs and the benefits of self-funding, a level-funded health plan can be an attractive option. However, it's important for employers to carefully consider their employees' health profiles, the potential risks involved, and the resources available for administering the plan effectively. As with any health insurance decision, consulting with a knowledgeable broker or advisor can help employers navigate the options and determine the best fit for their organization.