Level funding (also called alternate funding) is a group health insurance product available to employers. It behaves just like a fully-insured product, and allows some groups to get coverage at more competitive rates than traditional fully insured ACA plans.
How does level funding work? An employer pays a set monthly cost into an account, like a ” premium”. This “premium” money is then used to pay claims for employee health care. If there’s any money left in the account at the end of the plan year, it goes back to the employer. If employee claims spending exceeds the funds in the account, the health insurer covers the difference. If there are any large claims or an aggerate number of claims that exceed a certain dollar threshold the stop loss reinsurance kicks in covers them. The employer is not responsible for claim shortfalls. However by monitoring their claims usage throughout the year, small employers can also get a feel for what the upcoming renewal might look like ( surplus/deficit) giving them a better timeline for making future decisions
Level funding has three financial components under the hood funded by monthly payments:
- A claims fund: A pool of money pre-funded by the employer to cover claims cost.
- Stop Loss or Reinsurance: Monthly premiums the employer pays to protect itself against high claims from individual employees and the entire group.
- Administrative fees: Costs the employer pays to the health insurer for being a plan administrator.
Level funding arrangements are available nationally but some state rules vary on group size. Want to find out if Level Funding might work for you? Ask your Total Benefit Solutions health insurance specialist today (215)355-2121.