What is Level Funding?

A level-funded plan is a type of self-funded plan in which the employer contributes a steady monthly payment to cover costs for administration, claims payments, and stop-loss insurance. Level funding has its advantages when compared to fully insured plans and programs. Level-funded plans often cost less, making it easier for small- and mid-sized employers to offer their employees high-quality health care benefits at a more affordable price.

Allstate Benefits offers small- to mid-sized employers an opportunity to have a level-funded plan for their business through the Self-Funded Program.

Fully Insured vs Level Funding: What's the Difference?

With fully insured plans, premiums are paid directly to the insurer.

Claims account
A claims account is exactly what it sounds like. A portion of the monthly payment is used to pay for claims submitted by plan members.

Stop-loss Insurance
Stop-loss is an employer's safety net. This protects the employer against higher-than-expected claims. With level-funding, employers will never have to pay more than the amount they are responsible for funding the claims account each year. After that, stop-loss insurance kicks in.

Administrative costs
Administrative services are provided to the employer so they can spend their time focusing on their business while a third-party administrator handles plan management such as paying claims, customer service, and other administrative tasks.

Opportunity for a refund
Say a group submits fewer claims than expected in a year. A portion (or all, depending on the plan selection) of the difference between the group's anticipated and actual claims is refunded back to the employer. Not only can employers potentially reduce their health care costs by switching to a level-funded plan, but the potential refund acts as additional savings on top of that.

What else is different?
The basis of level-funded plans is the accuracy of the rates that are unique to each group. Employers should not pay more for health coverage than is needed.

Self-funded plans are not subject to certain Affordable Care Act requirements, however, employer-established self-funded plans with Allstate Benefits meet minimum essential coverage standards and preventive services are paid at 100% when received from in-network providers, as recommended by the Affordable Care Act.

Who is a level-funded plan for?

Level funding might be a great option for the group if:

• They're a startup, small, or mid-sized business.
• A fully insured model is too expensive but they want to offer employees quality health benefits.
• They want more control over their health care costs.
• They want a predictable monthly payment for the plan.
• Transparency on where their monthly payments are going is important to them.

Are there different plan options?

A variety of plan options, such as PPO, network-only, and reference-based pricing, are available, and they can be customized to fit the needs of the business.

What else can be included in a plan to help save on health care costs?

Some carrier offerings may include access to additional health programs like telemedicine and wellness programs.

Telemedicine services are designed to encourage plan members to make informed health care decisions. Visits through a designated virtual health care service often cost less than a doctor's office or urgent care visit, which helps save money on health care costs.

Wellness programs can help plan members start and maintain healthy habits that help them get and stay healthy. Healthier employees may be more likely to have lower health care claims costs.

Health benefits are an important factor in attracting and retaining employees

Surveys show that 88% of employees said that the quality and options of health benefits were important to them.¹

Another survey showed:

• 56% of U.S. adults with employer-sponsored health benefits said that whether or not they like their health coverage is a key factor in deciding to stay at their current job.²
• 46% said health insurance was either the deciding factor or a positive influence in choosing their current job.²

Millennials, or Generation Y, already make up most of the U.S. workforce and will comprise 75% of the workforce by 2025.³ Most millennials report that they struggle to meet basic needs. In fact, 63% of millennials say they would struggle to cover an unexpected $500 expense.⁴ This means that today's workers may also value plans that help cover out-of-pocket expenses associated with illnesses or accidents

Making the switch

According to a survey conducted by WellNet⁵, 98% of respondents (brokers and consultants) believe a level-funding strategy will be the best long-term solution for their clients. However, only 58% surveyed say that at least half of their clients ask about a level-funded strategy and half of the respondents still have 60% or more of their written business coming from fully insured plans.

If level funding is such a great option, why aren't more employers switching to level funding? Many factors can contribute. Business owners:

1. Might not know that level funding is an option.
2. Are still clinging to their old plan, not wanting to try a new program.
3. Are reissuing with their current plan because rates didn't go up a significant amount, not realizing that they may already be overpaying.

A benefits adviser can help employers find a quality plan that has:

• The flexibility to customize the plan design to fit the needs of the group.
• Quality products and customer service to match.
• Proven success, experience, and reputation.

Level funding used to be an option only available to large employers. However, as the market grew, this option is now available to small- and mid-sized groups to help them gain control of their health care costs.

Learn more about our level-funded products.

Related Articles:

What is Reference-Based Pricing?

What is Stop-Loss Insurance?

5 Things to Consider When Choosing a Group Health Plan