Level-Funded Health Insurance Plans

Changes within the new post-COVID economy are raising the cost of doing business, including the cost of employee health insurance benefits. If you’re looking at ways for your small or medium-sized business to manage those price hikes, you’re not alone.

In this post, we’re looking at an increasingly popular alternative to the traditional way of funding corporate employee healthcare plans. A level-funded health insurance plan can reduce business owner costs and risks while ensuring employees can access the care they need.

Why Review Your Workforce Benefits Management Capacity?

The receding pandemic changed the way the world works by adding new digital tools and capabilities and reducing or eliminating now-obsolete business management practices. Emerging data, however, reveals that one element of doing business hasn’t changed: the high (and continually escalating) cost of maintaining a workforce health insurance benefit.

Recent surveys indicate that small businesses in particular are facing an ever-growing affordability crisis for their employee healthcare insurance costs. Worse, many companies have reduced profits to maintain standard benefit levels, while others have covered those costs at a loss. A newly published report by the National Federation of Independent Business (NFIB) revealed that only 39% of companies with less than ten workers offered healthcare insurance, while 89% of businesses with more than 30 employees still offered the benefit.

Either way, all business owners are facing new challenges related to the asset:

• Those that include the opportunity are changing how they address the higher costs it’s now commanding, and many are raising product prices to offset the difference. This practice may drive away their customer base.
• Not offering this benefit at all, however, can profoundly impact the organization’s capacity to attract and hire the talent they need. Potential employees will typically choose employers with the asset over those without.

To mitigate these challenges, a new way of thinking about the value of employee healthcare benefits is required.

What’s a Level-Funded Health Insurance Plan? 

In short, it’s a different way to structure employer contributions to and control over their workforce health insurance strategy. And employee health care planning is definitely a strategy; employers must balance the risks arising from injury claims with the costs of covering those claims. Premiums paid that far exceed the annual value of claims made are wasted, while insufficient insurance coverage can drain company coffers to cover those injury costs.

• In a traditional fully insured plan, the company pays monthly or annual premiums to the insurer, which then assumes the risk that claims costs will not exceed the accumulated value of those premiums. If they do, the insurer bears those losses.
• In a self-funded plan, the company is responsible for covering claim costs. The risk arises when the value of the claim payouts exceeds the value of the money saved for the purpose.

A level-funded insurance plan strikes a compromise between these two options. The enterprise does contract with an insurer/third party, which manages the administration of the benefit. The premium, however, is handled differently than it is in the traditional or self-funded strategies. In the level-funded plan, the premium is divided into three categories, each of which is designed to cover a specific element of the insurance capacity:

• A claims account is built up to pay out claims made against the policy.
• A stop-loss insurance account acts as an employer safety net. It kicks in when annual claims exceed the company’s portion of claims values. Businesses will never have to pay more than their share of the claims responsibility.
• Administrative costs go directly to the third-party contractor for the overall management of the company’s employee health insurance requirements.

There are several benefits to using a level-funded employee healthcare insurance strategy:

• The segregation of premium funds yields useful data. Information gleaned from each of those now separated resources can inform the C-Suite about the relative health of its workforce. That data can be used to drive employee wellness strategies that may reduce claims and improve employee morale.
• Refunds are also possible at the end of the year if the claims made don’t exceed the money set aside in the claims account.
• Not least, the third-party administrator takes on management of the corporate benefit, leaving your team open to focus on more critical company business.

Why Choose a New Employee Healthcare Plan?

There are many sound reasons for considering this insurance option for your organization:

• Your company is relatively small, and resources are still tight. By using a level-funded healthcare strategy, businesses with more than 30 but less than 200 employees can ensure quality healthcare for those workers while retaining valuable financial assets for other purposes.
• You want better control over your healthcare insurance benefits. The database that these plans engender can provide insights into many corporate- and worker-related concerns, allowing you to make better decisions about how to provide the best insurance at the best price for your specific organization.
• You want to control your healthcare spending. A fixed monthly or annual premium coupled with the stop-loss insurance feature reduces your risk of facing excessive payouts for unexpectedly large claims. The level-funded option lets you establish and meet your corporate workforce insurance goals.

The post-COVID economy offers many opportunities for your small business to become the thriving enterprise you dreamed it could be. As members of the Chesapeake Growth Network, the experts at Kelly Insurance & Investments, Inc. are fully versed in the ins and outs of level-funded employee healthcare plans. They will share their experience and expertise in the full range of employee benefits strategies available so you can select and establish the approach that makes the most sense for your enterprise. Further, as a leader, you’ll gain peace of mind, and your organization can save money by being more strategic in its workforce benefits management. Contact the Chesapeake Growth Network today to learn more about this increasingly utilized option for managing workforce healthcare insurance concerns.

Whether you’re a medium business mogul or the visionary of a small start-up, you will want to keep your eye on this blog. In our next installment, the estate planning professionals at Chesapeake Growth Network will be sharing their thoughts on choosing a fiduciary to properly manage your estate.