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04 March 2023

The Benefits of Level-Funded Health Plan

The Kaiser Family Foundation’s (KFF) annual benefits survey found that premiums stayed relatively the same year-over-year in 2022. While this was a big win for this year, it is a warning for what’s to come. Many of these premiums were set before the economy saw the full effects of inflation, and KFF expects higher than typical increases in average premiums in 2023. This increase is mainly due to the dire situation facing our health systems, from inflation, staffing shortages and high demand – all of which appear to be far from a resolution.


With the introduction of the Hospital Price Transparency Rule in January 2021, the federal government has taken steps to make health care pricing more transparent for patients. However, nearly two years since this Rule took effect, almost two-thirds of hospitals are still not in compliance. This is concerning for employers who provide health insurance for their employees, as the cost of health care premiums is expected to continue rising in the coming years. As a result, it is important for employers to be proactive with their employees’ health plans and consider more cost-effective solutions such as Level-funded health plans.



In the health insurance market, level-funded plans have continued to pick up steam. Recent statistics from the Kaiser Family Foundation Employer Health Benefits Survey show that 42% of small firms reported having a level-funded plan in 2021, compared to just 7% two years prior. This increase in adoption is due to employers looking for cost-effective plan designs to help in the face of rising healthcare costs and economic uncertainty. Level-funded plans offer the potential savings of self-funded plans, with reduced risk, while offering similar predictability as fully insured plans, but at a potentially lower cost due to an opportunity for lower premiums upfront and a surplus refund if medical claims are lower than expected.


To understand the value of level-funded plans, it is important to first understand their core components. At their core, level-funded plans are generally self-funded plans that offer three distinct elements: stop-loss insurance to help mitigate risk, an opportunity for a surplus refund, and a third-party claims administration agreement. Most carriers also include monthly reports with data that employers can use to track health care usage and wellness programs that may increase member engagement and reduce costs. It is important to understand the pros and cons of level-funded plans compared to self-funded plans and fully insured plans in order to determine which type of plan is best suited for a particular business.


Similar to a self-funded plan, level-funding allows employers to assume the financial risk of providing health services to employees by directly paying for employee medical claims. However, level-funded plans differ by offering employers a fixed monthly fee that covers the maximum claims liability, administrative fees, and stop-loss insurance to protect against unexpectedly large claims and high utilization. Further, employers with level-funded plans have the opportunity to receive a surplus refund resulting from lower-than-expected claims. In contrast, a fully insured plan involves the insurance company assuming the financial risk for providing health services to the employer group and keeps the difference if the claims are lower than expected.


For small-medium business owners, level-funded health plans offer the consistency, flexibility, and transparency that many fully insured, small group plans can’t provide. They provide employers with a way to participate in the performance of their own plan, with the ability to track health care usage and use wellness programs to increase member engagement and reduce costs. Level-funded plans also mitigate the risk associated with self-funded models, as there is no risk of additional liability outside of what is being funded.


Overall, level-funded plans offer small-medium business owners the opportunity to contain costs in the face of rising healthcare costs and uncertain economic times. The potential savings of these plans, coupled with fewer risks, make them an attractive option for employers.




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