» The Alternatives to the Fully Insured Marketplace: Level-Funded vs. Self-Funded

With rising healthcare costs in the fully insured market employers should be looking at alternatives to their health plans. Level-funding and Self-funding options allow more than just cost containment but control. However, there are a few key differences between the two that are extremely important but are often overseen.

For starters, a level-funded plan is viewed as a steppingstone to a self-funded plan. A level-funded plan is when an employer pays a set premium each month to the carrier or Third – Party Administrator. That money is than put into an account that covers claims, stop-loss premium, and administrative expenses, like the self-funded account. Also, there is potential for a refund in underused claim funds like distributions in self-funding; however, usually for level – funded plan it is only credit. In self-funding, you get 100% of your unused claim dollars back into your account.

Another key difference is in level-funding you have no control over plan designs, plan documents, cost-containment, TPA, Pharmacy Benefit Managers (PBMs) or the network. It feels like a fully insured plan when it comes to this aspect, you are stuck with what the carrier provides which eliminates the opportunity to save money through customization. Whereas in self-funding you retain complete control over all the above. With that comes flexibility, specifically in spending, for example some captives only require 15% of the budget to be a fixed cost while the other 85% can be used to the above elements and strategies. This allows you to figure out what works and does not work for your company.

That brings me to another huge point. A level-funded plan is a carrier-based plan. You pay a fixed premium to your TPA or PBM with no room to adjust. With self-funding, like I said, only 15% is a fixed cost allowing you flexibility to find a plan and cost containment methods that are right for your group. Remember, each employer has different demographics so what works for your neighbor most likely won’t work for you. The flexibility is key to saving and building that bank account on a pretax basis.

The one thing about self-funding is finding ways to contain your healthcare spend and reducing one of your largest overhead costs. However, the only way to do that is get visibility into your claims. Transparency is key! With a self-funded plan, employers get full transparency in all claims data, this is a huge competitive advantage. In a level funded plan there is little to no claim’s transparency. This makes it hard to control your costs and cover your claims since you have no visibility into where your premiums are going.

Overall, think of level-funding as somewhat of a hybrid between fully insured and self-funding. It looks and feels like a fully insured plan from the design to the lack of claims data; however, like self-funded you are feeding a bank account to finance your claims.

For further questions please set up some time.  – Eleanor Schroeder

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Posted by John Hansbrough in Employee Benefits, Health Insurance, Healthcare Innovation, Human Resources, Learning and Development, Self-Funding