Human Resources News & Insights

A middle ground between insured and self-funded: Is it right for you?

Self insurance is no longer an extreme step for employers to take.  

In fact, HHS found almost 30% of firms with between 100 and 499 employees self-insure. And that number jumps to 80% among employers with 500 or more workers.

Still, plenty of firms aren’t ready to fully self-fund. If you fall into that category, a hybrid of a fully insured and self-funded plan may work.

Level-funding

Level-funding combines elements of a fully insured plan structure with the tax benefits of self-funding.

A major reason firms choose fully insured plans over self-funding is risk comfort. In exchange for predetermined and fixed premiums – per-employee per-month (PEPM) – from employers, insurers take on the risk of a fully insured structure, whereas self-funded plans assume the risk (i.e., claims) themselves.

Of course, virtually all self-funded plans have stop-loss insurance.

Level-funding offers some middle ground. Like fully insured options, a level-funding plan design charges an employer a fixed PEPM premium for coverage. After a certain time period (one or two years), usage is reviewed.

If health claims wind up being lower than expected, employers may qualify for a premium refund. If claims are higher than expected, premiums may go up at renewal. But, because these plans still require firms to purchase a stop-loss component, employers never have to pay more than the premium amount.

Tax benefits

One of the most attractive features of level funding is the plan’s status. Because a level-funding option is considered self-funded, they are typically exempt from state taxes as well as a good deal of the health reform law’s insurance taxes. (Note: These plans are subject to an annual transitional reinsurance fee.)

The Managed Healthcare Executive blog offers further insight into the level-funding concept.

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