Fully Funded Vs Level Funded - Health Plans for Small Businesses

Jim runs a busy print shop in Lubbock, where his team feels more like family than just employees. He knows that offering good health insurance is important to keeping his employees healthy and happy, but his budget is tight. Jim wants to find a plan that strikes a balance between quality benefits and manageable costs. As he explores his options, two choices are continually mentioned.

He had never really heard the terms level-funded and fully funded when looking at health plans. Jim is curious which plan could best support his goals without straining his finances. But it all sounded confusing. Let’s walk through the differences between these plans, helping Texas business owners like Jim decide which approach might be the right fit using five key criteria.

Cost Structure and Predictability

For Jim, sticking to a budget is vital. Each dollar counts when the margins keep being squeezed by inflation, and he needs to know his monthly expenses won’t fluctuate. Both level-funded and fully funded health plans offer predictable costs, but they work a little differently.

• Level-Funded Health Plan: With level-funded health insurance, Jim pays a fixed amount each month that covers three components: expected employee claims, stop-loss insurance, and administrative costs. This structure provides predictability, similar to a traditional plan. However, if Jim’s employees use fewer healthcare benefits than expected, there are potential refunds on unused funds at the end of the year, making it a potential cost-saving option.
• Fully Funded Plan: Fully funded plans also offer fixed monthly premiums. Jim’s business would pay a set premium to the insurance company, covering claims regardless of how much his employees use their benefits. While this offers predictability, fully funded plans don’t provide surplus refunds for unused services. This means Jim would pay the same amount even if his employees rarely use the coverage.

For Jim’s print shop: Both plans allow for consistent monthly budgeting for healthcare costs, but level-funded plans give Jim the chance to save money if claims are low, which could be helpful for his tight annual budget.

Risk and Financial Responsibility

Understanding the level of potential risk is essential for Jim. While he wants to keep monthly costs low, he also needs to know his business can handle unexpected medical expenses without overwhelming his finances. This means he had to understand the financial exposure of both types of plans could have on his monthly cash flow.

• Level-Funded Plan: In a level-funded health plan, Jim’s print shop would pay for medical claims directly, up to a certain limit through his third party administrator. However, stop-loss insurance kicks in if claims go above this threshold, capping the potential costs and protecting his budget. Level funding requires stop-loss coverage to keep expenses and claims risk under control. There is a financial risk in not being able to acquire coverage next year if eligible claims are significantly higher than expected which could catapult the monthly rate next year.
• Fully Funded Plan: With a fully insured plan, Jim doesn’t take on any of the financial risk for claims costs. The insurance company covers all claims, regardless of the amount. Jim simply pays his premium rate each month and doesn’t need to worry about fluctuations in costs or high medical claims affecting his business. This structure simply provides peace of mind.

For Jim’s print shop: If Jim wants predictable costs with no risk of unexpected expenses, a fully insured plan may be the safer choice. However, if he’s comfortable with a bit of risk for potential savings, the advantages of level-funded groups with stop-loss protection might be ideal.

Plan Flexibility and Customization

Jim’s team at the print shop has unique healthcare needs. For him, flexibility in coverage is important, so he can customize benefits that matter most to his employees without paying for unnecessary extra medical costs. 

• Level-Funded Plan: Level-funded plans often allow businesses like Jim’s to customize the coverage options offered. He could adjust the benefits to meet his team’s specific needs, such as focusing on preventive care or including wellness programs. This customization helps him control health care costs while offering an attractive option for coverage that truly benefits his employees.
• Fully Funded Plan: Fully funded plans, on the other hand, usually come as standardized packages from the insurance carrier. Jim would likely have fewer options to tailor coverage and would need to work within the limits of what the insurance provider offers. While this approach covers essential health services, it might not fit his team’s specific needs as closely as a level-funded plan could.

For Jim’s print shop: If customization is a priority, a level-funded plan gives Jim more control over the types of employee health benefits provided. If he’s satisfied with a more standard, one-size-fits-all approach, a fully insured health plan would keep things simpler.

Potential for Savings

Jim’s budget is tight, so the potential for cost savings on health insurance is more appealing than ever. He wants to know if either plan offers true cost-saving opportunities based on his employees’ actual healthcare expenses.

• Level-Funded Plan: One of the biggest advantages of a level-funded plan is the potential for surplus refunds. If his team’s healthcare claims are lower than expected, Jim could receive a refund on unused claim funds at the end of the year. This setup rewards businesses that maintain low healthcare claim expenses, allowing them to save on overall costs.
• Fully Funded Plan: With a fully funded plan, Jim would pay a fixed premium, regardless of how much his employees use their benefits. There’s no opportunity for a refund, meaning if claims are low, the excess stays with the insurance provider.

For Jim’s print shop: If Jim believes his team’s healthcare usage will be moderate, a level-funded plan could allow him to capitalize on low claims and reduce overall costs. But if he’s more focused on predictability, a fully funded plan would keep costs steady without the variable of end-of-year savings.

Administrative Complexity

As a small business owner, Jim wears a lot of hats, and time spent managing health plans for employees could take away from other parts of his business. The administrative burden of each plan is an important consideration given the time constraints on his day.

• Level-Funded Plan: With a level-funded plan, Jim’s business might need to be more involved in managing claims and coordinating with the stop-loss carrier. This option can require additional administrative services, and Jim would need to be comfortable taking on a more hands-on role in managing his team’s health plan.
• Fully Funded Plan: Fully funded plans are managed entirely by the insurance carrier, keeping things simple for Jim’s business. The insurer handles claims, billing, and all other administrative tasks, leaving Jim with a straightforward, hands-off experience. This approach can be appealing for small business owners who prefer a simpler, low-maintenance plan.

For Jim’s print shop: If Jim wants a more hands-off plan with minimal administrative involvement, a fully funded plan offers simplicity. But if he doesn’t mind the added responsibility and wants more control, a level-funded plan might be worth the extra effort.

Is a Level-Funded or Fully Funded Plan Right for Your Business?

After evaluating both options, Jim realizes that each plan type has its strengths. Level-funded plans, which operate similarly to self-funded plans, give him the potential for savings and the flexibility to customize coverage, but they come with some financial risk and more involvement in plan management. Fully funded plans, on the other hand, offer predictability and simplicity, with the insurance company handling all claims and administration.

Choosing between these plans comes down to Jim’s priorities: does he want the chance to save with a bit more involvement, or would he rather have the stability and simplicity of a fully funded plan?

The Value of Expert Guidance

Making the right choice doesn’t have to be complicated. Working with an experienced small business health insurance expert can make a world of difference, especially when navigating the nuances between these plans. An expert can guide business owners like Jim through the options, helping them understand what best fits their goals.

Insurance For Texans specializes in helping Texas businesses find health insurance solutions tailored to their unique needs. We work closely with business owners to create a customized plan that aligns with their budget and provides meaningful coverage for their teams. If you’re a Texas business owner weighing your options, let us help you find the best fit for your business.

Click the button below to get help from an expert at Insurance For Texans and discover which health plan option best fits your Texas business.