Paul runs a growing call center business in Ft Worth, managing a team of 30 employees. As his business expanded, so did the need to offer a reliable health insurance plan. The problem? Every traditional plan Paul reviewed came with steep monthly premiums that made his budget wince. Yet, going completely without coverage wasn’t an option either because it was becoming harder and harder to find and retain employees.
With so many options in front of him, Paul felt like he was caught between providing quality healthcare and keeping his company’s costs in check. Then one of his friends mentioned level-funded health plans. They sounded promising, but he wanted to know if they’d really fit the bill for his business.
If you’re like Paul—exploring your options and looking for flexibility without breaking the bank—level-funded health plans might be what you need. Paul wanted to know how they work and why they could be a good fit for Texas small businesses like his.
What Is a Level-Funded Health Plan?
A level-funded health plan combines elements of traditional fully insured plans with the flexibility of self-funded health plans. Paul began to dig on these details as he liked the ability to save money using a self-funded plan, but he was not keen on the idea of paying the expensive claims of his employees if a major health event occurred.
At its core, these types of plans provide predictable monthly costs for the business while still offering the potential to save money at the end of the year. They also cap the financial risk of the business, which made Paul breathe much easier.
Here’s how it works:
Fixed monthly payments: Just like with a fully insured plan, your business pays a fixed amount each month to the insurance carrier. These payments are composed of three parts:-
- Expected claims: This is an estimate of what your employees’ healthcare costs will be over the year. This will provide loss coverage for claim costs that are incurred.
- Stop-loss insurance: This acts as a safety net, protecting your business from excessive claims experience. If actual claim costs exceed a certain threshold, the stop-loss insurance takes over for any remaining claims costs that come in through the plan year.
- Administrative Costs: These administration fees cover the cost of managing the plan, including things like paperwork, compliance, and providing access to provider networks.
These components work together to give your business predictable monthly premium rates, similar to a traditional health insurance plan. The difference? If your employees use less healthcare than expected, you could receive a potential refund of the unused claims funds at the end of the year.
Self-Funded Insurance With A Safety Net
Paul liked the idea of taking on some claims risk to lower his monthly payments, but he was still worried about the potential for higher than expected claims. A couple of his employees were older and he realized the potential of medical care being needed for them. What happens if one of his employees has a major health event, like cancer, surgery, or a long hospital stay? That’s where stop-loss coverage comes in.
With a level-funded plan, your business covers employee claims up to a certain claim limit. If actual claims costs exceed that limit—whether for an individual or for the group as a whole—the stop-loss carriers kick in. This protection caps the amount of health plan costs your business is responsible for, preventing large claims from crippling your budget.
For Paul, this safety net made level-funded plans a real option. He could enjoy lower costs throughout the year while knowing that stop-loss insurance would step in if healthcare expenses got out of hand.
Stop-Loss Insurance: Protecting Against Big Claims
Stop-loss insurance is one of the key features that makes level-funded plans appealing for small businesses. It’s a safeguard that gives you financial predictability and control over healthcare expenses. Here’s how it works:
Imagine one of Paul’s employees needs surgery, and the total cost is $40,000. Paul’s business is only responsible for the first $25,000—anything beyond that gets covered by stop-loss carrier. This means that Paul can manage his budget with confidence, knowing that catastrophic claims won’t throw his financial planning into chaos.
The specific stop-loss covers medical claims from individual employees that exceed a set amount. Meanwhile, aggregate stop-loss covers your total group maximum claims liability, ensuring you won’t have to pay beyond a maximum contribution limit across all employees.
Potential for Savings
For small business owners like Paul, there’s another big advantage to level-funded health plans: the potential for cost savings. Traditional plans require you to pay a set premium regardless of how much your employees actually use their health benefits. If healthcare costs are low, the insurance company keeps the extra money. But with level-funded plans, if you experience lower than expected claims, you can get some of that money back through a potential surplus refund.
At the end of the year, Paul could receive a cash refund on any unused claims funds after a period of time to let all claims payments be made and reconciled. For a business trying to stretch its budget while still offering valuable benefits, this possibility of getting money back through a surplus refund makes level-funded plans even more attractive.
Familiar Coverage for Employees
Another concern Paul had was how his employees would react to new types of health plans. He didn’t want them to feel like they were getting less coverage or a smaller variety options. The good news? Level-funded plans can look just like a traditional PPO to employees.
That means employees still get access to a wide network of doctors and hospitals, and their experience using the plan will feel the same as with more traditional health plans. They visit the doctor, pay their copays, and get the care they need without worrying about complicated changes.
For Paul, this was a win. He didn’t have to sacrifice employee satisfaction to get the financial flexibility he needed for the business.
Transparency and Control Over Costs
One of the frustrations Paul had with traditional insurance was the lack of transparency in what he was getting for his money. Premiums went up, but he never knew exactly why. Level-funded plans offer more transparency and control over healthcare expenses. Paul could see reports on how his employees were using their employee healthcare benefits and get a clearer picture of where the money was actually going.
This insight gave him more control over plan design to make even more predictable costs for his budget. With data in hand, Paul could adjust the plan to better fit his team’s needs, making decisions based on actual usage rather than guesswork.
Is a Level-Funded Plan Right for Your Business?
If you’re a small business owner like Paul, a level-funded health plan offers a flexible and cost-effective way to provide health insurance to your team. The combination of predictable monthly payments, stop-loss protection, and potential savings make it an appealing option for businesses that want to control costs without compromising on coverage.
Before deciding, it is important to work with an experienced health insurance specialist who can help you navigate the complexities of considering a few key factors. Their knowledge of wellness programs, advantages of level funded plans, and other attractive options that you can consider will help you find the right plan to maximize employee satisfaction while also keeping your health insurance costs in check. They will help based around several key factors that can include the following.
- How many employees do you have? Smaller teams can benefit from the flexibility and refunds offered by level-funded plans.
- What’s your risk tolerance? Level-funded plans require taking on some risk, but stop-loss insurance ensures that risk doesn’t overwhelm your finances.
- Are you interested in gaining more control over healthcare spending? Level-funded plans give you transparency and the ability to adjust based on usage.
Take the Next Step
Paul found a health plan that worked for him by working with an experienced small group health expert at Insurance For Texans. Their consultative approach allowed him to understand his options and what he was truly getting. You can do the same.
Click the button below to evaluate your health plan options with Insurance For Texans. Let’s find a solution that gives your business financial flexibility and keeps your employees covered.