What is Level Funded
Health Insurance?
What is Level Funding?
Level Funded Health Insurance is a strategy utilized by some companies to control their insurance costs. Different from traditional insurance (also known as fully insured) where all of the risk is being incurred by the carrier, the risk is shared between both the carrier and the client (known as the plan sponsor). It incorporates two features:
- Stop-Loss Insurance: During the underwriting process, the carrier establishes the dollar amount they expect the group to incur in claims during the plan year. A portion of the premium paid goes towards a second insurance policy, which would cover any claims that exceed this expected threshold.
- Surplus Rebate: Conversely, if claims fall below the expected amount, most policies allow for a portion of this surplus to be paid back to the plan sponsor at the end of the plan year.
- Stop-Loss Insurance: During the underwriting process, the carrier establishes the dollar amount they expect the group to incur in claims during the plan year. A portion of the premium paid goes towards a second insurance policy, which would cover any claims that exceed this expected threshold.
- Surplus Rebate: Conversely, if claims fall below the expected amount, most policies allow for a portion of this surplus to be paid back to the plan sponsor at the end of the plan year.
Who Would Benefit from Level Funded Insurance?
Larger employee populations and healthy groups benefit the most from Level Funded Insurance. The larger the group, the more premium is available to offset any potential large claims. And if the population is healthy, there will be less claims incurred and the potential for a rebate at the end of the plan year is higher.
Are There Any Risks Associated with Level Funding?
If the group is too small or if the population has a large number of participants with chronic conditions, there is a higher risk that claims will exceed the threshold. While the client will not incur more out of pocket payments than the expected claim amount (as the stop-loss insurance will kick in at that point), the renewal for the following plan year will be impacted. Depending on the size of the group or the severity of the claims, this increase could be significant and the group could be priced out of the level funded model.