by John Jaeger
CDH is an IMA member international accounting firm…
Employers have self-insured their health plans for many years, but historically self-insurance was a solution for large employers only. Unfortunately, small employers have found themselves battling large healthcare increases with little warning and minimal to no data in regards to where the increases may be coming from. In a world where benefits can be one of the highest expenditures for an employer, the renewal process can be challenging. Fortunately, there is an option that brings transparency to the renewal cycle.
Typically reserved for large employers, self-insured models such as level funded plans, are now an option for small employers. The elements of level-funded plans mimic traditional fully insured plans, so there are no surprises; however, they are filed as self-insured plans. While the words self –insured strike fear into the hearts of some employers, the plans are created specifically for groups who are not necessarily candidates for a true self-insured arrangement. The plans are created for employers who want a fully insured model, but crave transparency and flexibility.
How Does it Work?
Level funding is a type of self-insurance whereby an employer pays a “level” rate each month. Level-funded plans offer both individual and aggregate stop-loss insurance. Individual stop-loss insurance means that if a covered member exceeds a certain dollar amount in claims, the insurer covers the excess amount. Aggregate stop-loss becomes activated when overall claims exceed a certain dollar threshold. Both these mechanisms protect the employer. The other benefit is that after an annual review of claims, if you’ve paid more in premium than you’ve spent in claims, you are entitled to a refund.
The Best of Both Worlds
The rising popularity of level-funding plans is due to the fact that it offers the best of fully and self-insured plans. There’s the same cost predictability of fully insured plans without the risk exposure of self-insured plans. Advantages include:
- Exemption from ACA Health Insurance Tax (HIT)
- Exemption from some ACA and state mandated benefits requirements
- Low individual (catastrophic) stop-loss levels
- Level, fixed rates, for cash flow predictability
- No plan termination liability
- Shared savings at renewal if previous plan year ran well
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