BY: Mike Atwood, President’s Club
matwood@bankersinsurance.net | (276) 223-4303
Tired of your business paying for rising healthcare costs? Wonder what next year’s cost increase will be? No matter whether a small or large company, consider a level-funded insurance plan to reduce healthcare costs and gain insight into cost drivers. Best of all, receive a refund if claims are low due to a healthy group.
In the past, small and medium businesses were at the mercy of health insurance companies, never knowing what their costs would be the following year. This issue was compounded by the passing of the Affordable Care Act (ACA). This act restricted insurance companies from basing health insurance prices for businesses with fewer than fifty employees on their past claim history. In effect, it required insurance companies to charge the same amount for businesses with employees with lots of claims as those with employees with better health. The goal was to reduce rate fluctuations from year to year for small businesses, which it did. However, by removing a business’s claims history from the equation, it also removed their negotiation power with the insurance company. Now, employers with a poor claim history are rated in much the same way as one with a good claim history. A few businesses with poor claim history may have seen a slight decrease in insurance expenses, but most employers found ACA health plans to greatly increase health insurance costs.
Level-Funded Insurance
But health insurance adapted, and new options are on hand. Specifically, level-funded insurance plans are now available for small business. Level-funded health insurance plans combine many of the benefits of other plans while providing the employer with a known, recurring expense that is lower than traditional group insurance. Plus, employers are rewarded if claims are low.
Group Health Insurance Types
Group health insurance plans can be categorized as follows:
- Fully-Insured: Traditional insurance where the employer pays a health insurance company for coverage. The insurance company shoulders all risk to pay claims. No refund or dividend is paid to the employer if claims are low. Historically these plans were the only option for small and medium employers.
- Self-Funded: The employer shoulders all the risk for claims and pays for the cost of healthcare as it arises, hence the name “self-funded”. The employer usually contracts with a third part to administer such a plan and to gain access to health networks. If claims are low, the employer benefits through lower costs. Of claims are high, the employer pays. Stop-loss coverage is available to protect against catastrophic claims. These plans are best suited for large employers.
- Level-Funded Insurance: A blend of the previous two. The employer is responsible to pay for the cost of healthcare for the employees, but does so by paying a fixed cost each month (level-funding) to a health insurance company. If claims are low, the employer receives a refund or credit towards next year’s policy. If claims are high, the insurance company pays for it.
Level-funded insurance is a game changer for many smaller businesses. Historically, these plans were only available to large employers, but now businesses as small as two employees can qualify. These plans look and feel like a traditional fully-insured plan, but employers get to share in the profits of unused funds. However, protections are built in so that an employer does not get hit with an additional bill or cash call for more money if claims rise. In addition, a level-funded insurance plan allows the insurance company to share claims data for the group plan, providing small employers a better understanding of what drives their healthcare costs.
Most group health insurance companies now offer level-funding insurance options. Contact your Bankers Insurance agent to see if a level funded plan is right for your business. Not a client of ours? Let us earn your business! Each client is assigned a personal agent in our office, given their email address, and provided a phone number that rings right on their desk.
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