Funding Strategies for Employee Benefits

Why are some employers reluctant to consider self-insuring employee benefits?

shutterstock_129636062Historically, small and midsized employers (50-250 employees) have been risk adverse when it came to self-insuring their group health insurance program. Fears stemmed from the belief that if a catastrophic claim was to occur – the group was not large enough to absorb this potential hit. However, Health Care Reform legislation passed in March 2010 has placed increased pressure on the health insurers and employers to be more collaborative and proactive to control health insurance costs – and self-insurance has become a very viable option.

How are insurers helping employers self-insure?

Some insurers have reacted to this pressure by developing unique self-insurance programs which are gaining in popularity for small and midsized employers.  Options include physician practices, surgery centers and the like.

What is Level Funding?

One unique option that is becoming increasingly popular for employers, which also comes with tax advantages, is a product called Level Funding. Level Funding is designed to allow employers to benefit from positive claims years while being protected from catastrophic claims.

Employers continu
e to offer plans similar to what they offer now – but what changes is how the program is funded. Depending on the size of the company – the employer will be required to answer a series of underwriting questions to assess the overall health of the group. The groups’ previous claims experience will also be considered. Once this information is submitted to the insurer – a set monthly premium amount will be determined.

What is the advantage of Level Funding versus a traditional fully insured program?

An employer that is in a self-funded program has the ability to truly affect their claims utilization more so than when fully insured. When a group is fully insured, the employer does have the comfort of being part of a larger pool of companies, but there is not much that the employer can do to financially benefit from their own wellness activities or health initiatives.

Now, due to Health Care Reform, the increased pressure placed on the insurers has created an environment where the insurance carriers are playing a larger role in helping companies to reduce their claims with disease management and wellness services. When combining these health programs with a self-funded plan, companies can benefit immediately from positive claims years.

How does it work?

Every month the employer will pay the same pre-set amount. Then, at the end of the year, the company can realize significant savings if actual claims experience was better than what was projected when the insurer trues up the year’s actual claims against those projected.

For employers who are accustomed to being fully insured, this product allows the employer to continue to pay a pre-set monthly premium. Unlike being fully insured, there is an opportunity for savings when claims run well. If, however, the claims experience is worse than what was projected – nothing additional is owed, which allows the company to budget the program in advance.

How does this keep deductibles and premiums down?

This type of self-insured program is helping clients to bend their trend line. For instance, some small companies who are self-funded are able to keep costs consistent year over year, without changing employee’s deductibles or costs for insurance coverage.

How does Level Funding help reduce taxes?

CFOs are now more effective in budgeting for health insurance premiums, and the employer is not subject to state health insurance premium taxes which are generally 2-3 percent of the premium’s dollar value. These tax savings can save small businesses thousands of dollars annually.

Is the Level Funding program flexible?

Full transparency in claims reporting is available throughout the year, which allows the company to constantly assess the program, including at the time of the policy renewal. At that time the employer can decide to remain in the program or go back to a fully insured program if they wish. This Level Funding product is an example of one of the new self-funded plan alternatives available in the market.