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How a Fully-Insured Group Plan Compares to a Level Funded Insurance Plan

Posted April 24 2019


Shot of a team of colleagues celebrating with a high five in a modern officeLet’s face it group insurance plan comes at a price, and there is a reason many smaller businesses with less than 50 employees elect not to offer a group plan since it is not required. However, not having a plan in place immediately makes your business less competitive when it comes to attracting the best talent to help you succeed. So, what if I told you that there are several options out there that can help you save money when it comes to offering your employees insurance benefits?

Fully-Insured vs. Self-Insured/Level Funded

Most groups with less than 100 employees are covered through Fully-Insured plans as it is the most traditional method of coverage. The premium paid to the insurance carrier is a fixed rate for the year based on the number of employees enrolled. The carrier is responsible for paying all claims while the covered member is responsible for paying copays, coinsurance and deductibles based on the plan benefits. Fully-Insured rates are based on the demographic make of the group (census), changes to that census, comparative rates within a geographic area and industry, and to a smaller degree the claims experience of the members. Any group with 2 or more employees will qualify for Fully-Insured plans (Groups with two employees cannot be a married couple).

Level Funded plan options are becoming increasingly common as more carriers are offering them, and more employers are seeing the advantages. Let’s be clear, not all groups qualify; acceptance is mainly based on the employees’ medical claims history, and carriers require a minimum participation higher than Fully-Insured. Level Funded plans are filed with the Department of Financial Services as “Self-Funded”. A true Self-Funded plan has an arrangement where the employer provides health care to the employees using the company’s own funds. Level Funded follows the same concept, but there is a stop loss in place for each employee on the plan to prevent any liability for the employer. A portion of the premium paid on a Level Funded plan is saved in a funding “pool” which is used to pay claims. After an employee uses a certain amount of the claims fund (amount varies depending on the carrier) stop loss kicks in and the carrier takes over the payment of claims for that employee for the remainder of the year removing that exposure from the employer’s remaining funding pool.

What Are the Advantages of Level Funded?

On average a business spends 7% to 9% of its budget on employee health care. If your group qualifies for Level Funded plans, it is possible that the rates may be better than Fully-Insured when comparing similar plan options. Yes, you can get money back at the end of the year! Carriers typically offer the group a specified percentage of the unused amount left from your funding pool at the end of the year. The reimbursement percentage varies depending on the carrier, and in some instances can be as much as 94%, which can be a significant amount. Carriers may also include additional features on a Level Funded plan not included on Fully-Insured options.

Are There Any Shortfalls on a Level Funded Plan?

Level Funded plans follow the federal mandate as it relates to continuation of coverage. Groups with 20 or more employees will be eligible for federal COBRA. Most Level Funded plans will not administer State Continuation (mini COBRA) for employers with less than 20 employees, this means these employees will not be eligible to continue coverage upon leaving employment.

Another area that may affect some employees is dependent coverage. In some states, such as Florida, Fully-Insured plans will allow dependent children to be covered up to age 30, while Level Funded plans will remove dependent children at age 26, which is the federal mandate. In addition, some benefits offered on Fully-Insured may not be offered on Level Funded.

What Option Is Best for Me?

MHG Insurance Brokers comprises of a team of experts who specialize in group insurance. We have unique relationships with carriers and are sometimes the first to know the plans they offer. We have a 5-star Google review rating, and an outstanding 96% client retention rate in the Life and Health Division (Employee Benefits). Our team of experts can complete a full analysis of your current plan’s offerings, and if needed, recommend a package that will enrich your benefits while keeping cost at a minimum. If you do not have a group plan in place, we have you covered! Our team can provide a proposal for your group which may be less than you anticipate. If you are interested in purchasing health insurance, feel free to contact us at 954-548-3599 or visit our website at mhginsurance.com.