Level-Funded Health Plans

An employer health plan design that enjoys the benefits of predictable monthly fees of fully-insuring and the cost-containment of self-funding.

A level-funded health plan is effectively self-insurance that is prepackaged with low-attachment stop-loss insurance. However, level-funding avoids the monthly cash-flow uncertainty of self-insurance because it is funded through a monthly fee “level” paid to a third-party administrator. At the end of each year, if claims fall below the funded amount, the TPA refunds the difference. If claims go above the funded amount, the firm is protected by stop-loss insurance (which is built into level-funded plans). Therefore, level-funded firms reap the benefit of paying only the cost of actual claims incurred by employees and the benefit of funding through stable, anticipated monthly fees.

The monthly fees for level-funded health plans consist of three elements: the claims allowance, a TPA fee, and stop-loss insurance fee. As employees incur claims on a monthly basis, the TPA funds them out of the claims allowance, with stop-loss kicking in if claims exceed this amount. In this way, the employer is never responsible for funding any amount greater than the level fee.

Because it’s a form of self-insurance, level-funding also enables employers to avoid state health insurance taxes, as well as ERISA laws– resulting in immediate savings of up to three percent. And, like all self-funded plans, level-funded firms enjoy greater access to their health claims data and more flexibility in plan design compared to a one-size-fits-all fully-funded insurance plan.