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Fully Insured, Level-Funding, and Partially Self-Funded Group Benefits: What’s the Difference

Posted by on group benefit plan design

Today small businesses with 5 to 100 employees have other options beyond traditional fully insured group benefits. Level-Funding and Partially Self-Funded are valid approaches that are increasingly being implemented with success. These plans can often lower your overall cost and improve employee satisfaction.

I encourage you to think about your business strategy, goals, and culture, as you evaluate the best plan design for your business. With a little elbow grease, you can connect your employee benefit program to your overall business strategy.  In my twenty-five years as an Employee Benefits Advisor and Broker, this is where you turn the corner on shifting benefits from an expense to a true asset for your company.

Fully Insured Small Business Employee Benefit Plans

Fully Insured is the traditional approach to providing group health plans, and is the go-to solution for most small businesses. The carrier charges a flat monthly premium per employee.  The premium cost includes a combination of risk factors specific to your employee population. And then Underwriting adds other risk specifications to define the final costs for individual and family coverage.

The Pro’s

  • Risk for your plan usage is 100% assumed by the insurance carrier.
  • Budgets are level for the year because your cost is the same every month.
  • If you have a high-risk population or are adding lots of new employees, Fully Insured may be the right choice because of the consistent premium payment.

The Con’s

  • You can overpay if your employees rarely use the plan, because you’re stuck with the monthly rate.
  • Details on your actual group plan spend are hard to decipher. Privacy legislation and carrier restrictions mask your data, so it’s difficult to understand the actual claims and cost of your group.
  • No cost reduction for next year’s plan if your employees use the plan less than expected.
  • Rate increase for next year’s plan if your employees exceed the projected usage.

Level-Funding Small Business Benefit Plans

Level-Funding plans are a hybrid self-funding solution that offer a good in-between step from traditional to partially self-funded group benefits. These programs provide financial predictability. They also give you the control and information you want to understand the actual spend of your group. An added bonus is an opportunity to take advantage of a favorable claims year.  Your risk is minimized with Individual and aggregate stop-loss insurance.

A Third Party Administrator (TPA) will administer your plan and you pay them a set fee.  You also pay a consistent monthly amount into a claims pool which your TPA uses to pay approved claims.

The Pro’s

  • Refund at plan year-end of there is money left in the claims pool.
  • You can design your group benefits plan to correlate with your company strategy.
  • You have more accurate information on the actual pay-out of your group.
  • Monthly payments do not fluctuate.
  • Stop-Loss is activated if claim usage exceeds your claim pool, minimizing your risk.

The Con’s

  • To determine your risk profile, you’ll need to collect health related information from you employees.  Sometimes this is a challenge.
  • You shift from pre-packaged options to design your own.  This requires more expertise and work on the part of your Broker.
  • Communication roll-out to employees on any plan or claims processing changes.

Partially Self-Funded Small Business Employee Benefit Plans

Partially Self-Funded plans look a lot like Level-Funded plans with one primary difference.  Claims are paid as they happen versus paying a set monthly fee into a claims pool. Individual and aggregate stop-loss insurance plans control and minimize risk.

The Pro’s

  • You can design your group benefit plan to correlate with your company strategy.
  • You have more accurate information on the actual cost of claims made of your group.
  • Stop-Loss is activated if claim usage exceeds your planned claim pool, minimizing your risk.
  • Real-time claim payment lets you use financial resources as needed basis, freeing capital up for other business needs.

The Con’s

  • Health related information may need to be collected from you employees to determine your group risk profile.  Sometimes this is a challenge.
  • You shift from pre-packaged options to design your own.  This requires more expertise and work on the part of your Broker.
  • Communication roll-out to employees on any plan or claims processing changes.
  • The claim payment budget will vary from month to month.

The Bottom Line

Bottom line, Level-Funding and Partially Self-Insured group benefit plans position you to have more control over one of the largest expenses in running your business. An Employee Benefit Plan built to meet the unique needs of your business positions you to reap the benefits of cost containment, wellness activities, and improve your ability to attract and retain talent.

Lowdermilk & Associates are recognized experts in helping Small Business Owners implement these innovative employee benefit strategies.  To learn more, please call 303-691-9888 today.

 Filed Under: Group Benefits, Level-Funded, Partial Self-Funded