This guest blog post was written by Dan Meylan, National Sales Director for Allied National, a health plan program manager and third party administrator offering small group health plans for groups of 2 or more through a network of agents and brokers in 18 states.
Note from AgencyBloc: We asked Dan to describe how an agency or advisor can best determine if a group client of theirs is going to be a good fit for self-funded or level-funded insurance coverage. This blog is his expert advice and answer to this question.
Is my business too small to be self-funded?
As health care costs continue to rise and the cost of group health plans becomes unaffordable, many small employers are faced with a daunting question: “Can we afford a group health plan?”. The cost of group health insurance or any health insurance for owners and employees of a small business is becoming very costly.
The next obvious question for the small business owner is: “Could we, should we consider self-funding?”.
The simple reality is, if you drop your current plan and are unable to purchase an individual plan, you are already “self-funding” your health risk. So, the better question might be, can we self-fund and still maintain some level of catastrophic coverage for the most expensive health care treatments that a small employer or employee could never afford to pay for directly.
The short answer is “Yes”. There are self-funded plans designed specifically for small employers that allow self-funding but cap the maximum risk to a manageable cost. These plans are called “level-funded” group health plans.
Level-funded plans are available for groups as small as 2 lives. These plans fall under ERISA (Employment Retirement Security Act of 1974) and must meet certain regulatory criteria. Under these plans the employer is the plan sponsor and a catastrophic policy (Stop Loss) is issued to the employer to protect the employer from catastrophic claims.
Funds are paid into the plan by the employer and employees to cover plan expenses including catastrophic insurance, administrative costs, and claims. The plans require 12 monthly installments and offer a potential refund to the employer and employees if all the claim funds are not used up.
In order to qualify for a level funded plan, the individuals who make up the group must submit medical information to a medical underwriter. The cost of the plan will reflect the medical conditions present in the group. A group without chronic or critical illnesses can expect their plan costs to be lower than a traditional, fully-insured group health plan.
For small groups with significant chronic or critical illnesses or high cost medication, level funding is usually not a viable solution. Those small groups will need to continue to purchase traditional, fully-insured plans.
Advantages of Small Group Level-Funded Plans
There are distinct advantages to a small group level-funded plan:
- Lower upfront costs.
- Detailed claims information so the group can actually see where their claim dollars are being spent.
- Level-funded plans can be issued with no network limitations. Employees can see any provider without ever having to worry about an “out of network” penalty.
- Financial incentives for the plan members to take an active role in “shopping” for health care services.
- A wide variety of plan designs that allow the employer to customize their plan to reduce costs.
If you are a small employer looking for a better solution for your group health plan, ask a local broker if your business qualifies. Small group level-funded plans are available through most life and health agencies.
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