Understanding the Basics: Fully Insured vs. Level Funded Health Plans

Choosing the right health insurance for your team is a big task for any business, big or small. But figuring out the differences between fully insured and level funded plans can feel especially tricky. These two choices offer different ways to handle healthcare costs and risks. Each has its own benefits and things to think about. In this guide, we’ll break down the basics of fully insured vs level funded health plans. We want to make sure you have all the information you need to pick the best option for your company’s needs and budget. Let’s dive in and learn more about these two types of health insurance plans.

Fully Insured Health Plans

Fully insured health plans are a common choice for many businesses when it comes to providing health insurance to their employees. Here’s a simple breakdown of what they are and how they work:

What is a Fully Insured Health Plan?

In a fully insured health plan, a company pays a fixed monthly fee to an insurance company. This fee is called a premium. The insurance company then takes on the responsibility for paying all the health claims of the company’s employees. This means if anyone gets sick or needs medical care, the insurance company pays for those costs, not the business.

Key Features:

• Fixed Costs: The business pays the same amount every month, making it easier to budget.
• Set Benefits: The plan comes with a specific set of benefits and coverage levels that the employees can use.
• State Laws: These plans follow state insurance laws, which can offer some protections and regulations.

Advantages:

• Predictable Spending: Since the premiums are fixed, companies can plan their budgets better.
• Less Risk: The insurance company handles unexpected medical bills, so there’s less financial risk for the company.
• Easy to Follow Rules: The insurance company takes care of following state and federal insurance laws, making it easier for the company.
• Wide Network: Employees usually have access to a large network of healthcare providers.

Drawbacks:

• Higher Costs: Sometimes, these plans can be more expensive due to the insurance company’s administrative fees and need to make a profit.
• Less Control: Companies have limited ability to customize the plan to fit specific needs.
• Price Changes: Premiums can go up, especially if the overall health claims are high, making future costs unpredictable.
• Claims Outsourcing: Companies don’t handle claims directly, so they have less insight into and control over the claims process.

Best For:

Fully insured plans are often a good fit for smaller businesses that prefer predictable costs and want to avoid the hassle and risk of dealing with health claims themselves. They’re also suitable for companies that value ease of compliance with insurance regulations and providing access to extensive provider networks for their employees.

Level Funded Health Plans

Level funded health plans are a bit like a mix between traditional fully insured plans and self-insured plans. They offer a middle ground that can be really appealing for some businesses. Let’s break down what these plans are all about.

What is a Level Funded Health Plan?

In level funded plans, companies pay a set amount each month into a fund. This amount is based on the expected healthcare costs of their employees. Part of this payment goes towards stop-loss insurance, which is a safety net to protect against really high claims. If the health claims are lower than expected, the company might get money back at the end of the year. But if they’re higher, the stop-loss insurance helps cover the extra costs.

Key Features:

• Predictable Monthly Payments: Companies pay a fixed amount each month, which helps with budgeting.
• Chance to Save Money: If claims are lower than expected, companies can see cost savings.
• More Control: Companies have more say in the details of the plan and can tailor it to their needs.

Advantages:

• Potential for Lower Costs: These plans can be cheaper than fully insured plans because of lower administrative fees and the chance to get money back.
• Flexibility: Companies can customize their plans more than with fully insured options.
• Control Over Benefits: Businesses have a direct hand in managing the plan, which can lead to more tailored employee benefits.

Drawbacks:

• Financial Risk: If claims are higher than expected, companies might end up paying more.
• Administrative Work: Companies have to handle more of the paperwork and management of the plan.
• Provider Network: The choice of doctors and hospitals might be more limited compared to fully insured plans.

Best For:

Level funded plans are often a good choice for larger companies that have stable numbers of employees and are willing to take on a bit more risk to potentially save money. They’re also great for businesses that want more control over their health insurance plans and are okay with a bit more complexity in managing those plans.

Factors to Consider

When you’re thinking about whether to go for a fully insured or level funded health plan for your business, there are a few important things to keep in mind. Here’s a simple guide to help you weigh your options:

1. Size of Your Company and Employee Needs: If you have a small business, a fully insured plan might be easier and less risky. But if your company is bigger and you’re looking for ways to save on costs, a level funded plan could be better.
2. How Much Risk You Can Handle: Fully insured plans protect you from unexpected high medical costs because the insurance company takes on the risk. With level funded plans, you might save money, but there’s a chance you could pay more if your employees have a lot of health claims.
3. Your Ability to Manage the Plan: Level funded plans need more work from you in terms of managing the plan and dealing with claims. Make sure you have the time and resources to handle this.
4. Your Budget: Think about your budget. Fully insured plans offer predictable costs, but level funded plans might offer savings if your employees stay healthy.
5. Customization and Flexibility: If you want more control over your health plan and the benefits you offer, level funded plans give you more room to customize.

Choosing the right health plan depends on what’s best for your business and your employees. It’s all about finding the right balance between cost, risk, and the effort you can put into managing the plan.

Compliance and Regulatory Considerations

When picking a health plan for your business, it’s really important to remember the rules and laws that come with it. Both fully insured and level funded health plans have to follow certain government rules. This includes laws from the Affordable Care Act (ACA) and the Employee Retirement Income Security Act (ERISA). These laws cover things like what benefits must be included and making sure everyone is treated fairly. Level funded plans, because they’re a bit like self-insured plans, might need a little more work to make sure everything is done right. Always make sure your health plan follows these rules, so you don’t run into any trouble.

Seeking Professional Guidance

Choosing the right health plan for your company can be complicated. There are a lot of details to think about, from costs to rules. That’s why it’s a really good idea to talk to someone who knows a lot about this stuff. Insurance brokers, consultants, or legal experts can help a lot. They can look at your company’s specific situation and suggest the best plan for you. They know all about the rules and can help you understand them. Getting help from a professional can make sure you pick the right plan for your business and your team, without running into any problems.

Conclusion

Choosing between fully insured and level funded health plans is a big decision for your business. It affects how much you spend, the risks you take, and how happy your employees are with their health coverage. By understanding the key differences, pros, and cons of each option, you can make a smarter choice that fits your company’s needs and goals. Remember, it’s always a good idea to ask for advice from experts who understand the ins and outs of health insurance. With the right plan, you can provide great benefits to your team while keeping your business healthy and strong.