Let me start by saying the Affordable Care Act (ACA) was set up as an option to help more people afford, and have access to, health insurance. Though it did increase the number of insured people in the early days of the ACA, small business owners found it increasingly difficult to find anything affordable about the plan. ACA rate increases have made coverage unaffordable for many small employers. Insurance companies responded to this by creating options for small business owners outside of the ACA that still are qualified health plans.
A “new” plan that arrived on the scene soon after the advent of the ACA is really not new at all. It’s been around for some time now. The new option available to small business owners is called “level funding” and can save small businesses significant money while still providing an excellent health plan for employees.
There are several benefits of a level-funded plan to both small business employers and their employees, including:
Cost Savings: Level-funded plans can be significantly less expensive than ACA plans because they are medically underwritten, just like they were before the ACA became law. Healthier groups may qualify for much more affordable premiums on level-funded plans and see money back at the end of the year if there is money left over from your payments. But you may be wondering, “What if my employees aren’t so healthy?” Level-funded plans have what’s called stop-loss coverage, which means in the event than an employee becomes seriously injured or ill, your stop-loss coverage prevents you from paying more in costs. Instead, the insurance company will pay for claims that exceed a certain level.
Regulation: Claims actually are paid from part of what the group pays in its total monthly bill. This self-funded premise is what allows level-funded plans to be part of ERISA rules and regulations and not ACA regulations. The result is similar or better benefits for sometimes significant savings. Let me be clear here: There is no additional risk to the group on level-funded plans beyond the stated monthly premiums for the group. How does that work, you might ask? It’s because you, the employer, have a set amount for your annual claims and if an employee does become severely ill requiring expensive care, the stop-loss coverage protects you.
Plan Design: Level-funded plans are an incredible option for small groups because many groups qualify for a refund of a portion of what they pay in monthly cost. On a level-funded plan, the total cost paid each month is composed of three components, one of which is a claims fund. If your group experiences a healthy year and there is still money left in the claims fund, you receive a refund of that unused claims money. Some companies, such as Allied National with whom I work, refund 100% of that unused claims fund, while others only refund a portion of it.
So, yes, a level-funded plan is a good alternative to an Affordable Care Act plan for small groups. I firmly believe that EVERY small employer should get a quote for a level-funded small group health insurance plan before making a final decision on their coverage for the year. Small business owners have everything to gain and nothing to lose by checking out this exceptional offering in small group health coverage called level funding.
Author: Timothy Shrout
Tim is a 25-year group benefits veteran and the sales and marketing associate director for Allied Direct, a division of Allied National.