Can small to mid-sized businesses self-fund health insurance?

The answer is YES – via the stepping stone model called Level Funding

A trend in group health insurance solutions called Level Funding is growing in popularity. It
enables small to mid-sized companies to get the savings and levels of protection previously only available to very large organizations (>1,000 employees).

In traditional group health insurance programs, for a set fee (the premium), the insurance carrier administrates and pays all of the claims incurred under the policy. The cost to the employer is fixed and stays the same throughout the contract period, no matter the dollar size of claims processed. If the actual claims total for the year is less than the carrier estimated, the company keeps that difference as their profit. But if the actual cost of claims is higher than estimated, the insurer will add that difference to the premium for the next year and the employer’s expense is pushed forward.

Larger companies have often chosen to Self-Insure or Self-Fund their programs, which means they finance the payment of claims themselves while contracting with the insurance carriers to handle all the administration.

In Level Funded plans, designed for small to mid-sized businesses, the employer negotiates a program where the insurance company provides the healthcare network and handles the administrative tasks and claims payment as before. However, if total claims for the year are lower than predicted, the difference between what was projected, and the actual amount paid out is split or given in full to the employer. This rebate can be in the form of a cash refund, a credit, or an expansion of benefits for the employees, depending on the carrier. The Level Funded plan looks, acts, and gives the employer the same protection as a fully insured program but allows the opportunity for a rebate if the claims are lower than expected.

To summarize, the benefits of a Level Funded model are:

• The employer maintains the same safety and level of protection coverage as being fully insured
without the worry that the claim will go above what they can afford.
• Transparency is increased – Employer gains access to more detailed claims experience data
• Cost savings – the total expense to the employer is reduced by the dollar difference between the
claims processed and the premium. This could be up to 20%!
• Ease of use – everything remains the same from the point of view of the employee.
• Flexibility – plans are customized to meet each company’s situation and can be canceled after
the first year if they don’t meet expectations.

With Level-Funded plans, the employer gets a lot of positives without additional risk and employees are well protected.