In Search of Stability, Security and Savings

A recent surge in smaller organizations opting to self-fund never fully materialized, despite the desire for greater health care program control and increased program savings. ACA compliance, state limitations and general risk avoidance by organizations curbed much of the enthusiasm. However, level funding’s growing prominence is giving a foothold to organizations still considering a departure from their traditional fully-insured program.

Level funding provides companies with the stability and security of a fully insured plan, while only paying for the health care costs actually incurred by employees. The result can be favorable: up to 30 percent annual refund on health benefit costs. A Third Party Administrator (TPA) manages the program, including administration, claims payment and securing stop-loss insurance. The employer then pays the TPA a set monthly premium that covers administrative, program and projected claims.

At the end of the year, if claims are less than the funded amount, a rebate or credit is issued. If claims go over the funded amount, companies are protected by stop-loss.

Why the Shift?

Growing frustration of year-over-year rate increases with zero information on claim costs and program health spurred many organizations to regain control of their programs. Advancements in self-funding, including the rise in cooperatives and Multiple Employer Welfare Arrangements (MEWAs), helped smaller organizations enter a self-funding world — once reserved solely for larger companies that could withstand claim volatility associated with major illnesses such as cancer or a heart attack. Level funding also gained notoriety, as it delivers all the same advantages of self-insurance, including cost-saving benefits such as:

• Helping employers tailor plans to the specific health needs of a workforce population • Generating immediate savings through the elimination of state taxes (on most self-insured plans)
• Eliminating carrier profit margins and risk charges
• Exemption from many of the ACA’s health insurance taxes
• Integration with Flexible Savings Accounts (FSA), Health Savings Accounts (HSA) and Health Reimbursement Accounts (HRA)

Additionally, level funded plans are not subject to state-mandated benefits, the jurisdiction of the states and, for the most part, litigation in state courts or the appeal and complaint procedures of the insurance departments of each of the states.

It should be noted that level funded plans are not available to all organizations. Among the notable reasons: state stop-loss regulations may prohibit employer’s from purchasing stop-loss, effectively eliminating the largest risk management component of the program.

Important Steps

There are differences between level funded programs. When considering a level funded program, obtaining answers to these questions will help differentiate TPAs:

1. Cost Savings

• Will the TPA return 100% of your unused claims funds?
• What prescription drug discounts are available?
• Is prescription drug mail service available?

2. Benefits

• Does the TPA offer a high-quality PPO network?
• Can the plans be customized to closely match your current offering?

3. Administration

• Does the TPA have experience managing eligibility and providing exceptional customer service?
• Does the TPA offer online quoting, quote to bill, and consolidated billing and eligibility?
• Does the TPA offer results-driven Utilization Review, Case Management and Disease Management programs?
• Does the TPA have in-house Claims Administration?
• Will there be a dedicated Account Manager?

4. Contract

• Is there a large network of stop-loss carriers accessible for improved pricing?
• What wellness initiatives and incentives are available to help employees participate and actively manage their health?

While self-funding may not be right for smaller organizations, the potential cost savings, plan flexibility and budgeting benefits of level funding make it an appealing option for smaller organizations. If you would like to find out if level funding insurance is right for you, contact us.