As rising health insurance premiums continue to squeeze business owners, it’s understandable to want to look for alternatives. Level-funded or balanced-funded health plans could be just what you need, as these plans can lower your costs by up to 30 percent compared to a small-business ACA plan.
Here’s a look at these plans and how your business can take advantage of them.
The Basics of Level-Funded/Balanced-Funded Health Plans
A level-funded health plan is a type of self-insurance. This means that your business pays for employee health care expenses itself, rather than passing the costs on to an insurance company. When you pay premiums for a self-funded plan, part of the money is set aside in a pool that will be used for future employee health care expenses.
Level-funded (or balanced-funded) plans are so called because the monthly premium stays the same — that is, level — throughout the entire year. With other self-insured plans, the monthly premium can change depending on how much employees spend on health care.
The consistency offered by level-funded plans makes budgeting easier. To achieve it, these plans include stop-loss coverage, which sets an annual limit on how much you can owe for employee expenses. If expenses exceed this point, the stop-loss insurance will cover any remaining costs for the rest of the year. This means that your quoted monthly premium won’t change.
After your small business has used a balanced-funded or level-funded plan for a year, the insurance company will review your employees’ health care expenses. If costs were lower than expected, you could receive a refund for some of the payments, and your premium could be lower the following year.
On the other hand, if costs were higher than expected, the insurance company may increase your premium. If this happens, you can compare the new cost with that of a small-business ACA plan to determine whether or not it makes sense to change.
In this way, you can benefit from lower level-funded premiums when your expenses are lower, while having the option to switch out when costs become too high.
When Level-Funded/Balanced-Funded Plans Might Not Be Suitable
Insurance companies set a minimum number of employees you must have before you can use a level-funded plan. You typically need at least 10 employees, though the minimum could be higher depending on the insurance company and your state.
At the same time, regulations in some states may prevent small businesses from using level-funded health plans. If the kick-in threshold for stop-loss coverage is set too high by your state’s legislation, you’ll find that you have to pay too much yourself, making this strategy unaffordable.
Finally, if your workforce has a high level of health care needs, this strategy might not be useful. The initial premiums could be underwritten too high, meaning a small business ACA plan would be cheaper. Since level-funded plans use health underwriting to set premiums, they make more sense for healthier workforces.
Maximizing Your Benefit
If you decide to use this approach, it’s especially important to work with your employees to try to keep everyone as healthy as possible. This sets your business up to receive the highest possible discount by year-end and to pay less in the future. Consider the following strategies for keeping your employees healthy and maximizing the benefit of your level-funded/balanced-funded plan.
- Remind employees to keep up with regular checkups and preventive care so they can catch health problems early, before they develop into more serious conditions.
- Teach employees how to use their benefits cost-effectively. They should only see in-network providers, for example, and should opt for generic versions of prescriptions whenever possible.
- Ask your health insurance company what resources they offer to keep employees healthy and control costs. For example, do they offer a telemedicine option?
- Look into workplace wellness programs like discounted gym memberships or smoking-cessation programs to accompany your benefits offerings. These small investments not only keep your employees healthier but are extras that drive employee satisfaction.
Before automatically signing up for regular small business insurance, be sure to compare your costs with those of a level-funded or balanced-funded health plan. Though this strategy involves a little more work to set up, the effort could pay off in significantly lower premiums.
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This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.