Until recently, self-funding has only been a realistic option for larger groups. Now, however, with the advent of “level funded” programs, small groups can obtain the advantages of traditional self-funding with the benefit of stable monthly costs.
Level funding is worth considering for employers with 25 or more employees if the insured population is generally healthy.
With level funding, the employer pays a fixed monthly cost to cover the amounts necessary for administration of the plan, stop loss coverage and claims funding. A third-party administrator pays the claims. Generally speaking, if at the end of the year, claim costs come in lower than expected, the administrator refunds the difference. If at the end of the year, claims come in higher than expected, the employer will reimburse the administrator for the difference.
Protection for the employer comes in the form of stop-loss insurance. Specific stop-loss limits the employer’s financial exposure when health claims for a particular covered individual exceed a specified dollar level, such as $25,000 or $50,000. Aggregate stop-loss insurance limits the employer’s financial liability when the total claims incurred by their group exceed a specified level, such as 120% or 125% of expected claims.
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