I covered level funding in a post last year: https://www.millbrookbenefits.com/level-funding-could-save-you-money/, but the topic keeps coming up with clients as a potentially viable solution to help contain costs, so I thought I’d share a case study.
The client has a December 1 renewal. Here are some details:
- 52 eligible employees
- 36 on the current health plan
- Current premium is $36,610/month
- Renewal from fully insured carrier is $38,971 or +6.4%
Some employers think that a 6% rate increase is great, mostly because it’s not in the double digit range. I would argue, however, that if your claims are taken into account with your renewal, even a little bit, than sub-“trend” renewal should be telling you that things are probably running pretty well for the insurance company. Even though you can’t get much, if any, claims data, the single digit renewal speaks volumes.
We received several solid fully insured bids for this plan, but one caught the client’s eye: a level funded quote where the worst case scenario was $36,013..roughly a 2% DECREASE from the current rates.
Just to refresh your memory about how a level funded plan works, it’s a partially self insured plan that bills the client the MOST that they would have to pay over the course of the plan year based on the combination of administrative costs, stop loss insurance, and maximum claims exposure. If claims are better than expected, the employer can GET MONEY BACK. If claims are worse than the worst case scenario, the employer owes nothing more. The plan looks and feels like a fully insured plan, but it gives the employer the chance to win if claims are low, and they won’t owe more if things go poorly. I sometimes refer to this concept as a self-funded plan with training wheels.
In this case, the worst case scenario was 2% better than the current rates with the potential to do even better over the course of the plan year.
One potential drawback of the level funded plan is most of the stop loss carriers and bundled providers require medical questions from each employee that plans to enroll if actual claims data is not available. This is an extra step, it can create some grumbling from employees, but it can prevent an employer from jumping into the self-funded pool blind of any known health conditions. The employer never sees the medical underwriting forms, but the stop loss carrier will let them know if there are significant conditions that should be a concern.
In this case, the vendor did not require medical questions. They use a prescription database to get a feel for what medications are being used. This gave them some indication that the group is reasonably healthy.
There are several advantages to self-funded plans, but here are two big ones:
- The chance to reduce cost
- Transparency with respect to your own company’s claims data
If you’d like to talk about self-funding or creative ways to reduce health care costs, give us a call at 866-724-0008 or click the link below.
