Level-funded plans are among the most popular health insurance products. These plans are viable for business owners who want to offer their employees healthcare benefits and keep costs low. For insurance brokers, determining how these plans impact clients is essential to offering the best advice. We will explore the pros and cons of level-funded plans to help you determine if it’s a good option for your clients.
Pros of Level-Funded Plans
Lower Monthly Premiums
Level-funded plans are usually less expensive than fully insured plans because third-party administrators (TPAs) can provide low premiums and comprehensive healthcare benefits to employers and employees. The self-insurance nature of level-funded plans brings great cost savings, which can be budget-friendly for the employer in the long run.
Customizable Plan Design
Level-funded plans are highly customizable, giving you and your clients the option to tailor the plan to specific employee needs with more flexibility. This allows business owners to offer tailored healthcare plans to meet the unique needs of their employees. Compare that to fully insured plans with little maneuverability.
Transparency and Visibility
Level-funded plans offer transparency in healthcare costs that fully insured plans don’t provide. With detailed reports provided by TPAs, employers have access to real-time information about healthcare costs and their charges. This gives employers a better understanding of healthcare costs and how they can manage them.
Cons of Level-Funded Plans
Conversely, level-funded plans bring more risk to employers because they’re self-funded. Usually, the monthly fixed premiums are inexpensive, but employers must pay for their employees’ full healthcare costs for the year if healthcare claims exceed the funding in reserve. This can create unforeseen risks for the employer when a good number of employees experience many healthcare claims at once.
Required Cash Flow
Employers must have the cash flow to cover the claims paid out by TPAs throughout the year. With most level-funded plans, employers need to set aside funds in case of catastrophic claims, which also requires good cash flow. Level-funded plans are probably not viable for business owners who struggle in this area.
The Department of Insurance does not regulate most level-funded plans in most states in the US. The responsibility passes onto the TPAs to comply with the regulatory agencies. This puts smaller companies at a higher risk of finding a cheaper TPA partner that lacks qualifications.
Level-funded plans are excellent options for many business owners. However, insurance brokers should consider these pros and cons of choosing level-funded plans before helping clients make decisions. Warner Pacific provides a series of level-funded resources, such as market research, partnerships, and backend assistance. This way, brokers have everything they need to supply clients with the best service. Whether it’s a level-funded plan or another type of coverage, we can help you find the perfect match for your client!