Self-Funded vs. Level-Funded Health Plans

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Insurance brokers play a critical role in helping people secure their health care coverage. Therefore, you must understand the different types of health insurance plans to present to your clientele. One of the key decisions that your clients will have to make is choosing between self-funded and level-funded health plans. Read on to learn the differences between these two options so you can stay informed and assist clients effectively.

What Are Self-Funded Health Plans?

Self-funded health plans cater to companies that want to take on the financial risk of healthcare coverage for their employees. The employer sets aside a certain amount of money every month to cover these costs, rather than purchasing a fully funded health plan from an insurance carrier. Self-funded plans give employers more control over their health insurance benefit programs. They can customize their plans to meet the requirements of their workforce, which can help them save costs.

What Are Level-Funded Health Plans?

Level-funded health plans are similar to self-funded plans. However, the employer pays a fixed monthly premium, which includes a third-party administrator (TPA) fee and stop-loss insurance coverage. This makes level-funded plans more predictable for the employer since they know exactly how much they will spend each month. Moreover, level-funded plans are fully insured, meaning that the insured carries less financial risk.

Pros and Cons of Each Plan

Self-funded plans offer greater flexibility, with the freedom to design tailor-made benefits that suit the needs of the employer. These plans also eliminate some state and local taxes. However, self-funded plans put greater financial risk on the employer, as there’s always the risk of dealing with massive claims. 

Conversely, level-funded plans offer a fixed monthly premium, which helps businesses keep costs down and gives them a better understanding of their expenses. However, they don’t offer the same level of flexibility as self-funded plans.

Which Plan Is Right for Your Client?

Once you’re familiar with the core differences between self-funded and level-funded health plans, you can apply what you know to your clients’ needs. When choosing between self-funded and level-funded health plans, you must consider several factors.
For one, self-funded health plans require a minimum number of employees—typically 50. Because of this, smaller businesses may not qualify. Additionally, self-funded plans require an organization to have a stable financial outlook, which isn’t suitable for businesses facing financial instability. 

On the other hand, level-funded plans may be a good option for small businesses because they don’t require minimum employee representation. Level-funded plans also eliminate the risk of paying for substantial claims through stop-loss insurance coverage.

Both self-funded and level-funded health plans have their pros and cons, and knowing all you can about them will allow you to help your clients make informed decisions. Warner Pacific recognizes the importance of working with brokers to secure health care coverage. We offer sales assistance, innovative technology, and back-office support to help you succeed and grow in a rapidly changing marketplace. We also offer specialized services, such as our level-funded health plans assistance, to ensure every step of the process goes off without a hitch.