Level-Funding Basics
Many small to mid-sized employer groups are looking to save money on their Arizona group health insurance premiums. One way to possibly save premium is by enrolling in a level-funded/self-funded group health plan.
Employers that choose a level-funded plan have equal monthly premium payments that go toward stop-loss insurance, aggregate, administrative fees, third party administration, and a claim prefund account. Regardless of claim activity the monthly premium remains the same during the contract period (year.)
The employer funds an account in which employee and dependent claims are paid. When a large, unexpected claim occurs the stop-loss insurance kicks in at a pre-determined dollar amount. As an example, any claims over $25,000 or $50,000 would be covered by the stop-loss carrier.
Regarding the account the employer has pre-funded, if claims are lower than expected the employer receives a refund, and if higher than expected the stop-loss insurance pays those claims.
Administrative fees cover the cost of plan documents, PPO network contracting, broker fee, wellness programs, filing stop-loss claims, etc.
There are two types of stop-loss insurance. 1.) Aggregate stop-loss protects the employer from an unusually large number of claims, say claims associated with a bad flu year or a pandemic. 2.) Specific stop-loss insurance protects the employer from high claims of a specific employee. Stop-loss coverage may have an advance funding mechanism, where the stop-loss insurer deposits money into the employer’s pre-fund account to pay the unexpected large claims up to the employer’s limit, later recovering the advance in the following months.
Self-funded employer health insurance plans are not for everyone, but worth a look when shopping. Such plans may be best suited for young and healthy groups in particular.