Health Plan Funding: Fully-Insured vs Level vs Self-Funded

Choosing how to fund your company's health insurance is one of the most important decisions you'll make as a business owner. The structure you select affects everything from your monthly costs to how much financial risk your business takes on. Yet many employers don't realize they have options beyond traditional fully-insured plans.

Understanding these alternatives could save your business money while providing better benefits for your employees. Let's break down the three main health plan funding structures and help you determine which might work best for your Long Island business.

What Are the Different Health Plan Structures?

Think of health plan funding like choosing how to pay for a car. You can lease it (fully-insured), finance it with predictable payments (level-funded), or pay cash and own it outright (self-funded). Each approach has different costs, risks, and benefits.

Fully-Insured Plans are the most common structure for small businesses. You pay a fixed premium to an insurance company each month, and they handle all the claims and financial risk. It's like having comprehensive car insurance – you pay the same amount whether you have no accidents or several.

Level-Funded Plans are a hybrid approach that combines elements of fully-insured and self-funded plans. You pay a fixed monthly amount like a fully-insured plan, but part of that money goes into an account to pay your employees' actual medical claims.

Self-Funded Plans put your business in the driver's seat. Instead of paying premiums to an insurance company, you set aside money to pay your employees' medical claims directly. You're essentially acting as your own insurance company.

How Each Structure Works

With fully-insured plans, the process is straightforward. Your employees visit doctors and hospitals, the insurance company pays the claims, and you pay the same premium every month regardless of how much healthcare your employees actually use.

Level-funded plans work differently. Your monthly payment has three parts: money for expected claims, administrative fees, and stop-loss insurance to protect against large claims. At the end of the year, if your employees used less healthcare than expected, you might get money back. If they used more, the stop-loss insurance covers the excess.

In self-funded plans, you pay employee claims as they occur, plus administrative fees and stop-loss insurance. Instead of predictable monthly premiums, your costs fluctuate based on your employees' actual healthcare usage.

Why Employers Choose Alternative Funding

The biggest advantage of moving away from fully-insured plans is cost savings. With fully-insured plans, you're paying for the insurance company's profit margin, reserves, and the cost of covering sicker groups. If your employees are relatively healthy, you're essentially subsidizing other companies' medical costs.

Level-funded and self-funded plans also offer more flexibility. You can customize plan designs, choose different vendors for various services, and implement wellness programs that directly benefit your bottom line. Many employers find they can offer richer benefits while spending the same or less money.

For Long Island businesses competing for talent, these savings can be reinvested into better benefits or higher wages, giving you an edge in recruiting and retention.

What This Means for Your Employees

From your employees' perspective, alternative funding can mean better benefits at lower cost. Because you're not paying insurance company markups, more of your healthcare dollar goes directly to employee care.

Many alternatively-funded plans offer enhanced services like telemedicine, nurse hotlines, and wellness programs. Employees often get the same provider networks they're used to, but with additional perks and potentially lower out-of-pocket costs.

However, employees in self-funded plans need to understand that their employer is ultimately responsible for paying claims, which some find concerning even though stop-loss insurance provides protection.

Key Considerations for Your Business

Your business size matters significantly. Companies with fewer than 25 employees typically stick with fully-insured plans because the risk is too high otherwise. Level-funded plans often work well for businesses with 25-100 employees, while self-funding becomes more attractive as you grow larger.

Consider your risk tolerance carefully. Fully-insured plans offer complete predictability – you'll never pay more than your premium. Self-funded plans offer the most potential savings but also the most variability. Level-funded plans split the difference, offering some upside potential with limited downside risk.

Your employees' health status and demographics also matter. A young, healthy workforce makes alternative funding more attractive, while an older group with chronic conditions might be better served by fully-insured coverage.

Cash flow is another consideration. Self-funded plans require you to pay claims as they occur, which can create uneven monthly expenses. Some months you might pay very little, others could be expensive if employees have major medical events.

How Benton Oakfield Helps Navigate These Choices

Choosing the right health plan structure requires careful analysis of your specific situation. At Benton Oakfield, we help Long Island businesses evaluate their options by analyzing their employee demographics, claims history, and financial goals. We don't just sell insurance – we design comprehensive strategies that align with your business objectives.

Our alternative funding expertise helps you understand not just what each option costs, but how it fits into your overall employee benefits strategy. We handle the complex vendor relationships and ongoing management so you can focus on running your business.

We also ensure your employees understand their benefits, regardless of which structure you choose. The best health plan in the world doesn't help if employees don't know how to use it effectively.

If you're curious whether alternative funding could work for your business, let's discuss your specific situation. We can run projections based on your actual data and help you make an informed decision.

Compliance Note: Benefit plan rules and tax implications vary based on company size and location. This guide is for educational purposes only. Please contact your Benton Oakfield representative to discuss how this applies to your specific situation.

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