Level-Funded Health Plans: Predictable Cost Alternative

As a Long Island business owner, you've probably watched your health insurance premiums climb year after year with little explanation beyond "rates went up." What if there was a way to gain more control over your healthcare costs while potentially saving money? Enter level-funded health plans – a hybrid approach that's helping many small and medium businesses break free from traditional insurance premium increases.

What Is a Level-Funded Health Plan?

Think of level-funded plans as a middle ground between traditional fully-insured plans and full self-insurance. With traditional insurance, you pay a fixed premium whether your employees use $10,000 or $100,000 in medical services. With full self-insurance, you pay every medical claim as it happens – which can be unpredictable and risky for smaller companies.

Level-funded plans combine the best of both worlds. You pay a predictable monthly amount (just like traditional insurance), but that money goes into your own account to pay your employees' actual medical claims. If your employees use less healthcare than expected, you get money back. If they use more, stop-loss insurance kicks in to protect you from catastrophic costs.

How Level-Funded Plans Work Step by Step

Here's how it works in practice: Let's say your company has 25 employees. Based on their demographics and health history, an insurance carrier estimates your group will generate a certain amount in medical claims for the year. They add administrative costs and stop-loss insurance premiums, then divide that total by 12 to create your monthly payment.

Each month, you pay this fixed amount. When your employees visit doctors, fill prescriptions, or go to the hospital, those claims are paid from your account. At the end of the year, if your actual claims were lower than projected, you receive a refund of the difference. If claims exceed a certain threshold, your stop-loss coverage protects you from paying more than expected.

The stop-loss insurance is crucial – it includes both specific coverage (protecting against any individual employee having extraordinarily high claims) and aggregate coverage (protecting against your entire group having higher-than-expected total claims).

Why Long Island Employers Are Choosing Level-Funded Plans

The primary appeal is cost control and transparency. Unlike traditional insurance where you never know how your premiums are calculated, level-funded plans show you exactly where your money goes. You see every claim, understand your costs, and have the opportunity to benefit when your employees stay healthy.

Many of our Long Island clients – from dental practices in Nassau County to accounting firms in Suffolk County – have saved 10-20% compared to their previous fully-insured plans. But the savings aren't guaranteed; they depend on your employees' actual healthcare usage.

Level-funded plans also offer more flexibility in plan design. You can often customize benefits, choose different provider networks, and implement wellness programs that directly impact your bottom line. When employees engage in wellness initiatives and manage their health proactively, everyone benefits.

From a recruiting standpoint, you can offer the same quality healthcare coverage as larger competitors while potentially managing costs more effectively. This helps level the playing field when competing for talent.

What This Means for Your Employees

From your employees' perspective, level-funded plans typically work just like traditional insurance. They receive the same ID cards, use the same provider networks, and follow the same procedures for getting care. The behind-the-scenes funding mechanism doesn't change their day-to-day healthcare experience.

However, because you have more insight into healthcare costs, you might be able to offer better benefits or additional wellness programs. Some employers share a portion of year-end refunds with employees, creating shared incentives for managing healthcare costs wisely.

Employees often appreciate the transparency that comes with level-funded plans. When employers can show exactly how healthcare dollars are being spent, it often leads to more informed healthcare decisions and better engagement with wellness programs.

Is Level-Funding Right for Your Business?

Level-funded plans work best for companies with relatively stable, healthy employee populations. If your workforce is young and generally healthy, you're more likely to see significant savings. Companies with older populations or employees with known chronic conditions might still benefit, but the savings potential may be lower.

Generally, groups of 10 or more employees are good candidates, though some carriers offer level-funded options for smaller groups. The key is having enough employees to spread risk while being small enough that traditional insurance pricing may not reflect your group's actual risk profile.

Consider your company's risk tolerance as well. While stop-loss insurance protects against catastrophic costs, there's still more variability than traditional insurance. You need to be comfortable with the possibility that some years might cost more than others, even though you're protected against extreme scenarios.

Making Level-Funded Plans Work for Long Island Businesses

Successfully implementing a level-funded plan requires careful analysis of your group's health profile, claims history, and risk tolerance. At Benton Oakfield, we help Long Island businesses evaluate whether alternative funding strategies like level-funded plans make sense for their specific situation.

We handle the complexity of comparing traditional insurance against level-funded options, analyzing your group's claims data, and projecting potential savings scenarios. More importantly, we provide ongoing support to help you understand your monthly reports, manage any issues that arise, and optimize your plan's performance over time.

The key to success with level-funded plans isn't just choosing the right funding mechanism – it's also implementing wellness programs, helping employees understand their benefits, and creating a culture where everyone has incentives to make smart healthcare decisions.

If you're tired of unpredictable insurance premium increases and want more control over your healthcare spending, contact us to discuss whether a level-funded plan could work for your Long Island business. We'll analyze your current situation and help you understand all your options.

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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