Level Funding:
A Simple Guide

Level funding is a health insurance approach that blends features of traditional fully-insured plans with self-funded plans. Learn more about how it works and what it means for employers.

The Basics

  • Employers pay a fixed monthly amount, just like with a fully-insured plan.
  • This amount covers expected claims, administrative costs, and stop-loss insurance.
  • If claims are lower than expected, the employer may get money back at year’s end.
  • If claims are higher, stop-loss insurance kicks in to protect the employer.
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Financial Example

Let’s say ABC Company has 50 employees and chooses a level-funded plan.

Monthly Payment Breakdown

Expected Claims $40,000
Administrative Costs $5,000
Stop-Loss Insurance $5,000
Total Monthly Payment $50,000

Scenario 1: Lower Than Expected Claims

Actual Claims for the Year $420,000
Expected Claims for the Year $480,000 (12 x $40,000)
Potential Refund $60,000

Scenario 2: Higher than Expected Claims

Actual Claims for the Year $600,000
Expected Claims for the Year $480,000 (12 x $40,000)
Difference $120,000 covered by stop-loss insurance

Benefits for Employers

  • 1
    Predictable Budgeting: ABC Company knows they’ll pay $50,000 each month.
  • 2
    Potential Savings: In Scenario 1, ABC Company could receive a $60,000 refund.
  • 3
    Protection: In Scenario 2, stop-loss insurance covers the $120,000 excess.
  • 4
    Flexibility: ABC Company can customize their plan design more than with fully-insured plans.
  • 5
    Data Access: ABC Company can review detailed claims data to make informed decisions.

Considerations

  • Best suited for companies with generally healthy employees and stable claims history.
  • Employers take on more administrative responsibilities.
  • May not be ideal for very small companies (typically under 25 employees).

Level funding offers the potential for savings and greater control, with the safety net of predictable monthly payments and stop-loss protection. It’s a middle ground between fully-insured and self-funded plans, potentially offering the best of both worlds for many employers.

Please contact your NARFA Trust Representative for more information.