25 May Level Premium – A Plan For Your Small Business
The Affordable Care Act caused a dramatic shift in the health insurance landscape, particularly for small businesses. Underwriting a fully insured plan under 50 employees is no longer allowed. While this simplifies the process and offers many protections, the inflationary impact has been enormous, driving many employers to evaluate the feasibility of having no health plan at all, or to consider self-funding.
- Choosing the best health insurance plan possible is one of the most important decisions a business owner will ever make.
- Due diligence is essential to make sure your health plan provides protection for the employees while remaining affordable.
- When something appears too good to be true, it usually is. However, in a level premium self-funded plan, the “profit” is what is at stake. Profit, unlike with a fully insured plan, is returned to the employer, not sacrificed to an insurer.
What is a self-funded plan?
- Administration + reinsurance + claim cost + profits = total health plan costs, for both fully insured and self-funded plans. These components are totally transparent and priced independently in a self-funded plan, while only a premium amount with no transparency or explanation is offered in a fully insured plan.
- With self-funding, an employer can take control of the renewal process. Transparency assists in understanding the reasons for cost increases, and provides the opportunity to make relevant modifications for the upcoming year.
- Because any savings in the self-funded plan is returned to the employer, there is incentive to look for opportunities to manage costs, particularly in areas such as pharmacy management. Utilization of telemedicine and reference based pricing are other strategies that can be considered when self-funding.
What is required for a company to self-fund?
- North Carolina requires a company to have at least 26 full time employees.
- As small self-funded plans are fully underwritten, each employee must answer health questions.
- 75% of eligible employees must participate in the plan. Employees with other coverage are not included in this calculation.
- Plans can be declined for not meeting all criteria above, still leaving the group with the option of being fully insured.
What is a level-premium self-funded plan? Is it appropriate for my small business?
- A level premium plan is simply a self-funded plan that is generally designed for companies with between 26 and 100 employees. It is funded to meet the maximum monthly and annual costs of the plan.
- After considering a company’s census, health, location, and plan design, actuaries determine the plan’s maximum claims exposure. Any claim incurred by the plan in excess of this maximum is covered by reinsurance and is not charged to the plan.
- With a level-premium plan, employers fund the administrative costs, reinsurance, maximum claims exposure, and projected profits (corridor). This funding is broken out per employee (or dependent) per month and is the equivalent of a fully insured premium. After claims have been paid for the plan year, any amount remaining in the fund will be reimbursed to the employer. With a fully insured plan, the unspent funds are retained by the insurance company.
- Carolina Health Alliance/KBA – power of engaged thinking.
Should employees be concerned about sharing their private health information?
- No, employers do not have access to PHI. Health questions and underwriting are done by an independent third party and only aggregate information concerning the group’s health is shared with the employer.