A recent study found that employers and employees agreed that benefits are the #1 driver of engagement in today’s workforce. Employees expect financial security from their employers, and companies can provide that through various insurance offerings.
Unfortunately, while employees expect a world-class benefits package, offering a competitive medical program is more expensive than
In a day and age when employers are spending over 31% of their employee compensation budget on benefits, it is important to think about new ways to be creative with your funding strategies. Selecting the right funding model—fully-insured, level-funded, or self-funded—will allow you to over competitive benefits, competitive salaries, and all of the other perks demanded by employees today.
Fully insured is the traditional way of funding a medical plan. In this situation, an employer pays premiums to the insurance carrier each month.
In return, the insurance carrier takes on all administrative responsibilities, claims handling, and risk associated with your company’s employees. They also retain all the profit. Typically, with a fully-insured plan, only about 60% of your premium dollars are actually going towards paying claims. The other 40% is spent on administrative costs, reserves, and taxes, and anything at the end of the year is kept as profit for the carrier.
The goal of switching from fully- funded insurance is to shift some of the risk and administrative burden onto you, the employer. Doing so will lower the cost and ultimately give you the opportunity to reap the rewards of the potential profit.
Traditionally, it was rare for employers with less than 500 employees to self- fund their health insurance. But, as the cost of care has continued to rise, more small to mid-sized employers are considering looking at self-funding as an alternative.
The mechanics of self-funded insurance are fairly simple. An employer pays a small fee to an insurance company to “lease” their network (gain access to their hospitals and points of care). Employees use that network to access care and receive an ID card with the insurance carrier’s name on it.
The difference comes with the administration of the plan. With self-funded plans, the employer is now responsible for paying claims every month in addition to the small network access fees. When employees file claims, the insurance company will bill the employer and pull from a pre-set bank account instead of using premium dollars paid to the provider monthly.
Since the majority of the administrative work is being shifted onto the employer, employers are incentivized to reduce administrative expenses in order to lower monthly cost. Typically, only 10% of premium dollars go toward administration in a successful self- funded plan.
The last component is stop loss insurance. This addition protects employers from the higher than expected, or abnormal, costs that come from shock claims like news of cancer or serious accidents.
Level funded plans have less risk than a self-funded plan, but o er some of the upside by sharing in the profits. They’re a nice middle ground between fully insured and self-funded plans.
A level funded plan has fixed monthly costs, but breaks down the premium into two funds: paying claims funding and paying administrative fees. As premium is paid throughout the year, the administrative portion of the premium is lost to the insurance carrier, who is continuing to administer the plan and pay claims.
The bene t of level-funding comes when the cost of that year’s claims is less than the total amount of premium dollars put aside for paying employee claims. Then, the employer receives a portion of the pro t back in the form of a premium credit. In the case of a shock claim, the insurance provider will cover the cost with less consequence to the employer than with a self-funded plan. It’s a low-risk way to share in the reward that comes from promoting wellness and reducing claims amongst your employees.
Level funded plans over companies a great way to dip their toes into self- funding. The claims reporting features enable employers to understand what kind of claims their employees file year to year and get a real pulse on the potential impact of switching to a self-funded plan.