INTRODUCTION TO LEVEL FUNDING, ALSO CALLED SELF FUNDING
For many employers, the Affordable Care Act has added many challenges that affect how they manage their businesses. While it’s been a blessing in many respects for those employees who might have had difficulty in the past acquiring coverage because of their health history, the result has been higher employee benefits costs stemming from higher usage of health care. The cost of health insurance has also been impacted by the additional taxes and fees associated with it, not to mention the administrative resources needed to keep up with its reporting demands.
So, the question becomes…How do we make the Affordable Care Act live up to its name? Over the next four “lessons”, we will explore an alternative health insurance option known as Self-Funding (also referred to as Level Funding). We will talk about what it means, how it works, why it’s a more affordable option and how to take the first step to explore whether it’s the right fit for your group.
- Where can we write business?
- Good Neighbor Insurance (GNI) Brokerage is health and life licensed in all 50 States.
- GNI primarily provides International medical insurance and international group insurance to our clients. We also provide international level-funding group insurance to our groups overseas and are well versed on level funding for groups here in the U.S. domestic market. We partner with our private exchange brokerage firm in Phoenix, Arizona to provide you a wide array of self-funded group health insurance here in the United States.
- Who best fits the Self-Funded medical health insurance
- Organizations with three or more full time (30 hours or more per week) employees
SELF-FUNDING HEALTH INSURANCE 101
What is Self-Funding?
To first understand self-funding, it’s important to first understand one of the features that makes it different from traditional health insurance plans:
With Traditional Health Insurance, You Write A Check Each Month and Then…
Traditional group health insurance companies take your premium payment that you make each month and deposit it into the same pool of funds along with all the other premiums paid by the employer groups they insure. Claims are paid for all of their members out of the same pool. Regardless of whether you have lots of claims or very few, once you send off your premium payment to your traditional fully insured carrier, all of that money belongs to them.
With self-funded plans, the check that you write each month is divided up into three parts. The first part is the actual premium, the second goes towards administrative costs, but most importantly, the third part goes into a claims reserve account that is set up strictly for your group. This means that if your group has less than expected claims expenses, you will have a surplus in that account and will be able to buy down future health insurance expenses. There is the potential for you to maintain ownership of a portion of the money you spend on your group’s health plan!
Sound good? Check out Part 2: “Will Self-funding work for my organization?”