Self Funding / Level Funding / Reinsurance
What Is Self-funding?
In a self-funded health plan, the employer assumes the risk and responsibility of medical claims instead of contracting with an insurance carrier to assume the risk and pay claims. The employer sets premium rates based on claims history and typically benefits from lower administration costs and greater flexibility in plan design, with the potential of improvements in cash flow within the business.
Self-funded plans are not right for every company. Employers must pay out claims as they come in, leaving exposure to fluctuating expenses. Setting your stop loss or reinsurance levels to considerably reduce fluctuation is one solution.
Employers choose self-insurance as an option for many reasons, some of the most common reasons include:
- The employer can customize their plan to meet the specific health care needs of its workforce, as opposed to purchasing a 'one-size-fits-all' insurance policy.
- The employer can maintain control over their cash flow, enabling maximization of interest income - income that would be otherwise generated by an insurance carrier through the investment of premium dollars.
- The employer is not subject to conflicting state health insurance regulations/benefit mandates, as self-insured health plans are regulated under federal law (ERISA).
- The employer is not subject to state health insurance premium taxes, which are generally 2-3 percent of the premium's dollar value.
- The employer is free to contract with the providers or provider network best suited to meet the health care needs of its employees.
Level funding is an additional option that can add predictability and steady cash flow back into the equation if your company decides to implement a self-funded plan.
What Is Level Funding?
Level funded health plans are a funding option for self-funded plans that aids employers in their health coverage budgeting and funding efforts. With level funding, employers pay a set amount each month to a carrier. This amount typically includes the cost of administration, stop loss coverage, administrative fees and the maximum claims based on underwriting projections.