The Quiet Revolution in Health Insurance, Part I

John Owens | 11-16-2017

This is the first of three-part blog series highlighting alternatives to the traditional fully-insured healthcare insurance model.

 

In the last two years, there has been a quiet revolution happening in health insurance affecting more and more employers now that the repeal and replacement of Obamacare has failed.

Small businesses with as few as 10 employees are moving away from traditional fully-insured giants like Blue Cross, UnitedHealthcare and Aetna, toward what is known as Level Funding. Level Funding is an insurance option that falls in between fully-insured and self-insured. A business will pay a set fee or “level” premium each month as determined by a third-party administrator, and carry stop-loss insurance, which will kick in if a covered employee’s claims exceeds a certain dollar amount. At the end of the first year, the third-party administrator will compare paid premiums and claims then refund any difference if the business paid more than was spent in claims.

 

Why is Level Funding now a viable option for
small businesses?

One word—Cost.

Level Funding plans fall under ERISA, the Employee Retirement Income Security Act of 1974, which is overseen by the U.S. Department of Labor. This means Level Funding plans enjoy preemption from state mandates and some of the Obamacare requirements. In this case, preemption means that the federal law invalidates or supersedes state laws that conflict with it.

This also means Level Funding can be more cost efficient than traditional alternatives. And if the employer’s company has stable claims, the company can create “claims surpluses” at the end of the year. In other words, those surpluses STAY with the company and NOT with the insurance company as underwriting profits. This can potentially save employers tens of thousands of dollars each year.

With Level Funding, there is a bundled maximum cost for each employee, just like a fully-insured premium from an insurance company. If the employer funds the maximum per employee costs, the employer’s total liability is funded. So, if the bundled cost is the same or even slightly higher than their fully insured premium, Level Funding is a better deal.

 Why?

With a Level Funded plan, employers have a chance to spend far less than the maximum monthly premium if their plan has good claims experience. However, with a fully insured premium, they will ALWAYS spend that premium, not a dime less, regardless of the groups claims experience.

 So, is Level Funding for everyone?

No.

Companies with older populations and adverse health history are best advised to stay fully insured, where they can at least enjoy some level of community rating. But small companies with young populations and fewer claims should at least consider a Level Funding option.

 

Why is this a Quiet Revolution?

This is a quiet revolution in healthcare because this strategy/innovation is a threat to the large traditional insurance companies and their brokers. If your broker isn’t having this conversation with you as an employer, it may be time to find a new broker or, at least take steps to make sure your broker is doing everything in his or her power to represent your company’s best interests.

The second reason is sustainability. If you keep getting rate increases, even at a modest annual 5 percent, eventually you lose your company’s ability to sustain your health insurance plan. Employers now have more tools to manage their own health care costs, rather than just relying on an increasingly aging fully-insured community rating population.

Think about it.

The fundamental difference between traditional health insurance strategies and alternative funding options has nothing to do with plan design. The real difference has everything to do with who controls the claims data needed to make long-term business decisions. Under most fully-insured arrangements, carriers don’t share this information with the business owner. With Level Funding, this data is yours which means you are empowered to make educated decisions that will impact your company for years to come.

 Are you blindly taking another rate increase or are you taking control?

 Up Next: Part 2 of the series, The Dirty Secret of Charge Masters. 

  

Need help in deciding what health care insurance is best for you and your employees? Contact John Owens, Vice President of Lewer Benefits Group for a personalized consultation. Reach him at  1+(800) 821-7715, ext. 109 or by email at jmowens@lewer.com.

Author: John Owens

John Owens is Vice President of Lewer Benefits Group. He is a renowned medical insurance consultant with more than 36 years of employee benefit experience. He assists small business clients in designing affordable and sustainable health and benefit programs.