The Stock Market of Healthcare
Level Funding Explained
For some crazy reason, I love the stock market! I love watching the price of one of my stock picks go up and down. I enjoy the anxiety and pain of when to buy the winners and when to sell the loser stocks. The idea of investing in bonds, and receiving a steady income, is just plain boring. Maybe I ‘m crazy, but for me, the thrill of the victory in the stock market outweighs the agony of defeat.
I don’t know if comparing your health insurance funding strategy to your investment strategy is a good comparison, but I’m going to do it anyway. Like the stock market, many employers feel that self-funding their medical plan is far too risky. They worry they won’t be able to handle the ups and downs of paying their own claims, and that the risk of losing far outweighs the benefits of winning. Employers worry they won’t have enough cash on hand to pay for a significant claim, and cannot weather the roller coaster of up and down claim months. Most of these employers are in fully insured plans, and are provided little to no claims data to actually understand their risk or have any idea of what their claim activity looks like on a month to month basis. How do you buy a stock without knowing its volatility?
Level funded plans can be a conservative approach to going self-funded. The carrier, or third party administrator(TPA), will bill you a consistent fee each month per member, similar to fully insured, and distribute the cash accordingly to cover administration, reinsurance and claims cost. The carrier holds your claim reserves, and covers the up and down claim months. At the end of the year, the carrier/TPA will compare what you paid in actual claims versus what was reserved, and refund the difference. You get the benefits of being self-funded, only paying the claims your employees and their dependents incurred, with a predictable monthly cost.
It’s like buying a stock with limited to no downside that can only return a profit. Sign me up!
More carriers are creating level funded programs, as the concept is becoming popular with employers that are tired of paying annual fully insured renewal increases. Don’t worry – this isn’t an IPO, but a proven strategy that could work for your company.
Interested in talking more strategy? The ‘A’ Team is here for you! Chat with us.
- Level Funding Can Keep Your Health Insurance Levelheaded
- Assurance Calculator: Total Cost of Employee Benefits
- Successful Self-Funded Healthcare Plan Webinar Replay
ABOUT THE AUTHOR