Understanding a Level Funded Plan

Article Submitted by the Team at SourceOne Insurance
Karla Linvill, Marci Schlotterback and Joy DenHouter, JD

A level funded plan is a self-funded plan that has fixed monthly payments throughout the plan year. They became popular for small groups after the Affordable Care Act (ACA) was passed. Insurance companies created these products to allow employers flexibility in their plan designs and eliminated the need to meet certain strict ACA requirements that were being imposed on fully insured plans. Because these plans do not have to comply with all the ACA mandates, the benefits are many times not as robust and you may find that the plan contains certain exclusions that can be important to your employees.

Level funded plans are fully underwritten and can provide significant savings when you have a group with healthy employees. If there are serious medical conditions within your group, however, this is a plan that may not provide the premium savings that you are looking for and your group may be declined. 

When considering a level funded option, SourceOne Insurance encourages you to review the exclusions outlined in the plan. Many times, high-cost drugs and injectables are excluded in a level funded plan. The insurance company may offer various alternatives when these drugs are excluded. These may include discount cards, coupons, and funding by various foundations. Unfortunately, these options are limited and many times are dependent on income levels. Thus the cost to the employee may still be substantial.    

For example, Retuxan is one of many drugs that you may find excluded. Retuxan (rituximab) is a single source drug which is used to treat various cancers such as Non-Hodgkin’s Lymphoma, Leukemia and Rheumatoid Arthritis. This drug is used in conjunction with other drugs in the treatment of cancer and the cost of treatment is extremely high. Without coverage for this drug, out of pocket costs can easily exceed $100,000.   

There are other key differences that can create issues that you should review. These include: 

1)     How much you are being charged for the administration of the plan by the insurance company and how much are you paying for claims;

2)     The timeframe for the run-out of claims that are outstanding at the end of the year;

3)     How much if anything you will get back if money is left in your claim accounts;

4)     If your employees can be charged for amounts in excess of what the insurance company will pay (this is called balance billing);

5)     The network you will be using and how care is managed for large claims;

6)     The effect of large claims on your premium at renewal and whether you will be obligated to pay more at any time during the year; and

7)     How regulatory issues for self-funded plans will be handled.  

With respect to the last point, you as the employer are responsible even if the insurance company or another entity does the work for you. Please keep in mind by offering a plan regardless of the limited benefits and/or key exclusions for high cost drugs, your employees will not be eligible to apply for an income-based subsidy if they apply for an ACA plan. 

Insurance is a large expense for employers and there are several quality level funded plans on the market that can be cost effective when your claim utilization is low. However, you need to research these products thoroughly and make sure you understand exactly what coverages you are purchasing and how they will affect your employees before signing on the dotted line.