Jeff Hess, individual, group, and ancillary health expert, mentioned previously in his video regarding Obamacare’s impact on group health that level-funded plans are a viable option for both small and large businesses. Take a look as he dives deeper and provides more details about this group health plan option!
Regular Group Plan vs Level-Funded Plan
With a regular group-style plan, you simply request it. As long as you get the participation levels that the carrier requires, then it is a guaranteed issue. There’s no health underwriting. They don’t worry about health on the group plan. In other words, every individual could have a significant health problem, but they’ll still be issued coverage.
On the other hand, level-funded are similar to the plans before all the guaranteed issue – before ACA. Level-funded plans look at the group’s health and base the rates accordingly. With a regular group plan, they account for some health issues. For a healthy group, they’re actually overpaying. For an unhealthy group, they’re either paying right at or below what they should by paying.
When it comes to the implementation and usage of the plan, it’s going to look the same as a regular group plan. However, with level-funded plans, you can use it for employees ranging from two to ten thousand or beyond. Additionally, the insurance company looks at claims-experience, or the group’s health, and they underwrite it accordingly. So if you have an extremely healthy group, their rates are actually going to be significantly lower than a traditional group plan. This saves money on monthly premiums both for the employer and for the employee. As for the groups with health issues here and there, it will still cost less. For the groups with significant health issues, they will typically want to look at a regular group plan.
Affect on Employee and Employer
As far as the employee is concerned – they got their cards, their co-pay, their premiums, co-pay – same as a group plan. Employees don’t see any difference whatsoever. The employer, on the other hand, may see a difference.
Through the group’s effective date until the renewal date – that 12-month period – if they still have low usage or low expense, then they can get some of their claims fund back. Simply put, level-funded plans take and uses some of the premium for the cost of the health insurance, some of it for the administrative part of the insurance, as well as some of it for the claims. If they don’t end up spending all that money reserved for claims, the employer would have a chance of getting that money back either to use for the business or to lower their premiums for next year on the renewal.
So what happens if they have a terrible year and they use all of the claims fund? It doesn’t matter because the insurance company is there to pay the rest. They still have the Affordable Care Act – the essential benefits and no lifetime/annual maximums. It’s governed by ACA as far as the rules and regulations are concerned.
This is a way for healthy groups to benefit so to speak, and it’s one way to keep premiums down. So for the groups that it fits, it fits very well. For the groups that don’t fit, they still have a ton of options.
Since insurance is oftentimes overwhelmingly confusing, we want to shed light on this industry by answering YOUR questions. So if you have any questions or concerns about group plans, comment below and your question may be the topic of our next video