Level-Funded Insurance: Why Local and Regional Agencies Don’t Recommend It Enough, and Why They Should

Did you know that level-funded insurance is the secret weapon for small- to mid-sized agencies looking to retain clients and reduce capital outlays? We’ve written in the past about the many benefits of level-funded insurance. Essentially, a level-funded plan is healthcare coverage in which the insurance company reviews an employee group’s medical histories and uses the information to factor how much premium the group will pay and what coverage they are eligible for. 

We often wonder why many of our clients shy away from level-funded insurance and neglect to recommend it as an option to their clients. Here are the main reasons why.  

1. Complexity: Both agencies and employers may think it's too complicated, and in some ways, it is more involved than traditional fully insured plans. Agents and brokers must help employers understand how the premiums work, how the stop-loss coverage functions, and what happens if claims are higher than expected. 

2. Confusion about stop-loss insurance: Stop-loss insurance is essential to level-funded plans because it shields the company from devastating lawsuits and unforeseen financial stress associated with claims filed. Because stop-loss options can be difficult to understand, some organizations steer clear of them because they think they will cause administrative hassles.

3. Health concerns: If you know your client and their team have a multitude of chronic medical conditions, you may want to avoid this route altogether.

4. Lack of understanding: In our experience, the biggest barrier to offering level-funded insurance is a lack of awareness and education at the employee, employer, and provider levels. In addition, there is sometimes unforeseen financial stress associated with claims filed. 

The benefits outweigh the possible pitfalls

Despite these potential downsides, recommending level-funded insurance is a surefire way to reduce outlays in premium paid to the insurer through the policy year and improve client retention. Just like fully insured plans, employers pay a fixed monthly premium to the insurance carrier. This makes budgeting predictable because the premium amount stays the same throughout the year.

The premiums are structured to cover the expected claims costs and administrative fees (like claims processing, stop-loss insurance, and other administrative services). If the claims are lower than expected, the surplus can be refunded to the employer or used to offset future premiums.

The "level-funded" part means employers don't bear all the financial risk (as in a self-funded plan) but still have more flexibility than a fully insured plan. Typically, stop-loss insurance protects the employer from large or unexpected claims. 

Claims management is easier, too. The insurer or third-party administrator (TPA) manages claims processing, and at the end of the year, if claims are lower than the amount collected through premiums, the employer might receive a dividend or credit.

A final word 

In short, level-funded insurance allows businesses to have more control over their healthcare expenses. It offers some of the cost-saving benefits of self-funding while still offering the security and predictability of traditional insurance. If you’d like more information about how level-funded plans differ from self-insured and ACA community rated plans, here’s an in-depth summary and comparison of insurance options for your small business clients. 

Selecting level-funded insurance, providing faster service, and saving time setting up, enrolling, and managing your small group clients doesn't have to be complicated. MyHealthily's comprehensive workflow management platform makes recommending level-funded employee health benefits options—especially to small groups—seamless and profitable. 

Learn more about the details of level-funded insurance by downloading our whitepaper here or booking your demo today. 

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