Large companies have utilized self-insurance to maximize the value of their group health insurance plans for many years. Through assuming more risk, large employers are able to reduce the cost because they are not paying an insurance company to take all the risk away from them. A key challenge with traditional self-insurance is that claims are paid as they are incurred…this can create a problem for cash flow with small employers and has historically kept self-insurance away from the small employer space.
Fortunately, the market has continued to evolve and self-insurance is migrating to smaller companies. A key development in this transition is level funding. In the briefest terms possible, level funding has the company fund their maximum liability for claims each month. No need to worry about a ‘bad’ month and how it could affect cash flow – the monthly premium payment reflects the ‘worst case scenario.’
In that way, level funding feels a lot like traditional fully insured plans. But there’s a key difference…with level funding, if the claims for the year run better than expectation the business can get a refund. Fully insured plans don’t offer a refund for better claims experience.
If you would like to learn more, please give us a call 800.303.6329 or send us an email.
This blog is intended to be educational in nature. It is not advice and should not be interpreted as such. If you’re interested in discussing options for insurance coverage in PA or MD, we are happy to provide our expertise.