One of the decisions you’ll have to make when selecting your business’ health insurance plan is: how do you want to fund it? There are many things to consider when determining which funding type is the best for your organization including: how do you want to pay for the cost of your claims and how risk-tolerant your company is for fluctuating costs?
Priority Health offers four funding models to meet the needs of Michigan employers—fully funded, self-funded, level funded and optimized level funded. Each funding model offers a varying degree of flexibility and risk for employers to consider.
Check out the various funding options that are available and the most important things to consider to help determine which is best for your organization.
Find which funding option is best for your organization
Fully funded plans
A fully funded employer health plan is a more traditional approach to health insurance for businesses. Your company pays a set monthly premium to the health insurance company, no matter what claims were made by employees, and the insurance company pays the claims for employees as they occur.
Fully funded plans offer greater financial stability since you can rely on consistent monthly expenses.
Benefits of a fully funded plan include:
- Stable monthly fees: Whereas the monthly fees of a self-funded plan may vary, fully funded plans have a consistent monthly premium which makes it easier to budget for health care costs. This cost is determined yearly during your renewal with the health insurance carrier.
- Low maintenance: Fully funded plans require less attention than self-funded plans since they don’t have as many compliance requirements and have stable monthly costs, making them easier to manage.
- Minimal risk: Fully funded plans keep your business protected from large, unexpected health claims. No matter the claims, you’ll pay the same amount. If you’re worried about the “what ifs” when it comes to health coverage, fully funded may be right for your business.
For companies with few employees, who experience more claims, or who experience more high-cost claims, a fully funded plan may be the best option.
A self-funded (also known as employer-funded) employer health plan is when your company pays employee health claims as they occur, rather than the company paying the insurance carrier a monthly premium to cover the cost of claims.
Each month an amount of money is set aside based on the expected cost of employee health claims. Claims are sent to the health plan who administers your benefits, and they process the claims and pay them using the money that was set aside.
Your monthly costs include both variable and fixed fees. Variable fees are the claims that fluctuate monthly as your employees use their health insurance benefit. Fixed fees remain consistent month over month and include the cost of your stop-loss insurance (explained in greater detail above) and administrative fee. Your administrative fee is the amount you pay to your plan administrator/insurance carrier to facilitate your plan and benefits.
At Priority Health we have an all-inclusive administrative fee which means we include more services than other self-funded carriers all for one, transparent fee. Plus, we don’t believe in hidden fees, or startup costs so you can feel confident that you’re getting more from your self-funding partner.
Self-funded plans provide higher levels of flexibility but also increased financial risk for companies since they pay for claims as they occur rather than paying a consistent monthly premium.
For example, if claims are higher one month, your company's expenses for health coverage are also higher. And, same is true when claims are lower, if claims are low then health care expenses will also be low. Because of this variability, self-funded plans also usually include a form of stop-loss insurance.
Stop loss insurance provides protection for your company if claims from employees exceed a certain amount of money. The employer and insurance company will negotiate a maximum amount the employer would pay for employee health costs, and if claims exceed that amount the insurance company will cover costs.
There are two types of stop-loss:
Specific coverage protects against unpredictable catastrophic claims for an individual—typically from $25,000 to $200,000.
Aggregate coverage protects against an extraordinary year where the combined claims for the entire group exceed projections—usually 20% to 25% over estimated claims.
Benefits of a self-funded health plan include:
- Lower monthly fees: Generally, the monthly costs for a self-funded employer health plan will be lower since the company only pays for the expected claims from employees rather than a predetermined premium. However, there is still an amount due each month for administrative fees and stop-loss insurance. Be sure to check with your insurance company to see what kind of fees you’ll have every month.
- Less regulation: Since self-funded plans are only regulated by the federal government and not by state or local governments, there are less taxes that need to be paid on these plans.
- More flexibility: Self-funded plans often offer more opportunities for customization so an employer can make the plan best fit the needs of the company and employees in terms of provider networks, pharmacy costs and more.
Self-funded plans can be a great cost saving option for companies whose employees are generally healthy and do not have many health insurance claims. These plans can be ideal for businesses with engaged employees where wellness is integrated into company culture.
Self-funding at Priority Health is available with customizable HMO, POS and PPO plans and can be combined with Flexible Spending Accounts (FSA) and Health Savings Accounts (HSA).
Level funded plans
Level funding offers all the benefits of traditional self-funding with the added feature of stable monthly costs.
With level funding, employers pay a fixed amount of money each month based on their enrollment and projected claims expense, giving the employer more financial stability. Priority Health uses the money as needed to pay claims.
At the end of the plan year, the account is reconciled for funds in excess of projected claims expense. If there’s an overage at the end of the plan year, Priority Health will send the employer a check to reimburse any unused money. If there’s a shortage, the employer will owe Priority Health a settlement.
Benefits of a level funded plan include:
- Lower, stable monthly fees: You’ll have stable monthly fixed costs that make it easier for you to budget for health care, at a lower rate than a fully funded plan. We provide monthly claims utilization reports, so employers have a financial picture of their health care costs throughout the year.
- Balance of flexibility and risk: Level funded plans combine the flexibility of a self-funded plan with the lower risk characteristics of a fully funded plan.
- Opportunity for money back: Level funded plans give your business an opportunity to get money back at the end of the contract year if the amount of pre-funded claims exceeds the cost of claims experienced. However, the opposite is also true — if the cost of claims exceeds the monthly premiums, the company will have to settle the overdue funds with the insurance carrier.
Level funded plans can be a great option that gives your business some of the flexibility and upfront savings of a self-funded plan, with more stability and predictability like a fully funded plan. These plans can be a good fit for small to mid-sized companies interested in the cost savings of self-funding but who don’t want the financial risk of a self-funded plan.
Level funding is available with PPO, HMO and POS plans and can be combined with Flexible Spending Accounts (FSA), Health Savings Accounts (HSA) and Health Reimbursement Accounts (HRA).
Optimized level funded plans
With optimized level funding employers pay a fixed monthly amount to cover the costs of administration, stop-loss and claims funding. Priority Health uses the money as needed to pay claims. At the end of the plan year, the account is reconciled for funds in excess of projected claims expense. The group is not required to pay Priority Health back if there is a deficit at the end of the plan year. If there is a surplus, the employer will receive 50% of the surplus.
- Lower, stable monthly fees: You’ll have stable monthly costs that make it easier for you to budget for health care, at a lower rate than a fully funded plan.
- Balance of flexibility and risk: Optimized level funded plans combine the flexibility of a self-funded plan with lower risk characteristics of a fully funded plan.
- Opportunity for money back: Optimized level funded plans give your business an opportunity to get money back at the end of the contract year if the amount paid in monthly premiums exceeds the cost of claims experienced. This is also without of risk of having to pay more at the end of the year to reconcile a shortage. If claims exceed projections, your company is not liable to pay that additional cost.
Employers with 2-50 enrolled employees are eligible for optimized level funding. This is an alternative level funding arrangement for small groups looking to reduce premiums with even less financial risk. Employers can select plans from the 2021 small business ACA plan menu.