From the Field: Top 10 Reasons Why Friends Don’t Let Friends Level-Fund

Self-funded-insurance-provides-numerous-cost-savings-advantages-to-small-to-midsize-businesses_Roundstone Insurance

While traveling around the country promoting the advantages of self-insurance, Roundstone’s Regional Practice Leaders meet a lot of employers who are frustrated with their fully-insured health insurance plans. Huge increase at renewal, no transparency, and little flexibility top the list of issues.


Roundstone’s self-insured group medical captive solution is a great alternative. It’s a financially efficient model that offers low fixed costs and an open platform to give employers control over their healthcare spend while offering employees high-quality benefits. This includes flexible plan design and 100% transparency in healthcare costs.


Our approach to self-funded health insurance is often compared to a level-funded solution, another funding strategy that attempts to bridge fully insured and self-funding. The employer funds to max with one monthly premium payment like a fully insured plan, and gets back some of the savings their group generates at the end of the year like a self-funded plan. Proponents of level-funded plans call this the “best of both worlds”, giving employers limited control and allowing them to share in the savings.


To that, we say, “Why not gain total control over healthcare spend and retain all of the savings?”

Because that’s exactly what you get with a self-funded insurance plan based on the captive model.


Our sales team has broken down some common misconceptions and weaknesses of a level-funded plan. If you’re considering a level-funded plan, do your homework to make sure it’s in your favor and will actually save you money. The truth is you might gain better advantages with a self-funded insurance plan based on a captive. It not only provides critical data, but gives you the tools to implement cost containment strategies to further lower costs and improve the savings gained through self-insurance.


Why We Say No to Level Funding:


1. RX Rebates

Does the plan offer 100% of RX rebates back in your pocket, or are they keeping them for themselves? Most level-funded plans don’t give you 100% of your RX rebate savings. Pharmacy costs are approaching 30% of a company’s healthcare spend. Those savings add up!

With a self-funded insurance plan, you can choose a Pharmacy Benefits Manager that can let you keep all of your RX rebate savings. This drives down your costs and helps you save more money through a self-insured model.


2. Plan Design Flexibility

Level-funded plans make you choose from their canned plan design options, just like a fully insured plan. Your group has unique needs that can be fully considered when you use an open platform to build your own custom bundle. Level-funded plans don’t offer you that choice.

Self-funded insurance plans are completely customizable. You can design the plan to best suit the needs of your employees, driving down costs while simultaneously improving care quality.


3. High Fixed Costs

What are the fixed costs vs variable costs? Most level-funded plans claim a 50/50 split of fixed and variable costs. But when you break it down, the fixed costs for a level-funded plan are usually north of 75%. A variable cost is a cost you can control and our variable costs through self-insurance are 85%, offering maximum savings opportunity. This is a key reason why not to choose a level-funded plan.


4. Funding to Max

Level-funded plans utilize max funding. That means you pre-pay your worst-case scenario in advance. While that is a good option for some groups, it’s important that employers have the choice to pay as they go, fund to their expected costs, or fund to max. When you fund to max, you can build a claims surplus as your cost containment strategy generates savings.

Under self-funded insurance plans, we recommend funding to max the first year or two in order to build up a surplus. Once you have a nice cushion, you can confidently fund to expected costs in order to lower healthcare costs and increase savings.


5. Claims Surplus

Do you get to retain your claims surplus if you leave? Typically, in a level-funded plan, the answer is no. Some level-funded plans will split your claims surplus 50/50, and that’s only if you renew your plan. Your savings should stay with you, not hold you hostage at renewal time.

Roundstone’s self-funded insurance plans don’t have handcuffs — you are eligible for a refund on unused captive, pro-rata regardless of whether or not you decide to renew. That said, we have a 95% retention rate. Those that choose not to renew their self-funded plans tend to be part of an acquisition into a larger company where self-insurance under a captive no longer fits.

In 2022, Roundstone distributed $24.4M unspent captive premium pro rata.


6. Renewal Rates

Level-funded groups should be prepared to get a large increase at renewal. On average we have seen north of 35% for first-year renewals. In addition, groups are losing half their claims surplus savings to the carrier. Groups have very little control over their renewal process, and can’t make plan design changes to continually improve their benefits. Instead, they’re eating more double-digit increases, just like a fully insured plan.

Under Roundstone’s self-funded insurance captive solution, renewal increases are relative and rare. Because of the savings baked into the plan and the potential to lower costs through data-driven cost containment solutions, costs can be contained.

At Roundstone, we drink our own champagne. Our own employees are covered under a self-funded insurance solution. In the past 8 years, we have not had to raise premiums a dime due to the cost-effectiveness of the self-insured captive model. Read our case study to see how we did it.


7. Runout

Level-funded groups pay for runout “protection” and while this sounds like a safeguard, we just don’t believe in paying termination costs upfront. Our renewal rate for our self-funded insurance plans is 95%. Why pay for something the overwhelming majority of our clients don’t need?


8. Risk Sharing

One of the biggest concerns in moving away from a fully insured plan is additional risk. What happens if your group has a bad year? In a level-funded plan, you’re on your own. In a Roundstone self-funded captive, your risk is shared with every other group in the captive, and further protected with your stop loss policy. Fortune 500 companies use the law of large numbers to safeguard against risk while still generating savings. The captive bands small groups self-insuring together to play the same law of large numbers, so you’re not alone, and everyone shares in the leftover premium at the end of the year.


9. Claims Adjudication

The higher the claim costs, the more money insurance carriers can pocket to cover those expenses. Level-funded and fully insured plans have that in common. They have no incentive to manage high-cost claims. With a self-funded insurance plan, not only are you incentivized to implement cost containment programs (because you keep the savings), but we’ll help you find trusted partners that fit your specific group needs and pass through all savings to you.


10. Claims Reporting

Some level-funded plans provide minimal reporting, but typically there is very little transparency involved. You do not get any Large Claim Prognosis or Claimant ID reports, and you do not get Case Management Notes. Roundstone’s self-insured captive grants you access to reporting on every dollar spent under your healthcare plan, with national benchmark data available to easily compare your costs and see where there is room for improvement.


While level-funded plans may sound appealing from a distance, a self-funded plan gives small to midsize businesses access to the same health insurance model that Fortune 500 companies have used for decades. It’s the clear winner. With a self-funded group captive plan, you can lower your healthcare expenses every year and provide your employees accessible and affordable healthcare.


Find out how you can save thousands every year with a self-insured group captive plan from Roundstone. Contact us today at 440-617-0333 or fill out our contact form online.







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