So you just opened next year’s renewal rates for your fully insured plan and your eyeballs practically fell out of your skull. How will your company absorb that kind of hike and still afford payroll? The last thing you want to do is lay someone off.
A 25% renewal hike. Again. And no reason given as to why – just pay up or else. It’s a frustrating experience for any small to midsize employer.
The traditional fully insured market can seem like a losing game. They hold all the cards, and you feel like you have no choice but to pay. Prices continually increase, with no end in sight, while the quality of care is harder to find.
Welcome to the state of healthcare in America today.
It’s caused many small to midsize business owners to look for other options. They’ve Googled “level funded vs. self-funded insurance” – and they’ve been surprised by the results.
What is level funded insurance? It’s an alternative to traditional fully-funded insurance that’s more cost-effective and provides better data insights, but the benefits are limited. In reality, level-funded insurance is a blend of fully funded and self-funded, but it’s really the worst of both worlds. You don’t get great data insight plus you’re not fully refunded on any unused spend.
If we’re honest, there’s a reason why friends don’t let friends level fund.
Self-funded is a better alternative to both level funded and fully funded because it offers the most transparency, control, and savings. With self-funded insurance, you only pay for the insurance you actually use– pay what you deserve to pay and nothing more.
But historically, self-funded insurance was only reserved for the big guys – the Fortune 500s with 1,000 plus employees who could better predict risk. That’s all changed with Roundstone’s introduction of the industry’s first Group Medical Captive, which pools hundreds of small to midsize employers together to share costs and offset risk. They essentially enjoy the same risk predictability as the Fortune 500s, even if they only have 25 employees.
Thanks to a self-funded insurance plan backed by a captive, small to midsize companies can now self-insure and keep the entire pie. Any pie you don’t eat comes back to you as sweet leftovers.
You won’t get that with a level-funded plan – you might get a slice of pie back, and only if you promise to come back to the same restaurant tomorrow for more pie. The rest the company keeps as profit while you go home empty-handed.
What is the Difference Between Fully-Funded and Level-Funded Health Insurance?
In a level-funded plan, employers pay monthly payments to cover expenses for administration, claims, and stop-loss insurance. Your monthly premium is estimated based on the perceived maximum cost or worst-case claims projection. The cost also includes stop loss insurance, which is purchased to avoid the risk of high-dollar claims.
If your claims are lower than expected, you’re typically eligible for a refund – but there is a catch. Level-funded plans tend to only refund about 50% of unused spend, and only if you agree to renew for next year. This stipulation is referred to in the insurance world as “handcuffs.” You’re effectively held hostage to the plan year after year. If you’re unhappy with the plan and decide to move on, you can kiss that refund goodbye.
With level-funded plans, you do receive limited claims data, but there is little you can do to effectively reduce your costs. Level-funded plans give you no control over plan design, plan document, Third-Party Administrator (TPA), Pharmacy Benefits Manager(PBM), or provider network. You have no leverage to contain costs to improve affordability. Level-funded plans are pretty much What-You-See-Is-What-You-Get – take it or leave it.
With fully-insured plans, you have the advantage of predictability, sort of. You pay your insurance premiums and know your employees’ healthcare needs are provided for. But if their costs go up, you’ll see it in the form of a premium hike next year. That’s the other end of the predictability equation – you can pretty much guarantee your rates are going up every year, sometimes by as much as 20%. Those costs can be difficult for a small to midsize business to sustain.
Who is a Level Funded Plan For?
Level funded plans tend to be used by startups, as well as small to midsize businesses, typically employing 25 to 250 employees. Most decide to level fund because traditional fully-insured plans prove to be too expensive to be sustainable, and they assume that self-funding is too risky. These companies are seeking greater control over their healthcare costs and more transparency as to where their healthcare dollars are going.
Unfortunately, level-funded plans fail to deliver customizable plan design to take advantage of any valuable data. The plans are too rigid to allow for any meaningful cost containment strategies to drive down costs or improve care quality.
The reality is most small to midsize companies with at least 25 employees can gain the advantages they are seeking in level funded with a self-funded approach where they are part of a group medical captive. They gain insight on claims spending and can use that data to implement cost containment strategies, proactively and reactively, that can reap savings, catch fraud and errors, and optimize cost effectiveness.
Self-insured plans with a group medical captive do offer predictability. By either funding to max or funding to expected, they can budget their self-insurance costs and pay a monthly premium, just as they would with a traditional fully insured model.
How Do the Economics Work with a Self-Insured Group Medical Captive?
A self-funded health insurance plan has 3 buckets: healthcare costs paid directly by the employer, healthcare costs shared with other employers in the captive, and healthcare costs shifted to a stop-loss carrier.
The employer directly pays for their employees’ healthcare up to a specific deductible – typically $15,000 to $25,000 per employee or a set aggregate deductible. Individual claims above $25,000, or an aggregate specific deductible for the group, are then paid out of the stop loss. Any expenses beyond $500,000 are then paid by the Group Medical Captive’s reinsurers.
Why Not Eat the Pie and Keep the Leftovers?
Members of the Group Medical Captive each pay into the captive, which is used to cover stop loss of claims above the deductible up to $500,000. Anything not spent at the end of the year gets refunded back to captive members, pro-rata, in the form of a check. Every year, Roundstone writes checks in the 10s of thousands of dollars back to captive members.
In 2022, Roundstone distributed $24.4M unspent captive premium pro rata.
Captive refunds are based on how well the group does, not individual performance. You may still be eligible for a refund even if you had a bad claims year.
The captive is your pie. It’s for you to eat. Anything you don’t eat you get to take home as leftovers and save for tomorrow’s coffee.
But with level funded insurance, you only get half the leftover pie, if you’re lucky, and only if you return to the same restaurant tomorrow.
Why not keep the leftovers? By self-insuring on the Group Medical Captive, you get to keep what’s yours and save it for later.
Learn more about how Roundstone’s Group Medical Captive can help you confidently self-insure as a small business and save thousands of dollars. Schedule a call with a Roundstone Regional Practice Manager today.
