Health insurance costs continue to rise, making it increasingly difficult for small businesses to offer competitive benefits while managing expenses. In response, level-funded health plans are gaining traction as a cost-effective alternative to traditional fully insured options. Major carriers, including UnitedHealthcare and Anthem, have expanded their offerings in California, particularly for groups under 100 employees, making it easier for small businesses to explore self-funded solutions with built-in cost controls.
While these plans present attractive savings opportunities and flexibility, they also come with challenges—most notably, the difficulty in truly impacting claims costs when employees struggle to negotiate care or access providers in urgent situations.
Why Are Level-Funded Plans Gaining Popularity?
Level-funded plans have historically been more prevalent in Northern California, where HMO options are scarce and PPOs are significantly more expensive than in Southern California. However, with rising healthcare costs across the state, these plans are expanding their footprint and becoming a more viable option for small and mid-sized businesses looking for greater control over healthcare spending.
Here are some key reasons behind their growing appeal:
1. Cost Predictability with Potential for Refunds
Unlike traditional self-funded plans that expose employers to unpredictable claims costs, level-funded plans offer fixed monthly payments, making budgeting easier. If claims are lower than expected, businesses may receive a refund on unused claims dollars, creating a financial incentive to promote healthier employee behavior and cost-conscious care utilization.
2. Flexibility in Plan Transitions
One of the biggest concerns for small employers considering self-funding is what happens if it doesn’t work out. Traditional self-funded plans can create long-term risks, as claims history might impact future coverage options. However, level-funded plans allow small groups to return to ACA plans without their claims experience affecting their future rates, making the transition much less risky.
3. Growing Carrier Participation
Previously, level-funded plans were limited in availability, but major carriers have aggressively expanded their offerings. Anthem Blue Cross now provides level-funded options to groups as small as 25 employees, sometimes even allowing employers to keep an HMO plan or pair it with Kaiser, provided they meet participation requirements.
4. Opportunity for Customization
Unlike traditional fully insured plans, which offer limited flexibility, level-funded options allow businesses to tailor benefits to their workforce needs. This includes selecting narrow networks, incentivizing telemedicine usage, or implementing wellness programs to help lower claims costs over time.
The Challenge: Impacting Claims Costs in Real Time
While level-funded plans offer the promise of savings, their true financial benefits hinge on controlling claims costs—a challenge many small businesses struggle with due to limited employee ability to negotiate care.
Here’s why:
1. Employees Often Lack Negotiation Power in Urgent Care Situations
When employees need immediate care, they are unlikely to shop around for the lowest-cost provider. They often go to the nearest urgent care or ER without considering cost variations. Without strong navigation tools, this behavior can lead to higher claims costs that could impact the employer’s financial risk in a level-funded plan.
2. Limited Access to High-Value Providers
Although some level-funded plans steer employees toward preferred providers to help manage costs, finding in-network care can still be a challenge—especially in certain regions where provider access is limited. Employees may end up seeing out-of-network doctors, leading to unexpected higher claims that drive up costs for the employer.
3. Lack of Awareness on How to Utilize Benefits Wisely
Many employees aren’t aware of cost-saving strategies, such as utilizing telemedicine, urgent care instead of ER visits, or prescription discount programs. Without proper education and engagement, employees may not make cost-effective decisions, reducing the financial advantages of a level-funded plan.
What Can Employers Do?
For level-funded plans to be successful, employers must take a proactive role in helping employees manage healthcare costs. Here are some strategies that can help maximize savings and improve the overall effectiveness of these plans:
1. Implement Strong Employee Education Programs
Businesses should offer ongoing education to help employees understand when and how to use their benefits, including:
• Encouraging telemedicine for non-urgent care.
• Teaching employees how to compare costs for medical procedures.
• Promoting preventive care to reduce long-term claims.
2. Provide Access to Healthcare Navigation Services
Some level-funded plans include concierge services that help employees find in-network providers, compare costs, and negotiate medical bills. Employers should actively promote these resources to ensure employees utilize them effectively.
3. Align Plan Design with Cost-Containment Strategies
Employers can structure their level-funded plan to encourage cost savings, such as:
• Offering narrow network PPO options with negotiated lower rates.
• Incentivizing employees to use high-quality, lower-cost facilities for procedures.
• Implementing wellness programs that encourage preventive care and healthier lifestyles.
4. Leverage Carrier Partnerships for Better Insights
Carriers offering level-funded plans provide data insights on claims trends. Employers should work with their brokers and carriers to analyze this data and adjust strategies accordingly, such as adjusting plan design or modifying employee incentives to reduce unnecessary spending.
Is Level-Funding Right for Your Business?
While level-funded plans offer tremendous potential savings, they require active participation from employers and employees to be truly effective. They work best for businesses that are:
• Willing to educate employees on cost-saving healthcare strategies.
• Proactive in managing claims by leveraging carrier tools and analytics.
• Looking for cost predictability with the potential for refunds on unused claim dollars.
For employers struggling with rising healthcare costs, level-funded plans provide a compelling alternative to traditional fully insured options. However, success depends on implementation—a hands-off approach could lead to unexpected costs, negating the benefits.
If you’re considering a level-funded plan for your business, working with an experienced benefits consultant can help you navigate the options, optimize cost-saving strategies, and ensure the plan aligns with your company’s long-term financial and healthcare goals.
