As the cost of health insurance increases, many Maine small businesses have begun looking into alternative options to meet their group healthcare needs. In recent years, carriers in the small group market have implemented an innovative alternative funding option, known as level self funding. Level self funding can be a great opportunity to offer benefits that are cost effective without losing the richness of the plan.
Level self funding gives companies and organizations the ability to utilize their own claims experience for the purpose of developing rates. Essentially, the better your company does from a claims perspective, the lower the rates will be for a comparable health insurance product. A company’s experience will be tracked throughout the year to determine a loss ratio. A loss ratio is a percentage explaining the amount of utilization versus the amount of premium paid. An added benefit of level self funding is that at the end of the year if a company has paid more in premium than they have in claims and administrative costs, they may be eligible to receive a refund on the surplus.
Historically, small group health insurance is rated at a communal level, which means that rates are generated by three primary factors. These factors are geographical location, number of enrolled and age of enrollees. This system offers uniformity and stability when generating rates. With that said, it does not allow for a company’s rates to be developed from its own claims experience. Meaning that two small group companies, if they have the same census, are in the same location and have the same employee elections, will have identical rates. This can prove to be both beneficial as well as restrictive. It is beneficial to those companies that experience more claims throughout the year. However, it is restrictive for companies that experience lower claims. In a nutshell, level self-funding is an opportunity for a company that experiences lower claims to be rated based on its own experience. By doing so, they have the opportunity to offer a similar plan design at a lower price. However, for those companies that experience higher claims, communal pricing allows them a set price as their rates are determined by the above three factors regardless of their companies’ individual claims.
When a company switches to a level self funded plan, there is always the risk of having a higher-than-expected claim year. This could result in a higher than anticipated renewal. If this were to happen, a company may have the ability to transition back into the small group communal rated products. A question that often arises is, if a company were to exceed their projected claims, would they be responsible for paying the entirety of the excess? The answer will ultimately depend on the specific wording of your policy, but typically the contract is going to include a “stop loss” amount which can serve as a cap on the amount that the company will have to pay in the event that claims exceed what was originally projected.
In Maine, there are multiple carriers that offer level self funded options for small businesses. Those include but are not limited to:
Level self funding options are not a one-size-fits-all option. To understand if level self funding is right for your company, you should first try to reflect on the overall health of your group. However, there is no better way to know than to ask. If you or a company you know are interested in looking at your options in the level self funded market, contact your local Cross Insurance office today.
Understanding health insurance options can be difficult, and confusing at times. Cross Insurance can help you explore your options when it comes to individual or group health insurance. To find out more, you can request a quote from us today by filling out our form here, or giving us a call.
This article is for general informational purposes only and is not to be relied upon or used for any particular purpose. Cross Insurance shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of any of the information contained in this article. The information contained or referenced in this article is not intended to constitute and should not be considered legal, insurance, accounting or other professional advice, nor shall it serve as a substitute for the recipient obtaining such advice. The views expressed in this article are that of its author and do not necessarily represent the views of Cross Financial Corp. and its subsidiaries and affiliates (“Cross Insurance”) or Cross Insurance’s management or shareholders.
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