How to Meet the Rising Demand of Level-Funded Plans

Level-funded health plans are quickly gaining popularity as a way for groups of all sizes to introduce cost predictability into their health plans. Their most attractive feature is integrated stop-loss coverage, provided by a third-party administrator (TPA), to protect employers from ever having to pay more than the level premium each month.

The level monthly cost includes a claims allowance, which the TPA pays out, as well as the stop-loss premium and a TPA fee. If any portion of the claims allowance is still unused at the end of the year, the TPA returns some or all of it to the group and may offer a lower rate for the following year.

If the allowance is depleted, the employer's level cost remains the same for the rest of the year. However, level-funded plans are medically underwritten, so the premium may increase if the employer renews the plan. For smaller groups, this may not be much of a problem, as they can choose not to renew and, instead, revert back to a non-underwritten ACA plan.

For employers, level-funded health plans have several advantages over fully or self-insured plans. The level, predictable monthly costs of administering the plan don't come with the risks of exposure related to self-insured plans. They're also not subject to the same regulations as fully insured plans, so the employer's administration costs are both predictable and lower than other options.

What Level-Funded Plans Mean for Insurers

Before level-funded plans started growing in popularity, there seemed to be little reason for TPAs to compete with community rated plans on the healthcare market. Now, however, insurers and TPAs can offer more choices and affordability in the highly competitive Small Group market segment.

Self-funded plans could be custom-structured to provide groups with the exact coverages they need at a reduced overall cost to the group. The structure opens the door for insurers to provide similar types of plans to much smaller groups. Yet the complexity in setting up the plan and financing arrangements means that it's only economically feasible for carriers to offer this option to a small number of very large groups.

For carriers, committing to offering level-funded plans means making changes up and down your entire business model to accommodate them. The following steps will help you make those adjustments.

1. Analyze current processes

Before you can make any changes, you'll need a complete analysis of your current processes. From intake to claims payment to renewal, your systems will need to be able to properly manage the transition across people, processes, and platforms before your organization can fully embrace the new product. Working with an implementation partner will aid in process reengineering, change and project management.

2. Deploy new, more capable platforms

The platforms your business is deployed must be capable of selling the new plans. They'll need to be able to collect the details necessary to set up the plan and its financial arrangements, and properly communicate the information to downstream systems that will be required to manage and enact membership, billing, and claims processes.

3. Train personnel on new processes

All personnel, but especially those in the Small Group segment, must be trained on new processes. Brokers in your network may need assistance as they learn to configure and sell the new plans to smaller groups, as well as how to introduce them next to traditional plans without diminishing the benefits of either.

Setting up your business processes to accommodate level-funded plans is not a simple change of deployment, but it's worth working with a partner to do the analysis, design, and implementation that makes it possible. As small group employers struggle to find long-term solutions to the ACA's community rating rules and premium increases, level-funded health plans will be increasingly popular. While these new plan structures may present a challenge to payers, it's also an opportunity for the carriers that can implement the infrastructure to provide these affordable options.

To learn about how Colibrium can help you build and deploy more capable platforms, download this case study about our partnership with Affinity Health Plan, or check out our website to learn more about how Colibrium's Forward™ Apps can help you manage member data.