Picture this: your employees didn’t rack up as many medical bills as expected, so you get a refund on your business’s health insurance. A refund. From health insurance. We’ll give you a minute to process that.
Believe it or not, that’s a possibility with a level-funded health plan. But before you start planning out your next big move with that imaginary refund, know that the trade-off is that your business takes on some of the financial risk.
Where your monthly payment actually goes
With a fully insured health plan, you pay premiums to an insurance company, which takes responsibility for covered medical claims. If five employees need surgery in the same year? Ouch. But your premiums won’t skyrocket halfway through your plan year because of it. That’s the insurer’s problem to manage.
Level-funded insurance like Aetna Funding Advantage, UnitedHealthcare Level Funded, and Cigna Level Funding handle it a little differently. Your monthly payment usually covers three things:
- Money set aside to pay medical claims
- Administrative fees
- Stop-loss insurance
That last one is important. Stop-loss insurance helps protect your business when eligible claims exceed certain thresholds. Think of it as a safety net for major medical expenses.
Here’s an example. (These numbers are hypothetical, not actual insurance quotes.) If you have 10 employees, a fully insured plan may cost $5,000 a month, or $60,000 per year. On the other hand, a level-funded plan may cost $4,500 a month, or $54,000 per year. That’s a potential $6,000 difference in scheduled payments. Not bad!
And it gets even better. Because if your employees’ claims are lower than expected, you might receive some of the unused funds back. It all depends on your contract, and some plans require you to renew before you see a dime.
But what happens if your employees have a particularly bad year filled with expensive medical care? Well, for starters, you can wave goodbye to that refund.
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Which plan makes more sense for your business?
You didn’t think that insurers were just handing out refund checks without strings attached, did you?
If claims run high, you might not get a refund at all. And while stop-loss insurance can limit your financial risk, your contract determines exactly what’s covered. That means an expensive year could result in a less-than-pleasant surprise when it’s time to renew your policy.
Now, don’t get it twisted. Fully insured coverage isn’t completely immune to renewal increases either. But at least your business isn’t directly responsible for funding that year’s covered claims.
So, with everything laid out on the table, which one should you choose?
Fully insured coverage may be your match if you want more predictable costs and fewer financial surprises.
Level-funded coverage could be worth exploring if you’re comfortable with a more complicated arrangement and the possibility of saving money.
Before committing, have a broker walk you through total annual costs, stop-loss limits, refund provisions, and renewal terms. Find out what happens when claims are low and what happens when everyone seems to need a specialist at once. Getting money back from your insurance company is awesome, but not if it gets wiped out at renewal.
