Are You Paying More for Health Insurance Than You’re Getting Back?
If you manage your team’s benefits, you’ve probably noticed the same frustrating pattern: health insurance costs go up every year, and your carrier pockets any unused premiums. Meanwhile, you’re expected to absorb renewal increases that may have nothing to do with your team’s actual health or claims experience.
The truth? There’s a better way to structure your benefits so you control more of your spending, retain flexibility, and still protect your employees. Let’s talk about how level-funding can solve some of these headaches.
Let’s Talk About Risk
When people think of health insurance, the first thing that comes to mind is a fully insured model. You give the insurance carrier a monthly premium, and in turn, they take on the risk of your employees’ health costs. Sounds great, right? You can sleep at night knowing you won’t be left holding the bill if the worst happens.
But here’s the question: Why do insurance carriers love this model so much?
It’s simple; they’re making money off your desire to transfer risk. Very rarely does an employee rack up claims that exceed what you’ve paid in premiums. That means carries are collecting more than they’re paying out – and your bottom line is footing the difference.
The Problem with the Fully Insured Model
Under the Affordable Care Act (ACA), certain rules guarantee insurability but don’t always make financial sense for employers.
-
In small groups (Under 50 full-time equivalents), carriers must use age-banded rates, so a healthy 35-year-old pays the same as a 35-year-old with chronic conditions.
-
Larger groups, while rated differently, often get stuck with renewal increases that don’t reflect their actual claims history.
The result? Many employers are paying far more in premiums than their workforce is using in claims.
A Smarter Funding Model: Level-Funding
Level-funding combines the predictability of fully insured plans with the transparency and control of self-funding. Here’s the high-level breakdown:
-
Part of your premium goes into a claims reserve to pay for employee claims.
-
The rest covers stop-loss insurance (to allocate some of the risk and protect you from high-cost claims) and administrative costs.
-
At the end of the year, if claims are lower than expected, the unused reserve (surplus) is credited towards next year’s premiums.
Key Advantages
-
Keep the same coverage – It’s just managed differently.
-
Offer plan designs you may not find in traditional fully insured products.
-
See exactly where your healthcare dollars go.
-
Retain surplus dollars in good claims years – instead of letting the carrier keep them.
-
Avoid “back-charging” for bad claims years.
-
Potential exemption from certain ACA requirements and state premium taxes.
Why Mid-to-Large Sized Employers Should Pay Attention
The larger your group, the more predictable your claims experience becomes, and the more upside there is in keeping surplus funds. Level-funded plans give you the flexibility to design benefits around your workforce, create renewal strategies based on data, and reward your organization in years when claims are lower than expected.
Even large employers who have customized rates with a fully insured plan don’t see their surplus dollars return to their budget. Level-funding changes that.
Eligibility in North Carolina
As of October 1, 2024, employers need 12 eligible employees, with at least 70% of those employees participating. But, if employees decline coverage because they have coverage elsewhere, this counts towards your participation. This is referred to as having a valid waiver. With valid waivers, the minimum enrolled on the plan is 5 employees.
Nationwide Relevance
While the eligibility requirements listed are specific to North Carolina, many of these regulations are similar nationwide. Even if your business if headquartered outside of North Carolina, it’s worth reaching out to explore how level-funded plans might work out for your business.
Bottom Line
If your annual renewal increases don’t match the actual health of your employees, or you simply want more control and transparency over your benefits investment, it’s time to explore level-funded plans. They can help you reduce costs, keep coverage strong, and ensure your healthcare dollars are working for you – not just your insurance carriers.
You wouldn’t pay for unused office space, so why pay for unused health insurance dollars? Don’t wait for your next renewal surprise. Reach out today to see if level-funding is the next strategic move for your business.
