When it comes to health insurance plans, businesses often need to choose between fully insured and level-funded options. Understanding the difference is key to picking the plan that best fits your company’s needs and budget.
Fully Insured Plans: In a fully insured plan, the you pay a fixed premium to the insurance provider each month. This premium covers the cost of claims, administrative fees, and the insurer’s profit margin. The insurance company assumes all the risk, meaning they handle all claim payments, regardless of whether claims are higher or lower than expected. Fully insured plans are straightforward and predictable, making them a popular choice for small to medium-sized businesses that prefer stability and minimal risk.
Level-Funded Plans: Level-funded plans are a hybrid between traditional fully insured and self-funded plans. You, as the employer, pay a fixed monthly amount, which includes administrative fees, a claims fund, and stop-loss insurance to cover unexpectedly high claims. If claims end up being lower than expected, you may receive a surplus refund at the end of the plan year. These plans offer more flexibility and potential cost savings but come with slightly higher risk, as you are responsible for claims up to a certain limit.