When choosing a health plan, employers have several funding options. Two options that may provide greater flexibility and potential savings are self-funded and level-funded health plans.

Self-Funded Health Plan

With a self-funded plan, the employer takes on the financial responsibility for paying employees’ medical claims instead of paying a traditional insurance carrier a fixed premium. A Third-Party Administrator (TPA) typically handles the administration of the plan, including claims processing and eligibility.

How employers can benefit:

• Potential for lower overall healthcare costs
• Greater control over plan design
• More transparency into claims and healthcare spending
• Employers may benefit when claims are lower than expected
• Greater flexibility in customizing benefits
• Self-funded plans typically include stop-loss insurance to help protect the employer from unusually large claims or higher-than-expected claims.

Level-Funded Health Plan

A level-funded plan provides employers with a more predictable monthly payment. The payment generally includes an estimated amount for medical claims, administrative expenses, and stop-loss coverage. Employers can get some of the advantages of self-funding while maintaining more predictable monthly costs.

How employers can benefit:

• Predictable monthly payments
• Potential savings compared with traditional fully insured plans
• Greater transparency into healthcare spending
• Stop-loss protection is generally included
• Potential to benefit from favorable claims experience, depending on the plan structure

Which Is Better for an Employer?

There is no one answer for every employer.

• Self-funded plans may be a good fit for employers that are comfortable taking on more claims risk in exchange for greater control and potential savings.
• Level-funded plans may be a good fit for employers looking for potential savings and flexibility while maintaining more predictable monthly expenses.

At Benefit Management Administrators, Inc. (BMA), we can help employers evaluate their group size, claims history, budget, and risk tolerance to determine which funding strategy may be the best fit for their business and employees.