Level-Funded Plans vs. ICHRA as Alternatives to Traditional Health Insurance

In recent years, the healthcare landscape has seen a shift with more companies exploring alternatives to fully insured group health plans. A standout option that is becoming increasingly popular is the level-funded plan, a type of self-funded strategy that combines the predictability of fully insured plans with the cost-saving potential of traditional self-funding. As of 2023, a growing number of small to mid-sized companies are adopting level-funded plans, recognizing their unique advantages. We break it down.

Level Funded Plans vs. ICHRA.

Level-funded plans, unlike their traditional self-funded counterparts, are specifically designed to mitigate the risks and challenges associated with self-funding. Here are some key benefits:

Predictable Costs with Stop-Loss Protection

1. Level-funded plans are particularly appealing because they offer predictable monthly payments, similar to fully insured plans, but with the added benefit of refunds if claims are lower than expected. This setup includes built-in stop-loss insurance, which protects companies against unexpectedly high claims, making it financially safer and more predictable than traditional self-funding and ICHRA models where cost variability can be a concern.

Potential for Cost Savings

2. Companies that choose level-funded plans can often experience significant cost savings. They benefit from lower administrative costs and the absence of certain taxes and fees that are typically associated with fully insured plans. Moreover, if the claims are lower than the funds allocated, companies can receive a rebate or credit, enhancing the financial benefit and offering a direct incentive for promoting employee health and wellness.

Control and Customization of Benefits

3. Unlike ICHRAs, which rely on individual market plans that may not cover all employee needs or preferences, level-funded plans allow employers to customize their benefits offerings. This means employers can tailor their plans to meet the specific health care needs of their workforce, potentially leading to higher employee satisfaction and retention.

Regulatory Compliance and Simplicity

4. Level-funded plans are subject to ERISA (The Employee Retirement Income Security Act), which preempts state insurance laws that often complicate fully insured arrangements. This federal oversight simplifies the regulatory landscape and can make it easier for employers to manage their plans across multiple states, unlike ICHRA arrangements that must navigate individual state insurance market regulations.

Improved Cash Flow Management

5. With fixed monthly payments, level-funded plans improve cash flow management for businesses. Employers do not have to set aside large reserves for claims funding as they would under a traditional self-funded plan, nor do they face the financial unpredictability associated with ICHRAs, where funding requirements can fluctuate based on individual health insurance premiums.

Better Data and Cost Management

6. Employers with level-funded plans receive detailed reports on claims data, allowing them to analyze health trends within their organization and adjust their wellness programs and benefits accordingly. This access to data can lead to more informed decision-making and better control over health care costs in the long term.

Ease of Transition

7. Transitioning to a level-funded plan from a fully insured plan is often smoother and less disruptive than adopting an ICHRA. Employees continue to deal with a single carrier or administrator, which can reduce confusion and ensure a continuity of care.

As more companies look for cost-effective, flexible, and stable solutions to manage their healthcare benefits, level-funded plans emerge as a compelling choice, particularly for those finding ICHRAs too detached or unpredictable. While ICHRAs offer certain advantages, the level-funded approach provides a balanced mix of cost control, risk management, and benefit customization that many employers find invaluable.

As the healthcare market continues to evolve, it’s crucial for brokers and advisors to stay informed about all available options, including the increasingly popular level-funded plans, to guide their clients towards the most suitable health care strategies.

For more information on how Fundamental Care® can help you provide affordable health plans to your employees, visit our Limited Day Health Plan page.