Are Level-Funded Health Benefits Right for Your Clients?
The universe of health benefits funding mechanisms has historically been pretty narrow for small and midsize businesses (SMBs), and most have been pigeonholed into fully funded plans. More recently, options have opened up for SMBs, and tailored mechanisms like level-funding are making it possible for SMBs to enjoy more reward with less risk.
In the past, it was primarily an organization’s size that dictated what type of funding mechanism it employed. Now with level-funded and stop-loss options more customizable, SMBs have more freedom to choose. When it comes to risk, the spectrum is bookended with fully insured and pure self-insured plans, but data show that SMBs are increasingly leveraging self-funded and level-funded plans. According to a 2022 Kaiser study, 41% of covered workers are in either self-funded or level-funded plans – a considerable increase from 31% in 2020.
And it’s no surprise, given that cost certainty is the biggest benefit of level-funded plans like the ones offered by Gravie. With level-funded plans, employers whose premiums outpace claims are rewarded with a percentage of the surplus. If claims are higher than the predetermined cap, employers are also protected with stop-loss insurance to cap the expense. Level-funded plans also offer quite a bit of flexibility, not only in funding but also in plan design, model, and budget.
Advisors can determine whether level-funding is a good fit for their clients by asking the right questions. It’s important to gauge employers’ preferences for:
- Risk tolerance and exposure
- Financial predictability and cash flow
- Fiduciary responsibilities
- Staffing needs and ability to outsource
- Plan affordability needs
Switching to a level-funded model might feel incredibly intimidating for SMBs. As true partners, advisors can meet proactively with decision-makers throughout the year, helping clients feel confident and empowered to make changes when the time is right.
As a benefits advisor, it’s easy to stick to the status quo if clients are happy. But at a time when employers are up against a looming recession and a scarce talent pool, bringing innovative options to the table is an effective way to strengthen those client-advisor relationships. That means sharing the full spectrum of funding options with clients, making sure they’re aware of how level-funded plans can open up a whole new world of tailored risk and reward for SMBs, as well as greater flexibility with plan design.