Group insurance is a popular option for employers looking to provide health benefits to their employees. It allows businesses to pool risk and often results in lower premiums compared to individual plans. Within group insurance, two common funding options are fully funded and level funded plans, each with distinct characteristics.
A fully funded plan is where the employer assumes the entire risk of providing health insurance. The employer pays a fixed premium to an insurance carrier, which then covers all claims. This structure provides predictability in budgeting, as the employer knows exactly what they will pay each month. However, if claims exceed the premiums, the employer bears the financial burden.
In contrast, a level funded plan combines features of both fully insured and self-funded plans. Employers pay a fixed monthly amount that covers expected claims, administrative fees, and stop-loss coverage for high claims. If the actual claims are lower than expected, the employer can receive a refund at the end of the year. This approach allows for greater flexibility and potential savings while still providing some predictability.
Understanding these differences is crucial for employers when choosing a group insurance plan that best fits their workforce's needs and their financial goals.
Respectfully,
Daniel Araujo President, AAIB, LLC
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