Traditional medical insurance plans can take up a large portion of funds for businesses looking to get insured. The cost of coverage in these plans is fixed, meaning you lose money when your claim is below the threshold because the insurance company keeps the difference. If your claim is higher, then the insurance carrier covers the difference. This can be seen as an inefficient way to pay for healthcare for many businesses, and oftentimes costs far more than the company needs based on actual medical expenses.
For these reasons, alternative funding plans look to fill the role of affordable care, especially for smaller businesses. There are multiple different ways to build an alternative funding plan, and there is no “best all-around” solution. Instead it is important for employers to understand their options and their group to find what works best for them.
Three Factors of Alternative Funding
Alternative funding applies to group healthcare plans where companies can take on some of the financial burdens of the plan as opposed to the insurance carrier. Alternative plans have the potential to reimburse or refund unused funds back to the employer when unused. They can also reduce the overall cost of insurance for both employer and employee. Alternative plans usually fluctuate between months, depending on previous costs. Alternative funding plans usually contain these three factors:
Alternative plans usually require employers to pay a premium based on the previous medical claims of their workforce. Most self-funded plans don’t have to abide by the state insurance mandates and premium taxes that carriers have to pay, which can potentially save both the employer and employee money. Based on this premium, if the medical claims for the month are higher than the premium, then the company will have to pay for those costs out of pocket.
On the contrary, if the actual costs for the month are lower than the premium, then the company may earn the difference back as reimbursement. While the employer assumes some risk, they can opt for an ASO (Administrative Services Only), which allows a third-party administrator to manage the plan.
Level funding is similar to self-funding, but the difference is that the employer is still paying a fixed amount each month for services. However, there is potential for reimbursement from the insurance carrier based on claims.
Another important factor of level funded health plans is that they usually have integrated stop-loss policies and include both administrative and expected costs of employee medical claims. Carriers may also provide feedback on ways to save and optimize your group health plan, which can affect the monthly cost based on the preceding data.
Because the employer assumes some of the financial risk involved with medical expenses in an alternative funding plan, many seek a stop-loss policy to protect their assets against large individual claims that exceed certain dollar limits. While a normal stop-loss policy provides coverage at the individual level, an aggregate stop-loss policy is almost the same but provides coverage when the entire group covered within the plan exceeds the liability limit.
High Deductible Health Plans
An HDHP is an alternative plan for employers in which they pay a reduced or minimum premium for their group health insurance, but the deductible for each individual is much higher before the insurance coverage begins. These plans are still considered fully insured by carriers, and usually have a maximum monthly claim liability as opposed to self-funded plans. This plan requires a much lower cost up front, and still has the benefit of a built-in stop loss once the deductible is hit.
HDHP plans are usually bundled with one of two account options for employees:
Health Savings Account (HSA)
This is a tax-exempt savings account for individual employees meant for paying for the deductible associated with the HDHP. These accounts can be funded by both the employee and the employer, but any money put into that account is reserved only for the employee on approved medical expenses. The employee still has control of their HSA if they leave the company for any reason. T
his option has been growing in popularity because it is desirable to employees to have the personal HSA that companies usually match up to a certain amount or percentage in contributions.
Health Reimbursement Arrangement (HRA)
This arrangement is similar to an HSA, but the main difference is that it is an employer-funded and owned account, and is typically overseen by a third-party administrator. An employee may still be required to contribute partially to the account, but the employer reabsorbs any leftover money. An HRA is a more flexible option for an employer than an HSA because the leftover money stays with the employer as opposed to the employee, which could lead to lower costs for the employee. Whereas with the HSA, the employee keeps the leftover money in their account which stays with them even after parting from their employer. This can still benefit the employee as well. Even though the money for health insurance would be cycled through the company, this means that the company can then afford better plans for the employee to access.
Alternative Funding and Employee Wellness
With alternate funding providing a different means to healthcare without fixed rates, this also means that the overall health and wellness of your employees will affect the financial risk the employer takes on.
Finding a plan that includes a wellness program can reduce healthcare costs for the group in the long run significantly. Wellness programs also encourage the employer to promote and guide employees to a healthier lifestyle, benefitting both employer and employee in more ways than just financial. These programs can also provide solutions for avoidable or chronic medical problems and conditions that arise from poor healthcare.
Alternative Funding with Alltrust Insurance
At Alltrust Insurance, we care about the health and wellness of you and your employees. There are many different ways for your company to provide affordable and effective healthcare, without spending a heavy amount on a fixed insurance rate. We can guide employers through various options to find the right one for each individual group. Contact us today for more information on how to start building the right health plan today.