Employee Benefits & Group Plans
Different types of employee benefits include:
- Major medical health insurance
- Ancillary benefits (Dental & Vision insurance)
- Disability insurance (both short-term and long-term disability)
- Life Insurance
- Long Term Care Insurance
- Gap coverage to cover the out of pocket costs of your major medical plan
- Accident plan
- Hospital indemnity plan
- Critical illness plan
There are three main different types of major medical health insurance plans businesses can offer their employees. We will touch on each of them below. For more information on the other types of employee benefits, visit the corresponding description pages found on our Insurance 101 webpage.
General Information Regarding Group Health Insurance
A good rule of thumb for any type of group health insurance plan is that the employer would need to pay at least 50% of the cost of the employee-only rate. In addition, certain participation requirements must be met in order to offer a group plan. Typically those participation rules state that 75% of the employees that do not have coverage elsewhere must enroll in the plan.
The Three Main Health Insurance Options For Businesses
- Fully Insured Plan (The Traditional Setup)
- Self-Funded / Self-Insured Plan
- Level Funded Plan
Fully Insured Plan (The Traditional Setup)
Employers purchase these plans through an insurance company for a set price. At the anniversary date of your plan, the insurance company will decide to either lower or raise the monthly premiums for the next year. With a fully insured plan, all of the risk falls on the insurance company.
The rates for these plans are typically based on a the average healthcare expenses from a pool of individuals. This is called community rated. Community rated plans have fixed rates based on age. They also do not take into account underwriting, meaning the insurance company is required to accept anyone (this is called guaranteed-issue). Because of this, the rates are often going to be higher than any other option.
Fully Insured plans are required to follow the rules set in place by the Affordable Care Act. This means that you as the employer will never be able to recoup excess premiums. Even if your employees have very few and inexpensive claims throughout the year, you will not receive any of that excess money back.
Self-Funded / Self-Insured Plan
Employers can also set up a Self-Funded plan. With these plans, the premiums your employees pay go directly to your company, and you set aside these funds into a separate claims fund account. When an employee has a medical claim, you simply pull money from that bucket to help cover the costs. This means the amount you pay for the plan every month can wildly vary.
When starting out, there obviously won’t be much money in this account to pay for claims. Even if you do have enough money set aside, you could have one or two employees that have significant medical bills in a year, quickly depleting your claims fund. This is why we recommend purchasing stop-loss insurance to protect your business in case you face particularly large claims.
Along with purchasing stop-loss insurance, you will want to work alongside an insurance company to facilitate a provider network, help collect monthly premiums from your employees, manage your claims fund, and pay for covered medical expenses your employees have throughout the year.
One upside to a self-funded plan is that you can save a lot of money the year that your employees don’t have many claims. These savings are split at a pre-arranged agreement with the insurance company you are working with. On the flip side, your wallet can really take a beating in years where your employees aren’t as healthy.
Self-Insured plans are typically best for larger employers who have enough money that can be set aside in order to cover a couple years where their employees have large claims.
Level Funded Plan
Level-funded plans are sort of a combination of self-insured and fully insured plans. In a level-funded plan, the employer pays an insurance company a consistent monthly amount. This monthly cost is comprised of three elements, each representing about one-third of the monthly payment: a claims allowance for the employees, a third-party administration (TPA) fee, and a premium for stop-loss insurance coverage.
The claims allowance goes into an account from which employee medical costs are funded. The TPA fee goes towards paying for the administration of the program, including resolving claims. Lastly, the stop-loss premium pays for the stop-loss insurance coverage.
If there is a very large claim or several large claims, the stop-loss insurance will kick in. Unlike with a self-insured plan, the employer does not have additional costs at any time during the year because of large, unexpected claims. A review is done at the end of every contract year. if the total amount of claims were lower than projected, the employer receives a refund and/or sees a decrease in the monthly amount they pay for the following contract year on the basis that the monthly claims allowance should be less, as should the premium for the stop loss coverage. If the amount and cost of claims was close to what was originally projected, then the group will see little to no rate increase the following year. However, in a year where claims were more than anticipated, the monthly premium amount will increase the next year in order to pay for a higher stop-loss insurance cost.
Long story short is that things get balanced out year over year. If there were a lot of large claims in the past year, expect to pay more on a monthly basis for the next plan year, and vise versa. The entire concept of the level-funded plan is that the employer never has to pay more than the level monthly amount.
Level funded health insurance plans are really a perfect middle ground for small to mid-size companies who want to offer benefits but don’t know where to begin or think insurance for their employees will be unaffordable.
For a free, no-obligation quote for your business, call us at 402.661.0395.