Employer Sponsored Group Health Isn't the Only Game in Town

Employer Sponsored Group Health Isn't the Only Game in Town

Thanks to passage of the Affordable Care Act (ACA) back in 2010, most U.S. employers are required to offer their employees some sort of health plan that meets minimum essential coverage (MEC) requirements. For many employers, this means traditional employer sponsored group health insurance. But group health insurance isn't the only game in town. There are alternatives.

Self-Funded Health Plans

One of the most attractive alternatives to employer sponsored health insurance is the self-funded health plan. As long as such plans offer coverage in the ten categories designated by the ACA, they are good to go. Self-funded plans are still required to comply with reporting mandates.

Here is how a self-funded plan works. The employer sets up a fund designed to cover its employee's healthcare expenditures. The account is funded through a combination of employer contributions and employee payroll deductions. All medical bills are paid from this fund. In some cases, payments are made to employees as reimbursements rather than being made directly to healthcare providers.

Cost Containment Advantages

Employers appreciate self-funded plans for their cost containment advantages. They can determine for themselves what things they want their plans to cover – and what they choose to not cover. They can work out deals with healthcare providers for reduced rates on services. In the simplest possible terms, self-funded plans are controlled completely by employers. They give employers a lot of flexibility.

Level Funded Health Plans

Another alternative to employer sponsored group health insurance is the level funded health plan. This sort of plan is almost a hybrid of self-funded benefits and a typical insurance plan. Here is how it works: the employer pays an insurance company a monthly flat rate base on estimated healthcare costs for the coming year. Medical bills are paid by the insurance company.

At the end of the plan year, any excess payments are returned to the employer as either cash or a credit toward the next plan year. If the employer's account is in the red, it must make up the difference from its own cash resources.

Why Employers Like Level Funded Plans

An employer looking to provide healthcare benefits without going through a traditional group insurance plan might not necessarily have on aversion to health insurance itself. It might just be a cost issue. But why would an employer choose a level funded plan over a self-funded plan?

StarMed Benefits, a website with an insurance penalty calculator tool, says it is usually a matter of fear. Going self-funded opens an employer to significant risk. If the expenses in a given plan year exceed the available funds, the employer needs to come up with the balance somewhere. Medical bills need to be paid.

The level funded plan mitigates the risk by guaranteeing all bills will be paid by the insurance company. An employer still has to make up the difference should its flat rate payments not cover the entire cost of expenses, but at least bills are paid and employees aren't left holding the bag.

Worth Looking Into

As healthcare costs continue to rise and health insurance premiums become increasingly more unaffordable, both self-funded and level funded health plans are worth looking into. Neither option is traditional health insurance. But that doesn't mean the plans do not adequately meet employee needs. They can and do meet most needs.

The reality is that employer sponsored group health insurance isn't the only game in town anymore. Employers do have other options. There are alternatives to traditional health insurance, alternatives that ultimately save money but still meet the requirements of the ACA for minimal essential coverage.