As a third-generation family-owned broker, we understand that the modern healthcare landscape requires more than just a policy. It requires a data-driven strategy to control costs. If your company is currently stuck in a “community-rated” plan, you are likely to overpay to subsidize the health risks of other organizations.
In this blog we are going to talk about both level-funded vs. self-funded health insurance options for Ohio business owners. These types of benefit offerings can help business owners control costs and improve value for your team. Which one is right for you? Let’s explore the options.
Understanding Level-Funded Health Plans
Level-Funded plans are often considered the low-risk entry point for diverging from traditional healthcare coverage. There are plans are specifically designed for small to mid-sized Ohio businesses. These plans are designed for employers that want the financial benefits of self-insurance without unpredictable cash flow. In this model, your monthly premium is “leveled,” meaning it remains consistent throughout the year. This fixed payment covers administrative costs, stop-loss insurance premiums, and a dedicated claims fund. Research from the Kaiser Family Foundation (KFF) found that level-funding has gained significant traction among small and mid-sized employers. These employers were looking for more flexibility without the full financial exposure of self-insurance.
The strategic advantage of level-funding is the potential for a year-end refund. Because these plans are medically underwritten based on your specific team. Rather than being underwritten based on a broad geographic pool, a healthy workforce directly results in lower costs. If the total claims at the end of the year are lower than what you paid into the claims fund, a portion of that surplus is returned to your business. This provides a predictable budget with the added benefit of capturing savings that traditional carriers would otherwise keep as profit.
Level-Funded Plans are a Balanced Hybrid
Level-funded plans are often described as a “middle ground” or hybrid model. They are designed to feel like a traditional insurance plan but with the financial upside of self-funding. In this model, your business pays a fixed monthly amount, hence the name “level” funding. This payment covers administrative fees, the premiums for stop-loss insurance, and a set amount for projected claims.
At the end of the plan year, if your employees’ actual medical claims were lower than the projected amount you paid into the fund, you may receive a refund or a credit toward future premiums. This makes level-funding an excellent entry point for small to mid-sized Ohio businesses that want to capture savings without taking on significant financial risk.
Self-Funded Health Insurance: Total Transparency and Control
AUI has worked with mid-sized organizations or those with stable financial reserves, to establish and help with administering self-funded plans. We feel that utilizing self-funded plans empowers the highest level of customization and long-term savings for business owners. Unlike level-funding, where monthly costs are fixed, self-funding involves paying for medical claims as they are incurred. While this introduces monthly variability, it grants your business total transparency into claims data, allowing for highly targeted wellness initiatives and pharmacy benefit management.
Self-Funded Plans Maximum Control and Savings
Self-funded plans represent the highest level of customization and potential savings. In a purely self-funded model, your company pays for employee healthcare claims directly as they occur, rather than paying a fixed premium to a carrier. According to the National Institutes of Health (NIH), self-funded insurance is attractive because it typically reduces costs. It does so by eliminating state-levied premium taxes and insurance company profit margins.
Self-funded employers purchase stop-loss insurance, which steps in once claims exceed a certain dollar amount.
The key differences with self-funding include:
- Complete Customization: You have total control over the plan design, from choosing your Third-Party Administrator (TPA) to selecting specific Pharmacy Benefit Managers (PBMs).
- Data Transparency: You gain full access to claims data, allowing you to see exactly where your healthcare dollars are going and implement targeted wellness programs to lower future costs.
- Retention of Reserves: Unlike level-funded plans where a carrier might keep a portion of the surplus, in a self-funded plan, you keep 100% of the unused claims dollars and any interest earned on those reserves.
Which Model is Right for You? Level-Funded vs. Self-Funded?
Choosing between these two models depends on your company’s risk tolerance and cash flow stability. Level-funded plans offer a safety net with the “training wheels.” There is a level of predictable monthly payments, making them ideal for companies that are new to alternative funding. Self-funded plans are typically a better fit for organizations with 100+ employees. Or those with strong financial reserves who want to aggressively manage their long-term healthcare cost.
Why Ohio Employers Choose AUI for Benefit Strategy
At AUI, we believe that you shouldn’t have to navigate these complex decisions alone. We help you analyze your team’s health data. Talk with you about your financial goals. Then help you to determine which model, level-funded or self-funded, will best serve your employees. All while protecting your Ohio businesses bottom line. We have been helping companies in Ohio for over 50 years to find the strategic healthcare solutions they deserve.
Navigating the transition from community rating to alternative funding requires a broker with deep local roots and technical expertise. Associated Underwriters Insurance has spent five decades helping companies in Ohio identify which model aligns with their risk tolerance and corporate goals. Whether you are looking for the predictability of a level-funded plan or the maximum control of a self-funded structure, our team provides the year-round compliance and administrative support necessary to turn your healthcare plan into a competitive advantage.
Contact our team to learn more about options for self-funding benefits plans with AUI.
