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The Three Types of Health Plan Funding Arrangements

One of the most critical factors that determine the growth of your business is how well you treat your employees. These are the people who work hard to ensure that the company goals are met. The best thing you can do for an employee is to reward them for their excellent work, and offering health insurance is one of the best ways to do this. Health benefits for your employees come with a number of advantages, including attracting talent, increasing productivity, boosting morale, and creating a positive company culture. Health insurance ensures that you do not suffer losses if an employee gets a severe accident or illness. Keep reading to get to know the different routes you can take when it comes to funding your health insurance plan.



Fully-funded Insurance Plans


This is an insurance plan where the employer purchases health insurance for their employees for a set monthly premium. That means that whenever an employee gets an accident or falls sick, they do not have to go into their pockets to pay for the healthcare. Instead, the insurance company where they are insured assumes the risk. When the employee spends more than the premiums paid, the loss goes to the employer and not the employee. This structure works best with small companies.

Several factors affect the premiums that employers have to pay, and they include:

  • The company size. How many employees are to be insured? The more the employees, the higher the monthly premiums.

  • What is the health condition of the employees? If a group of employees has a number of them suffering from underlying conditions or chronic illnesses, the premiums will be higher than a group that is all healthy.

  • Claim ratio. What is the number of claims made by the employees annually? If they are high, expect high premiums.


Self-funded Health Insurance Plans


This is the structure that works best with large organizations with a thousand plus employees. In a self-funded insurance plan, the employer accepts the responsibility of taking contributions from its employees monthly. The employer then pays the medical bills of any employee who gets sick or gets in an accident. The balance that remains after the employer has paid all the claims goes to the employer. However, if the employee claims to go past their contribution, the Stop-loss structure comes in. Stop-Loss insurance is when the employer shifts the risks to the insurance company when the costs rise above the deductibles.



Level-funded Health Insurance Plans


This is a structure that incorporates both self-funded insurance and fully funded insurance plans. It is a good plan for upcoming companies with few employees. What happens is that the employer and the insurance company share the risk. The employer pays monthly premiums to the insurance company.


The payment is to cater for the claims, Stop-loss, and administrative costs. The outstanding factor about this plan is that the insurer returns the balance to the employer after paying all the claims annually. If the claims exceed the premiums paid, the employees will face a higher stop-loss premium the following year.


Having known the three types of health fund planning arrangements, you are in a better position to decide on what works best for you as an employer or an employee.

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