We know that health insurance can be expensive, and finding the right health insurance for your employees isn’t easy.
There are a lot of different choices out there for insurance providers and insurance plans, and employee health insurance will always be something that’s top of mind for small to midsize business owners—especially as the U.S. eyes a potential economic recession, businesses can start to look for any possible way to save money while still offering the best to their employees.
In addition to being expensive, health insurance is also often complicated, and that makes finding the best and most cost-effective plan difficult, too. Below, we’ve looked at three types of popular insurance plans for small to mid-sized businesses and indicated some pros and cons of each.
In a level-funded insurance plan, an employer pays a cost determined by your healthcare provider. This is the estimated cost for expected claims, and it’s paid to an account for the insurance provider or Third Party Administrator (TPA) to cover claims, stop-loss coverage premiums and other expenses.
The costs for this level-funded plan get adjusted at the end of the year if those costs are higher or lower than what that original estimation was.
Pros of a level-funded insurance plan:
- These are typically less expensive.
- You get stop-loss coverage, which acts as a safety net to help your business avoid any unexpected large claims.
- There’s an opportunity for you to get a refund.
Cons of a level-funded insurance plan:
- You may not have as many plan options as other health insurance plans.
- You would likely see rate increases if you went over your claims spending.
- Sometimes much of the “refund” you receive is retained by the insurance company.
For a self-funded plan, employers are the ones that take the financial risk of providing health care benefits. Employers pay for claims out of pocket as they are made instead of paying a set fee premium that the insurance provider determined.
Pros of a self-funded plan:
- These can be customized for your workforce.
- Employers don’t have to pre-pay for coverage, improving their savings and bottom line.
- Self-funding a health care plan is often less costly and you save money because there are no state premium taxes.
Cons of a self-funded plan:
- Since your business assumes all of the risks, you have to make sure you can pay the health care claim. In times when revenue is not certain, this can add stress to the employer.
A captive plan is an insurance plan that is owned and controlled by its insureds but managed by an outside provider. Essentially, the financial risk is spread out among the insureds. The plan also adds an extra layer of protection against catastrophic claims that rise above your stop-loss coverage premiums.
Pros of captive insurance plan:
- This is a very flexible insurance plan.
- It’s a good bridge for those small to mid-sized businesses who aren’t ready to take on the full risk of a self-funded plan
Cons of a captive insurance plan:
- Like a self-funded plan, your business is taking on the risk, so you need money in reserves to be able to pay off claims.
- There are no tax benefits like with a self-funded plan
- The risk pools with these plans are much smaller than that of other plans, so total costs can vary each year, and that’s difficult to budget for.
GET THE HELP YOU NEED
We know there’s a lot of nuance between each of the types of insurance plans listed, but health-related benefits are important, and they are consistently at the top of the list of priorities for employees—both current and potential new employees.
Making the right decision is important, and we’d be happy to help you make sure you do. If you need help assessing the health insurance needs of your business, reach out to us today and we’d be happy to help you.