Level Funding

Question 1

Level Funding

Definition

Answer 1

ASO integrated with stop-loss coverage offered by insurance companies

• Level monthly costs
• Small groups can have the benefits of self-funding, while limiting the disadvantages

Question 2

Level Funding

6 Cost Components

Answer 2

• ASO Fee (admin)
• Aggregate Stop Loss
• Specific Stop Loss
• Paid Claims Fund held by issuer to cover expected claims
• IBNR fund to cover claims incurred during period, but paid afterward
• Incurred Claims Cost Projection

Question 3

Level Funding

Paid Claims Fund Formula

Answer 3

= ASL Corridor * Group’s Projected Paid Claims Below SSL Deductible

Question 4

Level Funding

Compare Level Funding and ACA PRicing

Answer 4

• ACA Community Rating rules don’t have many pricing levels and restrict pricing small groups based on risk (Level Funding doesn’t)
• High-Risk groups are likely better off under ACA community rating

Question 5

Level Funding

Considerations with Offering Level-Funding Product

Answer 5

• Insurer may not want to offer level-funding to good risk group that would otherwise choose ACA
• Level-funding doesn’t yet offer good-risk groups with their lowest cost option
• Hard to price, sell, and administer
• Have to price in such a way that the expected profit is similar to fully insured group
• Train sales staff to help small groups understand level funding