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Health insurance: two ways to fund the same coverage

Fully insured (traditional)

Where the premium goes

Every fully insured premium includes carrier margin, state premium tax, and a cushion for claims that may never happen. In a good year, the carrier keeps what your group did not use. That is the trade for predictability, and for some groups it is the right trade.

Simple and ready to go.

The coverage option most businesses already know. Simple. Familiar. Ready to go.

What this means for your business

  • Comprehensive coverage.
  • Fixed monthly premiums.
  • Less control over plan design.
  • Small groups often pay more under Traditional coverage. Premiums are based on the entire insurance pool, not your specific group's health.

Level funded

How the payment splits

You write one fixed check a month, same as before. Behind it, the money goes three places: an administration fee, stop-loss insurance that caps what your group can owe, and a claims fund that is yours. Claims run high, stop-loss pays the overage. Claims run low, the leftover comes back to you.

Pay for your own group's health, not everyone else's.

The option healthy groups often never hear about. Smarter. Fairer. Rewards good health.

What this means for your business

  • Level Funded premiums are based on your specific group's claims experience, not the entire insurance pool.
  • Moving from a 60 percent to a 70 percent actuarial value plan can raise your premium by up to 22 percent, so knowing exactly what you are paying for, and why, matters.
  • One client's own renewal mailer from their previous carrier showed savings up to 30 percent on a matched, gold-to-gold plan comparison, a real result, not a typical one.
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How we got here

2014

The Affordable Care Act required small group plans to price coverage using community rating, not a specific group's own health. Healthy groups started paying to help cover the cost of less healthy groups in the same pool.

2018 to 2025

Level Funded adoption among small firms climbed from 6 percent to 37 percent. Healthy groups found a way to base pricing on their own claims experience instead.

Source: KFF Employer Health Benefits Survey

How Traditional Group Health got here

  1. 1929

    Baylor Hospital in Dallas let schoolteachers pay a small monthly fee for guaranteed hospital care. That idea became the seed of what we now call group health insurance.

    Source: Texas Historical Commission, Texas Historic Sites Atlas

  2. 1942

    The federal government froze wages during World War II. Employers could not raise pay to compete for workers, so they started offering health coverage instead. Benefits were not covered by the freeze.

    Source: United States House of Representatives, Office of the Law Revision Counsel

  3. 1954

    That tax-free treatment was written directly into Section 106 of the Internal Revenue Code. It has stayed that way ever since.

    Source: Section 106 of the Internal Revenue Code

  4. 2010 to 2014

    The Affordable Care Act was signed into law in 2010. Its major provisions, including required minimum benefits, went into effect in 2014. That is the version of Traditional Group Health most businesses have today.

    Source: Affordable Care Act

Questions about level funding

Bring the renewal. We will look at the math behind it.

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