Level-funded health plans are a unique approach to providing employee benefits that offer the best of both fully insured and self insured plans. They are a popular option for employers looking to balance financial control with predictable costs. Level-funded plans offer a hybrid solution, combining the flexibility of self-funding with the safety net of stop-loss insurance, ensuring that your employees receive the coverage they need while keeping costs in check.
However, when thinking about compliance considerations level-funded plans are viewed as “self insured” and are treated as such. This in turn adds a few more compliance requirements to the Employer’s responsibilities. Below are some of the frequent compliance considerations of which Employers should be aware.
Affordable Care Act (ACA)
Small employers (those under 50 FTE*) will have ACA reporting obligations that they previously did not have with a fully-insured plan. Small group level-funded employers become responsible for filing the Forms 1094/5-B to report minimum essential coverage. This requires filing information reporting forms with the IRS and providing forms to applicable employees.
For large employers (those 50+ FTE) they will continue to report on the 1094/5-C series, but will need to include additional information related to spouses and dependents.
Filing Deadline: March for Prior Calendar Year
*FTE = Full Time Equivalent Employees
Patient-Centered Outcomes Research Institute (PCORI)
These fees are due based on the average number of lives covered under the plan. When fully insured the carrier pays this; however, when moving to level-funded it becomes the Employer’s responsibility to file the Form 720 with the IRS and submit payment for PCORI fees. In 2023 these fees were $3.00 per average covered life.
Filing Deadline: July for Plans with end dates in previous Calendar Year
State Continuation of Benefits following Termination
While COBRA is a federal law, and employers with 20 or more employees must offer continued coverage when an employee loses qualifying coverage, many states have their own rules regarding employers with 19 or less employees. These regulations are referred to as State Continuation. A level-funded plan is not subject to many of the state insurance mandates and therefore, small group employees who are terminated from their employer will not have State Continuation coverage available.
Non-Discrimination Testing under IRS Section 105(h)
These rules are designated to ensure that the plan does not discriminate in favor of highly compensated employees and requires annual testing to ensure compliance.
HIPAA
A level-funded plan must comply with all HIPAA privacy and security obligations, including providing a HIPAA privacy notice and workforce training, and implement more robust privacy and security procedures.
Data Reporting under the Consolidated Appropriations Act (CAA)
The CAA instituted several reporting requirements to help ensure more transparency between healthcare vendors and consumers. These include the following which employers with level-funded plans are responsible for annually filing with the appropriate governmental agency:
RxDC Reporting (Prescription Drugs) – June 1
Gag Clause Attestation – December 31
Level-funding can be a great option for many employers. It can provide the stability and predictability that you are used to with fully insured while offering cost-savings, flexibility, and access to useful claims data, which is available with being self insured. However, it is important to keep in mind the additional compliance responsibilities.
Silberman Group is here to help and can assist with providing a variety of resources for our clients when it comes to compliance and making sure you are performing your due diligence. Don’t hesitate to reach out to us with questions.
This document is provided for general informational purpose and should not be considered as legal or financial advice. We encourage you to consult with a qualified attorney to obtain legal guidance regarding your specific compliance needs. Please be aware that laws and regulations may vary and changes may have occurred since this document’s creation. It is your responsibility to verify the accuracy of current information as needed.
10/2023
