5 Mistakes You're Making with Level Funded Plans (And How a Chicago Broker Fixes Them)
Level funded plans offer significant savings for small and mid-sized businesses, but they come with unique compliance risks that many employers overlook; this guide explores how Health Estimates ensures your plan remains compliant and cost-effective. 5 Mistakes You're Making with Level Funded Plans (And How a Chicago Broker Fixes Them) Level funded plans offer significant savings for small and mid-sized businesses, but they come with unique compliance risks that many employers overlook; this guide explores how Health Estimates ensures your plan remains compliant and cost-effective. Level funded health insurance plans have rapidly become the standard for small to mid-sized businesses in the Chicago area. These plans offer the predictability of a fully insured plan with the potential for the financial upside typically reserved for large corporations. However, because level funded plans operate under different legal frameworks than traditional insurance, many employers inadvertently fall into costly regulatory traps. At Health Estimates, we have spent over 45 years helping businesses navigate the complexities of employee benefits. We act as your advocate, working for you rather than the insurance carriers, to ensure your plan is managed with precision and expertise. Understanding the nuances of these plans is the difference between a successful benefits strategy and a compliance nightmare. Below are the five most common mistakes employers make with level funded plans and the specific ways a professional Chicago broker like Health Estimates mitigates these risks. 1. Treating Level Funded Plans Like Fully Insured Plans The most fundamental mistake an employer can make is assuming that a level funded plan is legally identical to a fully insured plan simply because the monthly payments are "level" or fixed. In reality, level funded plans are technically self-insured arrangements under federal law. This distinction is critical because it shifts the burden of compliance from the insurance carrier to the employer. When you are in a fully insured environment, the insurance company takes on most of the regulatory heavy lifting. In a level funded environment, the employer becomes the "Plan Sponsor" and "Plan Administrator." This triggers specific responsibilities under the Employee Retirement Income Security Act (ERISA), the Affordable Care Act (ACA), and the Health Insurance Portability and Accountability Act (HIPAA). Failing to recognize this shift can lead to missing federal filings or failing to provide mandatory disclosures to employees. Health Estimates fixes this by providing comprehensive education at the outset. We don't just sell a plan; we implement a framework. By leveraging our deep industry knowledge, we ensure that every client understands their fiduciary role. We guide you through the transition from a traditional model to a level funded model, ensuring that all administrative boxes are checked before the plan even goes live. 2. Mishandling PCORI Fee Liability The Patient-Centered Outcomes Research Institute (PCORI) fee is a requirement under the ACA that funds research into the effectiveness of medical treatments. For fully insured plans, the insurance carrier calculates and pays this fee. However, for level funded plans, the responsibility lies solely with the employer. many business owners assume that because they pay a monthly "premium" to a carrier like Blue Cross Blue Shield or UnitedHealthcare, these fees are automatically handled. This is a dangerous assumption. PCORI fees must be reported and paid annually using IRS Form 720. If an employer uses employee contributions to pay these fees without proper structure, or fails to file entirely, they face penalties and interest. Some vendors may offer to "wrap" these fees into the monthly payment, but the legal liability remains with the employer, not the vendor. As a premier Chicago broker , Health Estimates monitors these deadlines for our clients. We work closely with our partners: including Aetna, Cigna, and others: to identify the exact number of covered lives and provide our clients with the necessary data to complete their IRS filings accurately and on time. We ensure you never miss a compliance deadline that could result in unnecessary IRS scrutiny. 3. Incorrectly Calculating COBRA Premiums COBRA compliance is notoriously difficult, but level funded plans add an extra layer of complexity. Many employers mistakenly use their total monthly level funded payment as the basis for the COBRA premium charged to departed employees. This is often incorrect because the monthly payment in a level funded plan consists of three distinct parts: the administrative fee, the stop-loss insurance premium, and the claims fund. Federal regulations require that the COBRA premium be based on the "applicable premium," which is the cost to the plan for similarly situated active employees. Because level funded monthly costs are often based on a "maximum" liability rather than the "expected" liability, simply using the monthly invoice amount may result in overcharging or undercharging participants. Overcharging can lead to lawsuits from former employees, while undercharging results in the employer subsidizing coverage more than necessary. Health Estimates utilizes EASE benefits administration technology to streamline this process. EASE allows for precise tracking of employee data and integrates with COBRA third-party administrators to ensure that the rates communicated to participants are calculated in accordance with federal guidelines. Our 45+ years of experience allow us to audit these rates to protect our clients from litigation risks. 4. Ignoring Pharmacy Rebates and Spread Pricing In the world of level funded plans, pharmacy costs are often the largest variable expense. Many employers assume that if their pharmacy claims are low, they will see a larger refund at the end of the year. However, if the contract with the carrier or Pharmacy Benefit Manager (PBM) is not transparent, the carrier may be pocketing pharmacy rebates that should rightfully belong to the employer's claims fund. Spread pricing is another hidden cost. This occurs when a PBM charges the plan more for a drug than it pays the pharmacy, keeping the "spread" as profit. Without an expert broker to audit these contracts, an employer may be losing thousands of dollars in potential savings and year-end refunds. At Health Estimates, we work for the client, not the insurance companies. We have established strong partnerships with major carriers like MetLife, Principal, and UnitedHealthcare , and we use our leverage to push for transparent pricing models. We analyze the fine print of level funded contracts to ensure that pharmacy rebates are credited back to your plan, maximizing the potential for a year-end surplus. We believe that if your employees stay healthy, your business should reap the financial rewards. 5. Failing to File Gag Clause Attestations A newer regulatory requirement that catches many level funded employers off guard is the Gag Clause Prohibition Compliance Attestation (GCPCA). Under the Consolidated Appropriations Act of 2021, group health plans are prohibited from entering into agreements with providers or TPAs that restrict the plan from sharing cost or quality information. Employers are required to submit an annual attestation to the Centers for Medicare & Medicaid Services (CMS) confirming compliance. Failing to file this attestation can result in penalties of up to $100 per participant, per day. Many employers are unaware of this requirement because it is a relatively recent addition to the compliance landscape. Because the insurance carriers do not always file this on behalf of level funded plans, it frequently falls through the cracks. Health Estimates stays at the forefront of legislative changes. We provide proactive alerts and instructional guidance to our clients regarding the Gag Clause Attestations. Our team ensures that you have the documentation needed to prove compliance, protecting your business from the "fiduciary breach" labels that can arise from administrative oversight. We take the "Everything" job title seriously, managing the minutiae so you can focus on growing your business. The Health Estimates Advantage: Technology Meets Experience Managing a group health plan should not feel like a second full-time job. The primary reason businesses in Chicago and throughout the region partner with Health Estimates is our ability to combine high-tech solutions with high-touch service. By using the EASE platform , we provide your employees with a modern, digital enrollment experience while providing you with a centralized hub for all benefits data. The EASE technology handles everything from new hire onboarding to open enrollment, ensuring that data is transmitted accurately to carriers like BCBS and Aetna. This reduces the risk of manual data entry errors that lead to billing discrepancies and coverage gaps. However, technology is only as good as the experts behind it. With over four decades in the industry, the team at Health Estimates brings a level of personalized service that "digital-only" brokers simply cannot match. When you call our office, you aren't reaching an anonymous call center. You are reaching a team that understands the local Chicago market and the specific challenges facing businesses today. Whether you are looking for a small business quote or a comprehensive review of your existing level funded plan, we provide the expertise needed to optimize your benefits spend. Why Work with a Dedicated Chicago Broker? Chicago is a unique market with a highly competitive landscape of healthcare providers and insurance carriers. Working with a broker who is physically located here and understands the local networks: from Advocate Health to Northwestern Medicine: is a significant advantage. We know which carriers have the best provider discounts in the Chicagoland area and which level funded products are delivering the best returns for our clients. Our commitment to working for the client means we are not beholden to any single insurance company. We compare options across the board, providing you with a transparent view of the market. Our goal is to find the plan that fits your budget while providing the highest level of care for your employees. From the initial quote process to the final year-end refund analysis, Health Estimates is by your side. Conclusion: Stay Ahead of the Curve Level funded plans are an excellent tool for controlling healthcare costs, but they require a higher level of oversight than traditional plans. By avoiding the common mistakes of regulatory misunderstanding, PCORI fee neglect, and COBRA errors, you can secure the long-term financial health of your organization. Partnering with Health Estimates gives you the peace of mind that your benefits program is compliant, efficient, and tailored to your specific needs. Don't leave your employee benefits to chance. If you are currently using a level funded plan or are considering making the switch, let the experts at Health Estimates perform a comprehensive review of your strategy. Contact us today to learn how we can simplify your benefits administration and protect your bottom line. Ready to see the difference that 45 years of experience makes? Visit our business quote page to get started with a customized evaluation of your group health insurance options.