An employer who is considering dropping their Level Funded group health plan prior to renewal should be counseled on the challenges of ending the contract early. While the employer might think they are saving money, they actually are causing some serious financial and legal difficulties. Here’s what might happen.
The employer will immediately lose all stop-loss insurance protection that ensures all claims are paid timely. This means that all claims currently being processed and those claims that are about to hit the claims fund have no stop-loss protection and the employer is 100% responsible for the total cost of the claim. The stop loss insurance simply caps the risk for the employer. So, in the example above, the cap is lifted, and the employer bears the cost of claims at 100%.
Because the employer signed a 12-month contract to pay claims for the employees that are on the plan, breaking the contract does not dismiss the employer’s responsibility to pay the claims for the employees.
With Level Funded plans, the stop-loss carrier automatically advances dollars into the claims fund any month there is insufficient dollars available to pay claims. This is also called an accommodation feature. When an employer prematurely terminates prior to the 12-month plan year – the employer is billed for loans that have been paid into the claims fund. Normally, as the employer makes their regular monthly payments, any loans advanced to the claims fund are subsequently paid off through the employer’s monthly payment. When an early termination occurs, the contract is broken, and the stop-loss carrier bills the employer for advancement of loans paid to the claims fund. This can be significant should there be a catastrophic medical issue at hand.
The employer also loses the benefits of having Vault Admin Services as the benefits administrator. The employer could be responsible for paying claims from their own account. Vault Admin Services can pay claims for what is left in the claims fund; however, the claims fund can only absorb so many claims before it is depleted, and the employer will be left to pay upcoming claims on their own.
Employees might seek compensation if the employer cannot pay claims.
These are a few of the crucial reasons it’s best to stay on the plan for the full 12 months. If the group, prior to purchasing the plan reveals they are facing some financial issues and might not be able to provide coverage for a full 12 months – the group would be better served waiting to level fund a plan until they are more financially stable.