Level Funding Reporting Requirements

Understanding Reporting Requirements: Small Group Level-Funded Plans vs. Fully Insured Plans

Navigating the complexities of health insurance reporting can be daunting for small businesses, as most simply do not have HR departments. Whether you sponsor a level-funded plan or a fully insured plan, understanding the differences in reporting requirements is crucial for compliance and smooth operations. Let’s dive into the specifics of each type of plan.

Level-Funded Plans: A Hybrid Approach

Level-funded plans are a blend of self-insured and fully insured plans, offering cost savings since costs are based on actual insurance risk.  They also offer more flexibility, as you typically have more creative control over how the plan is structured. However, they come with unique reporting responsibilities, some of which you will NOT have if your company is on a fully insured program. Here’s what small employers need to know:

1. Annual Reporting Forms:

   • Forms 1094-B and 1095-B:  Employers sponsoring level-funded plans must file these forms to report health coverage details to the IRS and employees.  Form 1094-B acts as a transmittal sheet, while Form 1095-B provides detailed information about the coverage offered to each employee.

2. Information Required:

   • Employee and Coverage Details: Employers must report basic information about the employee, the employer, and the specific covered individuals and dependents, including names, social security numbers, and coverage months 

3. Electronic Filing:

   • IRS Requirements: Starting January 2024, employers with 10 or more forms must electronically file them with the IRS.  This shift emphasizes the importance of timely and accurate filing to avoid penalties.

Good news, many insurance companies help with all or most of this requirement.  Engage with them (or your broker) if you aren’t sure AND if they are offering help, take them up on it and don’t miss their deadline!!  Many payroll companies are also able to help with this requirement, and oftentimes they might make the most sense, as they have all of your employee data as well as know who has/has not taken you up on your health offering, but check the filing fees.  They can be very expensive in some cases.

PCORI Filings and Fees

The Patient-Centered Outcomes Research Institute (PCORI) fee is imposed on issuers of specified health insurance policies and plan sponsors of applicable self-insured health plans, which a level-funded plan is.  This is another requirement that you would NOT find with a fully insured plan.  If your company is sponsoring a level-funded or self-funded plan, guess what, YOU are the issuer.  Key points include:

1. Annual Filing:

   • Form 720: The fee is reported annually using Form 720, Quarterly Federal Excise Tax Return, due by July 31 

2. Fee Calculation:

   • Average Number of Lives Covered: The fee is calculated based on the average number of lives covered during the policy or plan year, multiplied by the applicable dollar amount for the year.  

1. For policy/plan years ending after September 30, 2023, and before October 1, 2024, the fee is $3.22 per covered person.  

2. For policy/plan years ending after September 30, 2024, and before October 1, 2025, the fee is $3.47 per covered person.

From our experience (we have a good # of clients who are on level-funded plans), this is something that most companies have their CPA’s help with since they are already handling quarterly filings in most cases, and it’s not a terribly difficult report to file.  Unfortunately, oftentimes the fee for the CPA to handle this extra reporting requirement is higher than the actual PCORI fee itself, especially for smaller businesses with under 15 / 20 employees.  We do have many clients who have taken this on themselves.

Last but not least – CAA Reporting Requirements – Somewhat new requirement on both sides 

Under the Consolidated Appropriations Act (CAA), health insurers and self-funded plans must report data annually regarding prescription drugs and health care spending.  

This reporting is required for both fully insured and self/level funded programs BUT is fairly new, so we wanted to make mention of that here.  

The intent behind this requirement is to allow the government to be able to see what the costs of the various drugs/drug manufacturers are doing to health plan costs.  We’re way too early into this reporting requirement for anyone to be able to get anything worthwhile out of this IMO.  I can tell you first hand, expensive, specialty drugs are one of the main 2 drivers in the continued increased costs in healthcare.  Here’s what’s required from a reporting standpoint:

Prescription Drug Data Collection (RxDC):

• Spending Details: Information on spending for prescription drugs and health care services, including the 50 most frequently dispensed brand prescription drugs, the 50 costliest drugs, and the 50 drugs with the greatest spending increase.

• Rebates and Costs: Data on prescription drug rebates, fees, and other remuneration paid by drug manufacturers, and their impact on premiums and out-of-pocket costs.

• Information on Costs:  The reporting requires the overall average cost per member and also the average cost that the employee paid each month.  This is the piece most insurance companies / TPAs request from the employer/broker.

2. Submission Deadlines:

   • Annual Reporting: Reports are due by June 1 each year.

Conclusion

Understanding the difference in reporting requirements for level-funded and fully insured plans is essential for compliance and avoiding penalties. Small employers must navigate the nuances of the extra reporting requirements of level-funded plans, although they are somewhat minimal.  

The main thing from our standpoint is understanding what is required and also making sure the reporting gets taken care of.  

In most cases, if your company is on a level-funded plan instead of a fully insured plan, your company should be saving tens of thousands of dollars per year, if not more.  Do NOT waste all of your savings on penalties and fines.  These requirements are not hard to handle, and in many situations, the health insurance company or TPA you are working with will help with all or most of the reporting; you just have to engage with them and pay attention to federal updates.  

As we all know, the health insurance space is very regulated, and with each add’l regulation that gets put into place, there’s usually a hard cost associated in the form of higher premiums or a soft cost associated in the form of time an employer, broker or CPA has to take handling the reports.  

Thank you so much for the read!  We hope this gives you some insight on some of the additional reporting requirements for those who are considering moving to level funding, OR those who have already made the move and didn’t realize there were extra reporting requirements.  

Ryan