How level funding works
Level funding is a kind of self-insurance that is paired with monthly cashflow stabilization. It offers the cost savings and flexibility of self-insurance while guaranteeing a fixed monthly contribution rate.
With traditional self-insurance there is a risk of "lumpy" cashflows. For example, if there is a really big claim in the first month of a plan year, a company may have to pay out a large cash amount they weren't anticipating. With level funding, however, companies are protected against that situation. Companies pay fixed monthly contributions whether claims are high or low. If claims are high, the stop loss carrier steps in to pay for claims.
Level funding is still self-insurance - at the end of the plan year, companies ultimately bear responsibility to pay for claims incurred. If plans have been priced conservatively, there will be leftover dollars in the claims fund and companies will get a rebate check. With some level funded plans, however, companies with high claims get a bill at the end of the year for money they owe to stop loss carriers. At Sana, we believe that is a bad experience, and we protect against that situation by "max funding".
"Max funding" is level funding where, over the course of the year, companies fund up to their maximum liability. Companies can feel confident they will not owe anything more than what they pay in their monthly contributions. At the end of the year, they may get a rebate check but they won't owe any claims dollars.