Level Funding Is Self-funding: 5 Avoidable Contract Risks, With Frank Pennachio

Level-Funded Health Plan Risks: ERISA Contract Traps, Stop-Loss Gaps, and Surplus Fine Print. Episode 533. An employer with a fully insured plan told Stacey Richter his renewal this year was 69% — his broker negotiated it down to 50%, which she's not sure she'd classify as a victory. Level funding looks like a lifesaver in that spot, but as Frank Pennachio, author of The Silent Danger and a health insurance veteran with nearly 40 years of experience, explains, level funding is self-funding, with all the fiduciary risk that comes with it. Frank walks through five avoidable contract risks that level-funded plan sponsors fall into regularly, from embedded ERISA violations to stop-loss misalignment to surplus fine print. WHAT YOU'LL LEARN ✅ Why level funding is self-funding — it feels like a fully insured plan because of the flat monthly payment, but the plan sponsor carries the risks and benefits of self-funding, including fiduciary responsibility ✅ How third-party administrator (TPA) and administrative services only (ASO) agreements can embed ERISA violations the moment they're signed, and why ERISA allows personal assets to be exposed ✅ How stop-loss misalignment leaves the plan sponsor on the hook when plan promises, like eligibility for employees on approved leave, aren't reimbursed under the stop-loss contract ✅ The surplus fine print: incurred but not reported (IBNR) factors, service fees Frank has seen as high as 30%, and surplus returned as an invoice credit instead of a check ✅ Why claims data access promised up front can get signed away, and why fiduciaries must pay prudent fees — like a $50,000 charge to reprice one hospital bill ✅ Four action items: never sign a contract as is, educate the plan sponsor team, run a legit RFP, and pick a broker or EBC with experience and financial alignment WHY THIS MATTERS With renewals like 69% and 50%, there's a lot of desperation out there for a lifesaver, and level funding is being sold as one. But as Frank Pennachio quotes Thomas Sowell, "There are no solutions, there are only trade-offs," and the goal is for plan sponsors to pick the trade-offs they want rather than desperate ones. The cost increases will sting, Frank says, and they won't likely bankrupt most companies, but the risks you unknowingly assume could. === LINKS === 🔗 Show Notes with all mentioned links: https://cc-lnk.com/EP533 🔗 The Silent Danger by Frank Pennachio https://www.thesilentdanger.com ✉️ Enjoy this podcast? Subscribe to the free weekly newsletter: https://relentlesshealthvalue.com/joi... 🫙 Support the podcast with a small donation to the Tip Jar: https://relentlesshealthvalue.com/joi... 🎤 Follow us on Apple Podcasts https://podcasts.apple.com/us/podcast... 🎤 Follow us on Spotify https://open.spotify.com/show/6UjgzI7... 📺 Subscribe to our YouTube channel    / @relentlesshealthvalue   === CONNECT WITH THE RHV TEAM === ✭ LinkedIn   / relentless-health-value   ✭ Threads https://www.threads.net/@relentlesshe... ✭ Bluesky https://bsky.app/profile/relentleshea... ✭ X   / relentleshealth   00:00 Introduction to this episode. 03:37 An overview of today's conversation. 04:57 What level funding is. 06:20 Why level funding is having an explosion in popularity. 08:03 What does an employer need to take into account when considering level funding? 09:36 The first risk of level funding. 12:24 The second risk of level funding. 14:07 EP478 and EP479 with Andreas Mang and Jon Camire. 14:41 LinkedIn post by Kimberly Carleson. 14:50 LinkedIn post by David Goldfarb on stop-loss cost trends. 15:01 The third risk of level funding. 19:45 The fourth risk of level funding. 21:46 The fifth risk of level funding. 24:07 EP512 with Doug Aldeen. 24:14 EP457 with Cynthia Fisher. 24:41 Actionable strategies when considering level funding. 27:34 Survey by Kaiser Family Foundation. 33:30 A summary of advice for level funding. 34:08 EP453 with Claire Brockbank. 34:31 EP433 with Justin Leader.