Business Leaders Beginner 13 min read

Self-Funded vs. Level-Funded vs. Fully-Insured: The Definitive Comparison

The three employer health plan structures compared side-by-side — how each works, what they cost, who they fit, and how to decide. The comprehensive reference.

By Kingsfoil Health Editorial Team, Employer Benefits Desk Published April 24, 2026

The single biggest decision most employers make about health insurance isn’t which carrier to use, or whether to offer HDHP or PPO, or how much to fund the HSA. It’s which funding structure to adopt. That decision (fully-insured, level-funded, or fully self-funded) determines most of the economics, all of the claims data visibility, and a large share of the plan design flexibility you’ll have going forward.

Most employers default into fully-insured without ever making an active choice between the three structures, because fully-insured is what their broker presents and what they’ve always had. This is the definitive side-by-side comparison, with enough depth to actually make an informed decision.

If you want the quicker versions:

Self-Funded vs. Fully-Insured — the two-way pillar comparison
Level-Funded Explained — level-funded standalone
Three Types of Employer Health Plans — all three at a high level

This article goes deeper than any of those, with direct three-way comparisons on every dimension.

The three structures, at a glance

Fully-insured

How it works: Employer pays a fixed monthly premium to an insurance carrier. The carrier takes on all claims risk. If claims are high, the carrier absorbs the loss; if claims are low, the carrier keeps the savings. Premium is recalculated annually based on the broader risk pool’s experience.

Who the risk sits with: Carrier (employer’s cost is fixed). Who gets the surplus: Carrier. Claims data visibility: Minimal. Plan design flexibility: Constrained to carrier’s product menu.

Level-funded

How it works: Employer pays a fixed monthly amount covering three components: expected claims, administrative fees, and stop-loss premium. The carrier manages the plan and processes claims. At year-end, if actual claims came in below expected, the employer receives a surplus refund. Stop-loss covers catastrophic claims.

Who the risk sits with: Employer (capped by stop-loss). Who gets the surplus: Employer (with potential carrier holdback). Claims data visibility: Yes, typically monthly reporting. Plan design flexibility: Moderate, more options than fully-insured, fewer than self-funded.

Fully self-funded

How it works: Employer pays claims directly as they occur through a third-party administrator (TPA) or carrier acting as a TPA. Employer pays administrative fees separately. Employer purchases stop-loss insurance separately to cap catastrophic exposure. Monthly cost varies based on actual claims.

Who the risk sits with: Employer (capped by stop-loss). Who gets the surplus: Employer (retained as claims fund balance or returned to general operations). Claims data visibility: Full, with granular detail. Plan design flexibility: High. Custom plan design with carrier network access leased from a major carrier.

The structure comparison table

Dimension	Fully-insured	Level-funded	Fully self-funded
Monthly cost	Fixed	Fixed (bundled)	Variable
Claims risk	Carrier	Employer (stop-loss capped)	Employer (stop-loss capped)
Claims data access	Limited	Full	Full
Good-year savings	Kept by carrier	Refunded to employer	Retained by employer
Plan design flexibility	Low	Medium	High
Administrative complexity	Low	Low–Medium	Medium
Typical group size	Any	10–200	50+
Regulatory framework	State insurance	ERISA (federal)	ERISA (federal)
Medical underwriting	No (ACA small group)	Yes	Typically yes
Stop-loss responsibility	N/A	Bundled by carrier	Shopped separately
Cash flow predictability	High	High	Moderate
Control over vendor choices	Low	Medium	High

The economics: an illustrative worked example

To see how the math plays out across the three structures, consider an illustrative 50-employee Utah company. The numbers below are constructed examples; actual carrier quotes vary widely based on group profile, market, and design choices.¹

Illustrative assumptions:

Average employee age in the late 30s
Mix of self-only and family coverage
Expected annual claims of $500,000

Fully-insured quote

Annual premium: $680,000
Employer share (80%/60% blend): ~$540,000
Total annual employer cost: ~$540,000

Good year vs. bad year? Employer pays the same $540,000 either way. Carrier keeps any savings.

Level-funded quote

Bundled monthly payment (claims + admin + stop-loss): $55,000/month = $660,000/year
Employer share (80%/60%): ~$525,000
If claims come in at projected $500,000, surplus of $30,000 refunded
Net employer cost: ~$495,000
Expected total annual employer cost: ~$495,000

Worst-case (aggregate stop-loss triggered at 125%): employer’s cost capped at approximately $540,000, roughly equivalent to the fully-insured cost but with the upside of lower cost in normal or favorable years.

Fully self-funded quote

Expected claims: $500,000 (employer share: ~$400,000)
Administrative fees: $60,000 (employer share: ~$48,000)
Stop-loss premium: $80,000 (employer share: ~$64,000)
Expected total annual employer cost: ~$512,000

If claims are 10% lower ($450,000): employer cost drops to ~$470,000 (saves $42,000 vs. expected). If claims are 10% higher ($550,000): employer cost rises to ~$552,000. If claims are 25% higher ($625,000): aggregate stop-loss triggers, capping employer cost at ~$577,000.

Expected total annual employer cost: ~$512,000 with upside ~$470,000, worst-case ~$577,000.

Side-by-side summary

Structure	Expected year	Best-case year	Worst-case year
Fully-insured	$540,000	$540,000	$540,000
Level-funded	$495,000	$470,000 (with refund)	$540,000 (aggregate cap)
Self-funded	$512,000	$470,000	$577,000 (aggregate cap)

Over multi-year windows, level-funded almost always beats fully-insured, and self-funded beats both for groups 50+. The self-funded worst-case is worse than fully-insured but happens less often than fully-insured saves you money.

When each structure is the right choice

Fully-insured makes sense when:

Group size is under 10 employees (alternatives harder to place)
Group has chronic high-cost conditions that would drive tough level-funded underwriting
Employer values pure cash-flow predictability above all else
Employer doesn’t want to engage with claims data or plan management
Group is volatile (rapid growth, high turnover) making multi-year commitment uncertain

Level-funded makes sense when:

Group size is 10–200 employees
Group is healthy or has reasonable demographics
Employer wants claims data access but also wants fixed monthly payments
Employer is willing to engage actively with plan management
Employer is comfortable with renewal re-underwriting based on own experience

Fully self-funded makes sense when:

Group size is 50+ employees (though some 25-employee groups make it work)
Group has stable, healthy claims experience
Employer has cash flow tolerance for month-to-month variability
Employer wants maximum plan design flexibility
Employer has or is willing to hire a capable benefits advisor for ongoing management

The transition path most employers follow

A common progression for growing employers:

Start fully-insured at launch or at small group size
Move to level-funded around 15–25 employees when renewal increases become painful and data access becomes valuable
Evaluate fully self-funded at 75–100 employees once level-funded data shows stable, favorable claims
Remain on self-funded long-term as the best economic fit for mid-sized employers

At each step, the structure provides more control, more data visibility, and more savings. The trade-off is more management engagement.

Stop-loss: the structure that makes alternatives work

Both level-funded and fully self-funded structures depend on stop-loss insurance to cap catastrophic risk:

Specific stop-loss protects against any single employee’s claims exceeding a defined dollar threshold for the year
Aggregate stop-loss protects against total group claims exceeding a defined ceiling (typically a percentage above projected claims)

Without stop-loss, alternatives to fully-insured would be irresponsibly risky for small employers. With stop-loss, the worst-case outcome is defined and bounded. See:

Employee experience under each structure

An overlooked dimension: what do employees experience differently?

Fully-insured: Standard carrier-issued ID card, carrier customer service, standard plan design from the carrier’s menu.

Level-funded: Same network, same provider access, same claims process. Many level-funded plans use “carrier TPA arm” branding so the employee experience is nearly identical to fully-insured. Often includes concierge support as a value-add.

Fully self-funded: Network leased from a major carrier, so provider access is identical to fully-insured coverage under the same carrier. Claims process runs through a TPA. Often paired with concierge support. Employee experience is indistinguishable from fully-insured in most cases.

See Is Self-Funded Good for Employees? for the detailed breakdown. Well-run alternatives are usually as good or better for employees than fully-insured.

Common misconceptions

“Self-funded is only for big companies.” False. Level-funded is widely available at 10+ employees, and fully self-funded becomes viable in the 25–50 employee range.

“Level-funded is risky because it’s self-funded.” Misleading. Level-funded bundles stop-loss into the monthly payment and caps worst-case at the aggregate stop-loss threshold. The risk is bounded, not unlimited exposure.

“Fully-insured is safer.” Depends what you mean by safer. Fully-insured has lower cash flow variability but reliably higher long-term cost. Over multiple years, that “safety” costs more than the variability of alternatives.

“Once you go level-funded, you can’t go back.” False. You commit for the 12-month plan year, but at renewal you can return to fully-insured. In practice, most employers don’t go back because the data and economics are better under alternatives.

“Self-funded requires hiring a bunch of internal benefits staff.” False. Self-funded plans are administered by TPAs; the internal work is similar to fully-insured. What changes is the advisor relationship. You need an advisor who can help manage the plan actively, not just sell a renewal.

The decision framework

Concrete steps for making the structure decision:

Step 1: Request quotes on all three structures: fully-insured from 2-3 carriers, level-funded from 1-2 carriers, and self-funded with stop-loss if group size permits.

Step 2: Model total annual cost under each structure, including expected claims, administrative fees, stop-loss, and employer contribution levels. Present as a range (favorable / expected / unfavorable).

Step 3: Evaluate cash flow tolerance. Can your business handle month-to-month variability (which fully self-funded plans produce), or do you need fixed monthly payments (level-funded or fully-insured)?

Step 4: Evaluate engagement capacity. Do you have the advisor relationship and leadership attention to manage an active plan? If no, fully-insured may be right even if economics favor alternatives.

Step 5: Consider the 3-year trajectory, not just year 1. Level-funded and self-funded produce compounding advantages as data accumulates and the plan is refined. Fully-insured locks you into the carrier’s trajectory.

Step 6: Decide and commit for 12 months. Plan to re-evaluate at renewal with actual experience data.

The practical takeaway

Self-funded vs. level-funded vs. fully-insured is the single highest-leverage decision in employer health insurance. For most healthy groups of 10 or more employees, fully-insured is structurally more expensive than alternatives. The default-to-fully-insured pattern is one of the most common and most costly patterns in small-employer benefits, and it persists because commission-based brokers have weak incentives to challenge it.

The right structure depends on your specific group. There’s no universal answer. But the universal recommendation is to evaluate the three structures rather than defaulting. Most employers who run the real comparison find that their current structure isn’t optimal, and the improvement from switching is bigger than they expected.

Want to run the full three-way comparison for your specific company? We can quote fully-insured, level-funded, and self-funded side-by-side with full economic modeling and decision support. Talk to us.

All dollar amounts in the worked example (premiums, employer shares, claims, savings, surplus refunds, stop-loss attachment points and reimbursements) are illustrative. Actual outcomes vary widely by group size, demographics, claims experience, plan design, and carrier. Specific numbers in your quote require modeling against your group’s data. ↩

Frequently asked questions

What is the main difference between self-funded, level-funded, and fully-insured health insurance?

Fully-insured: employer pays fixed premium, carrier takes all claims risk, carrier keeps surplus. Level-funded: employer pays bundled monthly amount including expected claims + admin + stop-loss, employer keeps surplus if claims are low. Fully self-funded: employer pays claims directly as they occur, stop-loss protects against catastrophic claims, employer captures all savings from good experience. The three structures represent increasing employer control, transparency, and upside — with correspondingly increasing management engagement.

Which is better — level-funded or self-funded?

For most groups under 100 employees, level-funded typically wins because it smooths cash flow into fixed monthly payments while still providing claims data access and surplus potential. For groups 100+ with stable claims, fully self-funded usually delivers lower total cost. The decision depends on cash flow preference, administrative capacity, and risk tolerance — level-funded is the lower-variability choice; self-funded is the higher-upside choice.

Is level-funded a form of self-funded?

Yes, technically. Level-funded is a self-funded arrangement packaged into fixed monthly payments, with stop-loss insurance bundled in. The employer still takes on claims risk (bounded by stop-loss), still has access to claims data, and still can receive surplus. The structural difference is that level-funded carriers smooth the cash flow and manage the stop-loss relationship, while fully self-funded employers manage those pieces themselves.

What size company can afford to self-fund?

Level-funded is generally available starting at 10 employees (some carriers go to 5). Fully self-funded typically becomes viable at 25–50 employees, with most employers finding the structure economically compelling at 100+ employees. The threshold depends on group claims profile — healthier groups can sometimes self-fund earlier than average groups. Stop-loss makes the math work at smaller sizes by capping catastrophic exposure.

What are the biggest risks of self-funding?

Three main risks: (1) cash flow variability — claims come in unevenly month-to-month; (2) a bad claims year — if experience is worse than expected and stop-loss thresholds are high, the employer absorbs the difference; (3) administrative complexity — requires more active management than fully-insured. All three are manageable with good advice: cash reserves, well-designed stop-loss, and a capable advisor. Level-funded reduces all three risks vs. fully self-funded.

How do I know which plan structure is right for my business?

Four questions: (1) How many employees do you have? (under 10 = fully-insured, 10–100 = level-funded usually wins, 100+ = self-funded often wins). (2) How healthy is your team relative to the broader market? (healthier = bigger alternative-structure advantage). (3) Can your cash flow tolerate month-to-month variability? (yes = self-funded possible; no = level-funded or fully-insured). (4) How engaged are you willing to be in plan management? (more engagement = more value from alternative structures).

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