Level-funded plans let your company share in the claims risk and reward. A fully funded plan charges a fixed premium and returns nothing in a healthy year: $0.1 A level-funded plan may return a portion of unused claims funds as a refund or credit, depending on the carrier’s terms.2 The sweet spot for level-funded plans is often 25 to 500+ employees.1 Results vary.

Level-funded vs. fully funded at a glance

Fully funded (fully insured) Level-funded
Premium structure Fixed premium paid to the carrier Fixed monthly payment split into a claims fund, plan fees, and stop-loss
Healthy-year result Returns nothing: $01 May return a portion of unused claims funds as a refund or credit, depending on the carrier’s terms2
Bad-year exposure The carrier takes the claims risk; renewal pricing may rise Stop-loss insurance limits the company’s share of large claims; renewal pricing may reflect your claims
Best-fit size Any size Sweet spot often 25 to 500+ employees; larger groups often fit too, and smaller groups may qualify where carrier minimums allow1
Claims data Rarely shared Available to the employer
Who to ask Your current carrier or broker A broker who quotes level-funded carriers, and the carrier’s underwriting team

For the three-way breakdown that adds fully self-funded plans, see the self-funded vs. level-funded vs. fully-insured comparison. For the wider self-funded picture, read self-funded vs. fully-insured.

Many employers hear about two options: the fully-insured plan they already have and, for larger companies, a fully self-funded plan. The option in between is the level-funded health plan. It takes a little more explanation than an off-the-shelf fully-insured product, which is why it comes up less often.

What is a level-funded health plan?

A level-funded health plan is a self-funded health insurance arrangement packaged into a fixed monthly payment. Every month, the employer pays the same predictable amount (the way it would under a fully-insured plan), but under the hood, the money is split three ways:

  1. Expected claims fund. A portion goes into an account dedicated to paying your team’s actual medical claims.
  2. Administrative fees. A fixed amount covers the third-party administrator or carrier that operates the plan.
  3. Stop-loss premium. A portion pays for the stop-loss insurance that limits your exposure to catastrophic claims.

At the end of the plan year, the claims fund is reconciled. If your team’s claims came in below the expected amount, the plan may return a portion of the unused funds, as a refund or as a credit toward next year, depending on the carrier’s terms.2 If claims came in higher than expected, stop-loss covers claims above the limits in your contract.

The point of the structure is to pair the predictability of fully-insured cash flow with the transparency and potential upside of self-funding.

Level-funded vs. fully-insured: what changes

The day-to-day experience is almost identical. Your employees use the same provider networks, show the same ID card, and go through the same claims process. The difference lives on your side.

What stays the same:

  • Fixed, predictable monthly payment
  • Provider network access
  • Employee experience
  • Many federal consumer protections (some small-group ACA rules, such as community rating and the essential health benefits package, don’t apply to self-funded and level-funded plans)3

What changes:

  • You typically get claims reports, which fully-insured carriers rarely share
  • You may be able to adjust plan design with more flexibility at renewal
  • A good claims year may put money back with you, rather than with the carrier
  • State premium tax treatment of the claims portion may differ (varies by state)

For groups with favorable claims, a level-funded quote may come in below a comparable fully-insured quote, and any refund is potential upside. Quotes depend on your group’s health history, so compare real numbers.

One separate point: if a fully-insured carrier spends too little of its premiums on care, the ACA’s medical loss ratio rules may require it to pay rebates. Those rebates depend on the carrier’s whole book of business, so they’re unrelated to your own claims year.4

Level-funded vs. self-funded: what changes

If level-funded is technically a form of self-funding, what’s the real difference?

Cash flow. A fully self-funded plan pays claims directly as they come in. That means your monthly spend varies: some months are quiet, some are expensive. Level-funded smooths that into a predictable bill.

Administration. Level-funded is essentially a packaged product. The carrier handles the bundling, the stop-loss negotiation, and the unused-funds calculation. Fully self-funded typically involves a third-party administrator and more active management from the employer or broker.

Customization. Fully self-funded plans can be designed with more granular control over benefits, networks, and claim-handling rules. Level-funded plans are more standardized. You pick from the carrier’s menu of options.

Stop-loss control. In a fully self-funded plan, you shop stop-loss separately and can negotiate attachment points and terms. In level-funded, stop-loss is bundled with the plan.

Smaller groups often start with level-funded. Larger groups with steady claims and a finance team that wants more control may look at fully self-funded. The right line depends on your claims profile, risk tolerance, and appetite for variability, rather than on a rigid size cutoff.

The useful question is “why am I still on fully-insured,” rather than “level-funded or self-funded.” Both alternatives give you what fully-insured structurally can’t: visibility.

Level-funded health plan pros and cons

Pros:

  • Fixed monthly cost. Same budgeting predictability as fully-insured.
  • Claims data access. You can see what’s driving your spend.
  • Potential refund or credit. A good year may put a portion of unused claims funds back with you, depending on the carrier’s terms.
  • May cost less than a fully-insured quote for a group with favorable claims.
  • Same day-to-day experience. Employees see no difference in their network or ID card, though some small-group ACA rules don’t apply to self-funded plans.3
  • Sweet spot for mid-sized and larger groups. It’s often 25 to 500+ employees, and the larger the company, the better level funding tends to work.1

Cons:

  • Medical underwriting required. Most carriers require health questionnaires or claims history to quote. Groups with known high-cost conditions may see worse pricing or be declined.
  • 12-month commitment. Once you’re in for the plan year, you’re in. Switching mid-year is rare.
  • Renewal re-underwriting. If your actual claims experience was heavy, your renewal will reflect it. In the small-group fully-insured market, rates are community rated, so a heavy year is spread across a wider pool (larger fully-insured groups are experience-rated too). In a level-funded plan, your own claims drive the renewal.3
  • Refunds aren’t guaranteed. If claims exceed the expected amount, there’s nothing to return. Stop-loss limits your exposure on large claims, but a refund is a potential outcome, never a promise.
  • More engaged plan management. You should review claims reports each period, in addition to approving a monthly payment.

When a level-funded plan is the right fit

The sweet spot for level-funded plans is often 25 to 500+ employees with healthy or favorable demographics, where the finance team wants fixed monthly payments and leadership wants visibility into costs.1 Smaller groups can also find level-funded plans in some states. Availability varies by state, and some states restrict stop-loss for small groups.3 It’s an especially good option to quote for employers on fully-insured plans facing steep renewal increases, or those planning to move to fully self-funded in a year or two once they have their own data.

It’s a weaker fit for very small groups (the stop-loss math can get thin), groups with known chronic high-cost conditions, or companies where leadership has no interest in engaging with claims data. If you can’t tolerate the risk of a rough renewal after a heavy claims year, fully-insured may be the more comfortable structure.

In Utah? Utah’s regional carriers and the national carriers both offer level-funded plans, and the same 25 to 500+ sweet spot applies.1 Our guide to level-funded vs. fully insured in Utah compares the two for Utah employers.

How level-funded plans handle stop-loss

Stop-loss is the piece that makes this work at the small-group level. A single very large claim is why stop-loss exists. With it, your worst-case outcome is defined by your contract.

A level-funded plan bundles stop-loss into your monthly payment. The carrier sets two limits:

  • Specific stop-loss kicks in when any one individual’s claims exceed a defined threshold for the year
  • Aggregate stop-loss kicks in when the whole group’s claims exceed a defined ceiling, expressed as a percentage above projected claims

If you’re curious about how those thresholds affect your exposure, Aggregate vs. Specific Stop-Loss walks through how each one works.

How to evaluate a level-funded quote

When you receive a level-funded quote, don’t just compare the monthly payment to your current fully-insured number. Look at the full structure:

  1. What’s the stop-loss attachment point, both specific and aggregate? Lower thresholds mean more protection and a higher monthly cost.
  2. How are unused claims funds calculated and returned? Is it a percentage split with the carrier? Is there a holdback? Is it a refund or a credit toward next year’s payment?
  3. Is there lasering? Lasering is when the carrier carves out a specific high-risk individual with a higher personal attachment point. It can change your exposure a great deal.
  4. What’s the renewal process? Ask the carrier directly: how do you re-underwrite at renewal, and how do you price a renewal after a neutral-claims year?

A broker who quotes level-funded plans should walk you through all of this.

Where this leaves you

A level-funded health plan is worth comparing against your fully-insured quote every year. It offers the predictability your CFO wants, the data your plan advisor needs to help you, and the potential to get back a portion of what you don’t spend. The trade-off is claims risk limited by stop-loss and more active engagement with the plan.

For a business watching premiums climb year after year, that’s a trade-off worth modeling.

Want to see what level-funded looks like for your company? We run this analysis for every client, free, no obligation. Talk to us.

Footnotes

  1. Kingsfoil Health, Rate Shock Survival Guide. States that a fully funded plan returns $0 in a healthy year and that the level-funded sweet spot is 25 to 500+ employees. It’s a range where level funding often works well rather than a limit, and larger groups often fit too. ↩ ↩2 ↩3 ↩4 ↩5 ↩6 ↩7

  2. UnitedHealthcare, What is a level-funded health plan?. Describes a possible refund of unused claims funds, or a credit toward the next year, depending on the plan’s terms. ↩ ↩2 ↩3

  3. National Association of Insurance Commissioners, Stop Loss Insurance, Self-Funding and the ACA. Self-funded plans avoid some ACA requirements, including community rating in the small-group market, and state law on stop-loss varies. ↩ ↩2 ↩3 ↩4

  4. CMS, Medical Loss Ratio. Insurers must spend at least 80% or 85% of premium on care and quality or rebate the difference to customers. ↩