A smart, flexible solution for small and mid-sized businesses
Level-funded health insurance is becoming an increasingly popular option for employers who want more control over healthcare costs while still offering quality benefits to their team. It blends the predictability of fully insured plans with the savings potential of self-funding.
What is a level-funded health plan?
A level-funded plan is a type of group health insurance where the employer pays a fixed (or “leveled”) monthly amount to cover three components:
- Claims funding – used to pay for employees’ medical claims
- Administrative costs – covers the insurer or third-party administrator (TPA) handling the plan
- Stop-loss insurance – protects the employer from high or unexpected claims
This setup allows employers to provide health coverage with the potential for savings — while maintaining predictable monthly payments.
How does it work?
Here’s what happens behind the scenes with a level-funded plan:
- You pay a fixed monthly amount. This covers expected claims, admin fees, and stop-loss protection.
- Claims are paid from the claims fund. If employees need care, their claims are paid from this portion of your payment.
- At year-end, unused claims dollars may be refunded. If claims are lower than expected, the employer could get a portion of the surplus back.
- If claims exceed expectations, stop-loss insurance kicks in. This protects your business from major financial risk.
How does it work?
Here’s what happens behind the scenes with a level-funded plan:
- You pay a fixed monthly amount. This covers expected claims, admin fees, and stop-loss protection.
- Claims are paid from the claims fund. If employees need care, their claims are paid from this portion of your payment.
- At year-end, unused claims dollars may be refunded. If claims are lower than expected, the employer could get a portion of the surplus back.
- If claims exceed expectations, stop-loss insurance kicks in. This protects your business from major financial risk.
Benefits of level-funded insurance
- Cost control with refund potential: You’ll know exactly what you’re paying each month, and you may get money back if claims are low.
- Increased transparency: You receive reports on claims activity, helping you understand where healthcare dollars are going.
- Custom plan designs: Level-funded plans often allow more flexibility in designing coverage that fits your employees' needs.
- Avoid some ACA requirements: In many states, level-funded plans for small businesses aren’t subject to all Affordable Care Act community rating rules, which can lead to more competitive pricing.
- Tax advantages: If structured properly, payments into a level-funded plan can be treated as tax-deductible business expenses.
Who is it a good fit for?
Level-funded plans work well for:
- Small to mid-sized businesses (typically with 5–200 employees)
- Employers with a relatively healthy workforce
- Companies looking for more cost transparency and potential savings
- Businesses who want to offer competitive benefits but are concerned about rising premiums
Things to consider
- Health risk matters: Because your group's health can affect future rates, it’s important to evaluate your employee population before switching. Most level-funded plans will require medical underwriting for firm premium rates.
- Plan management: You’ll want a reliable third-party administrator or insurance partner who can provide accurate reporting and strong support.
- Claims variability: While stop-loss insurance provides protection, understanding claims behavior is key to managing risk.