Level-Funded Health Plans
A type of employer health plan that combines features of both fully insured and self-funded health insurance.
A level-funded health insurance plan is a type of employer health plan that combines features of both fully insured and self-funded health insurance. With a level-funded plan, the employer pays a fixed monthly amount, similar to a traditional fully insured premium, but part of that payment is used to fund employee medical claims, making it a form of self-funding.
How level-funded health plans work
--> Claims funding — money set aside to pay employees’ healthcare claims
--> Administrative fees — paid to an insurer or third-party administrator to manage the plan
--> Stop-loss insurance — protection that limits the employer’s financial risk if claims are unusually high
--> If employee claims are lower than expected, the employer may receive a refund or credit at the end of the plan year
--> If claims are higher than expected, stop-loss insurance helps limit the employer’s exposure
In simple terms: Level-funded plans give employers the predictable monthly payments of fully insured coverage, with some of the potential savings and flexibility of self-funded coverage.
Common advantages of level-funded health plans
--> Predictable monthly costs
--> Potential refund if claims are low
--> More claims-data visibility than fully insured plans
--> Stop-loss protection against large claims
--> Often attractive to small and mid-sized employers
Level-funded plans exploded in the small and mid-sized employer markets after health care reform. The most common level-funded plans have been those offered by the BUCAs — the major national health insurance companies.
CuatroBenefits Insights:
The biggest downsides to level-funded plans have to do with how they are priced initially, how wildly renewal pricing varies, their lack of data transparency, and the inability of employers to take meaningful control of their health plans. While level-funded plans may provide some rate relief initially to groups that qualify, in our experience carriers tend to settle on level-funded pricing just below the rates for their fully insured health plans. In other words, for all the promise of rate relief offered by level-funded plans, we are left feeling like the BUCAs are just using them to shadow price profitable business as close as possible to already high fully insured plan rates.
Employers with level-funded plans also find that their renewals increase wildly after years with significant claims. The carrier wanted them when they were deemed profitable, but once they have a bad year, the carrier all but forces them to leave.
Finally, while the BUCAs give a little more access to claims data for level-funded plans, it is still extremely limited. Moreover, there are generally no ways for employers to take control or change any aspects of the plans.
Level-Funded Health Plan FAQs:
Yes, and it's one of the most attractive features of level funding. At the end of the plan year, the administrator compares what you paid in against what was actually spent on claims and fees. If your group ran better than projected, you may receive a refund or credit for the surplus. That's the upside of taking on a bit more of the risk — when your people stay healthy, your organization can share in the savings.
This is where stop-loss insurance protects you. Your monthly payment is “level” — a fixed, predictable amount — and built into it is stop-loss coverage that caps your exposure if claims run high. So even in a rough year, you're not writing an open-ended check; your downside is limited to what you've already budgeted. It's a way to capture savings potential without betting the business on it.
Because you're partly funding your own claims, the carrier looks more closely at your specific group — things like team size, demographics, and often a brief health questionnaire — to project your expected claims. Your level payment then bundles three pieces: claims funding, administrative fees, and stop-loss protection. The upside of that individualized underwriting is that a healthy group can be rewarded with more competitive pricing than a one-size-fits-all fully insured rate.
Often, yes. Level funding was designed to bring self-funding-style advantages to smaller employers, and many groups well under 100 employees use it successfully. It tends to be a strong fit for organizations with relatively stable, healthy claims that want more transparency and a shot at savings without the full complexity of self-funding. The honest answer depends on your specific group, and we're glad to run the numbers with you.