Level-Funded Health Plans for Businesses
Looking for more control over your company’s health insurance costs? Level-funded health plans combine features of traditional group health insurance with some of the potential cost advantages and transparency of self-funding—while helping protect your business from unexpectedly high claims.
For the right employer, a level-funded plan can provide predictable monthly costs, greater insight into healthcare spending, and the possibility of savings when claims are lower than expected.
What Is a Level-Funded Health Plan?
A level-funded health plan is an employer-sponsored health plan that combines predictable monthly payments with some of the flexibility and transparency commonly associated with self-funded coverage.
The employer pays a set monthly amount that generally covers estimated employee claims, plan administration and stop-loss insurance. If claims are lower than expected, the employer may be eligible for a surplus refund, credit or other adjustment, depending on the carrier and the terms of the contract. If claims are higher than expected, stop-loss protection helps limit the employer’s financial exposure.
Level-funded health plans can offer businesses a clearer view of how their healthcare dollars are being used, but they are not the right fit for every employer. Group size, employee demographics, claims history, plan design and the employer’s goals all need to be considered.
How Level Funding Works
Each monthly payment is divided into components that work together to provide employee health coverage while helping the employer manage financial risk.
Claims Fund
A portion of the monthly payment is placed into a fund used to pay covered medical and prescription-drug claims for employees and their eligible dependents.
Plan Administration
Another portion covers services such as claims processing, customer support, provider-network access, plan documents and reporting.
Stop-Loss Protection
Stop-loss insurance helps protect the business when an individual has unusually high covered claims or when the group’s total covered claims exceed limits established by the plan.
Why Employers Consider Level Funding
For the right business, a level-funded health plan can offer more information and flexibility than a traditional fully insured arrangement while maintaining predictable monthly payments.
Potential advantages may include:
- Predictable monthly healthcare costs
- Greater visibility into claims and plan utilization
- Stop-loss protection against eligible high-cost claims
- More flexibility in plan design
- Opportunities to identify healthcare cost drivers
- Potential return of unused claims funds, depending on contract terms
These potential advantages are not guaranteed. The plan’s costs, claims experience, stop-loss provisions and year-end terms should be reviewed carefully before an employer makes a decision.
Level-Funded vs. Fully Insured Health Plans
Both arrangements can provide group health coverage, but they handle healthcare costs, claims information and financial risk differently.
Fully Insured Health Plans
With a fully insured plan, the employer pays a fixed monthly premium to the insurance carrier. The carrier assumes responsibility for paying covered claims according to the policy.
The employer generally receives limited information about the group’s claims experience and does not receive money back when claims are lower than expected.
Level-Funded Health Plans
With a level-funded plan, the employer makes a predictable monthly payment that includes estimated claims funding, administrative expenses andnommen stopless insurance.
The employer may receive more information about claims and plan utilization. When claims are lower than projected, the employer may be eligible for a surplus refund, credit or adjustment, depending on the carrierless carrier andfully and contractless contract.
Neither arrangement is automatically better. The appropriate choice depends on the business, its employees, available plan options and the employer’s financial goals.
Is Level Funding Right for Your Business?
Level funding may be worth considering for employers that want greater insight into healthcare spending while maintaining predictable monthly payments.
A level-funded health plan may be a good fit for a business that:
- Has a relatively stable workforce
- Wants greater visibility into claims and plan utilization
- Prefers predictable monthly healthcare costs
- Wants more plan-design flexibility
- Wants to explore alternatives to traditional fully insured coverage
- Is comfortable reviewing plan data and year-end contract terms
Level funding is not the right solution for every employer. Group size, employee demographics, claims history, budget and tolerance for risk should all be considered before selecting a plan.
Understanding Stop-Loss Protection
Stop-loss insurance helps limit an employer’s exposure when covered claims are higher than expected. Level-funded plans commonly include two forms of protection.
Specific Stop-Loss
Specific stop-loss applies when one covered person has claims that exceed a stated amount during the contract period. It helps protect the employer from the financial impact of an individual high-cost claim.
Aggregate Stop-Loss
Aggregate stop-loss applies when the group’s total covered claims exceed a stated limit during the contract period. It helps protect the employer when overall claims are higher than projected.
The limits, covered expenses and contract terms vary by plan. Employers should review both forms of stop-loss protection carefully when comparing level-funded health plans.
Other Employee Benefit Options
Level funding is only one way to provide valuable benefits to your employees. We can also help businesses compare other coverage options based on their workforce, budget and goals.
Group Benefits
Build a broader employee benefits package that may include group health, life, disability and voluntary benefits.
ICHRA
An Individual Coverage Health Reimbursement Arrangement allows eligible employees to purchase individual health insurance while the employer reimburses qualified expenses according to the arrangement’s terms.
Dental & Vision
Dental and vision coverage can strengthen an employee benefits package by helping employees manage routine care and related expenses.
Frequently Asked Questions About Level-Funded Health Plans
Below are answers to common questions employers may have when considering a level-funded health plan. Eligibility, costs, claims arrangements, stop-loss protection and year-end terms vary by carrier and contract.
Is a level-funded health plan the same as a self-funded plan?
A level-funded health plan is a form of self-funding. The employer makes predictable monthly payments that generally include estimated claims funding, administrative expenses and stop-loss insurance.
What happens if employee claims are lower than expected?
The employer may be eligible for a surplus refund, credit or other adjustment. The amount and availability depend on the carrier and contract terms, so a return is not guaranteed.
What happens if claims are higher than expected?
The claims fund pays covered expenses up to the plan’s established limits. Stop-loss insurance helps protect the employer when eligible individual or total group claims exceed specified amounts, subject to the contract’s terms.
What size business can use a level-funded health plan?
Eligibility varies by carrier, state and group characteristics. Some level-funded plans are available to smaller employers, while others have different participation or group-size requirements.
Do employees still use a provider network?
Generally, yes. Employees typically receive identification cards and use the provider network included with the plan. Networks and covered services vary by carrier and plan.
Are level-funded health plan savings guaranteed?
No. Results depend on claims experience, administrative costs, stop-loss expenses and contract terms. Employers should compare the full plan carefully rather than making a decision based only on possible savings.
How can an employer determine whether level funding is a good fit?
The employer should review its group size, employee demographics, claims information when available, budget, benefit priorities and tolerance for risk. Comparing level-funded and fully insured options side by side can help clarify the differences.
Ready to Compare Level-Funded Options?
Every business is different. We can help you compare level-funded and fully insured health plans, understand the costs and protections, and determine which options may fit your workforce and budget.
Useful Links
For additional information about level-funded and self-funded health plans, explore these independent resources:
KFF Employer Health Benefits Survey
Review current information about level-funded health plans, self-funded arrangements and stop-loss protection.
2025 Employer Health Benefits Survey
KFF Guide to Health Insurance Regulation
Learn how fully insured and self-funded employer health plans differ in their funding, administration and regulation.
The Regulation of Private Health Insurance
U.S. Department of Labor
Explore research about self-insured employer health plans, including funding arrangements, participation and plan characteristics.