Healthcare plans for businesses continue to rise in cost, with average family premiums rising around 6-7% per year, outpacing wage growth. This places new pressure on employers to choose the right plan for their organizations, including how it is funded. Level-funded health plans are fast-growing, particularly for small and mid-sized businesses. However, employers have many choices and need to recognize the advantages and challenges of each type before committing their finances to long-term insurance workflows.
This article reviews level-funded health plans for modern businesses and the factors employers should consider when customizing and choosing health plans in 2026 and beyond.
What is a Level-funded Health Plan?
A level-funded health plan combines the features and risk profiles of fully insured and self-funded models. In a level-funded plan, employers pay for their policy in fixed monthly payments, which include administrative costs, stop-loss insurance premiums, and claims contributions.
Unlike other insurance models, level-funded health plans refund when the claims filed are lower than predicted. Conversely, stop-loss premiums cover claims that are higher than expected. This gives employers predictable premiums regardless of the number of claims, with a chance for annual credit.
Why are Level-funded Health Plans Growing?
Level-funded healthcare plans grew considerably among covered workers at small firms from 2019 (7%) to 2024 (36%). The appeal for small firms stems from three advantages of level-funded plans:
- Lower Premium Pressure: As premiums continue to outpace inflation and wage growth, employers look for insurance options with more predictable costs, including the possibility of an annual credit for fewer claims.
- Wider Availability: Small firms once struggled to secure healthcare coverage that was only available to larger businesses. Level-funded plans are more widely available, improving stop-loss markets for businesses of all sizes.
- Higher Data Transparency: Level-funded plans offer more complete claims data than fully insured plans, including monthly claims reports, admin costs, and stop-loss. This helps employers recognize where premiums are spent and identify potential coverage savings.
Employers benefit from insights into their cost drivers in several ways, including recognizing the need for more effective implementation of wellness initiatives. Level-funded health plans allow them to respond to increasing market competition by lowering the pressures of high premiums and maintaining better data clarity for more accurate premium adjustments.
What are the Benefits of Level-funded Health Plans?
These features result in several potential benefits for employers with level-funded health plans, including:
- More predictable cost assessments, which simplify the budgeting process
- Opportunities for yearly refunds, which can be reinvested in next year’s premiums
- Better long-term planning due to higher utilization data and claims transparency
- Flexibility resulting from more customizable plans
- Better control over regulatory efficiency under ERISA, including potential exemptions from some state tax mandates in certain situations, though regulatory outcomes vary by state and by the individual plan
These benefits have emerged as driving factors in the popularity of level-funded health plans, particularly among small businesses with much narrower margins. They offer a middle ground between the more restrictive fully-funded plans and the financial risks of self-insured plans.
Important Considerations for Employers
Despite these benefits, level-funded plans come with potential disadvantages that employers should be aware of, including:
- Potential year-end uncertainty since refunds are not assured, and a year of high claims can remove them entirely
- Regulatory oversight has increased in some states for level-funded plans
- Structure differences between carriers
Employers may shoulder more compliance responsibilities and fees by using level-funded plans. Employers need a broker with experience in compliance, payroll planning, and growth strategies to maneuver the complexities and potential challenges of level-funded health plans.
Who Should Consider a Level-funded Health Plan?
Level-funded health plans present benefits and challenges compared to other plan types, but the businesses most likely to benefit from these plans include:
- Small to mid-sized companies, often categorized as having up to 199 employees
- Businesses with stable, healthy, and young employee populations
- Companies open to moderate risk in exchange for potential savings
- Businesses willing to use claims data to improve wellness strategies
Local Insurance Brokers Offer Personalized Plans
Our team of experienced brokers at New City Insurance offers a client-focused insurance process for small to mid-sized businesses. Employers seeking competitive benefits plans with financial upsides need to know the differences in broad plan types in their situation and their personalization options to take advantage of modern benefits.
Contact our team for growth-oriented insurance solutions focused on reducing healthcare costs, compliance issues, and HR time spent across your organization. Schedule a consultation today to learn more.