According to the Kaiser Family Foundation, approximately 36% of small firms reported offering a level-funded plan in 2024 to manage rising healthcare expenses. With healthcare costs continuing to skyrocket, many businesses are searching for innovative ways to provide quality coverage. Could a level-funded health plan be the solution for your business’ needs?
Let’s see how employee benefits consulting can make a difference in helping you maximize costs and enhance your workforce’s health coverage in 2026.
Explaining Level-Funded Health Plans
A level-funded health plan combines elements from both fully insured and self-funded models. Employers are responsible for paying a fixed monthly cost that covers administrative fees, estimated claims costs, and stop-loss insurance. This structure offers cost predictability with potential savings if claims are lower than expected, making it an attractive option for many businesses.
Level-Funding Connects Self-Funded and Fully Insured Models
Level-funding combines the predictability of fully insured plans with some of the cost-saving advantages of self-funding, offering a step closer to self-funded coverage without the full flexibility. As with fully insured plans, employers pay a set monthly fee but also assume responsibility for actual claims up to a limit, protected by stop-loss insurance. This blend offers both cost control and risk management benefits.
Who Manages the Claims and Administration?
In level-funded health plans, claims and administration are typically handled by a third-party administrator (TPA), often the insurance carrier itself, making the experience similar to a fully insured plan. The TPA handles claims processing, billing, and member support, allowing employers to focus on their business. This arrangement combines professional management with transparency, giving employers greater control over their health plan than fully insured options.
Important Advantages of Level-Funded Plans
Fully funded health plans offer employers a straightforward and predictable approach to providing employee coverage. By paying fixed premiums, businesses can easily budget their healthcare expenses without worrying about fluctuating claims costs. This stability, combined with minimal administrative responsibilities, makes fully funded plans an attractive choice for many employers seeking simplicity and financial certainty in their benefits strategy.
Predictable Monthly Costs and Budget Control
One of the primary advantages of both fully insured and level-funded health plans is predictable monthly costs. Employers pay a set amount each month, whether as a fixed premium in fully insured plans or a level payment in level-funded plans, to cover employee healthcare needs. This consistency makes budgeting simpler, improves cash flow management, and reduces financial uncertainty, giving businesses more confidence to plan their overall benefits spending.
Opportunity for Premium Refunds
Level-funded plans allow businesses to receive a refund when claims are lower than expected. These surplus funds can reduce the overall cost of coverage, creating potential savings beyond the predictable monthly payments.
In 2022, 37% of employers on level-funded plans received a surplus refund, with the average surplus being $8,400. Note that refunds are not assured and typically depend on the plan’s design and claims performance. Partnering with an employer benefits consultant can help you evaluate whether a level-funded plan with refund opportunities is a good fit for your business.
Potential Risks and Considerations
When choosing a health plan, weighing potential risks alongside benefits is essential. Each funding model carries particular challenges, from financial exposure to administrative complexity. When you better understand these factors, you can make more informed decisions that protect your business and support your employees. Careful evaluation can help you find a path that aligns with your budget and long-term goals.
Financial Risk Compared to Fully Insured Plans
In fully insured plans, the insurer assumes all financial risk for claims. However, with self-funded plans, employers take on the risk directly, potentially leading to greater savings and higher exposure if claims are unexpectedly high. Level-funded plans, by contrast, limit employer risk by offering monthly payments while still providing the potential for savings.
In fact, UnitedHealthcare reports that level-funded plans can generate about 17% in cost savings for employer groups compared to traditional fully insured coverage. Employers should weigh their risk tolerance carefully, but level-funding may offer a balanced path between stability and cost savings.
Limits on Customization and Network Options
Fully insured plans often come with limited customization and predefined provider networks, restricting employers’ ability to customize benefits or select specific healthcare providers. This can impact employee satisfaction and cost management. When you understand these limitations, you can better evaluate if a fully insured plan aligns with your company’s needs and goals.
Suitability for Different Employer Sizes and Industries
Choosing the right health plan depends on your company’s size and industry. Fully insured plans typically suit small to mid-sized employers seeking simplicity and predictable costs. Larger companies or those in sectors with variable health risks may benefit from self-funded or level-funded plans, which offer greater flexibility and potential savings. Assessing your workforce demographics and industry-specific healthcare needs helps determine the best funding model for your business.
Speak with an Employee Benefits Consulting Professional Today
An effective health plan funding model balances cost, risk, and employee satisfaction. Fully insured, level-funded, and self-funded plans offer particular advantages and challenges that might align with your goals. Partnering with experienced employee benefits consulting professionals can simplify this complex decision-making process.
Contact us today to discuss personalized solutions that can help optimize your benefits strategy and support the well-being of your workforce.