Level-Funded Health Plan

A level-funded health plan is a partially self-funded arrangement in which the employer pays the same amount each month, covering expected claims, administration and stop-loss premium. It is built to feel like an insured plan while keeping some of the savings potential of self-funding.

These plans are aimed mainly at smaller employers that want cost predictability but would like the chance to benefit from a healthy year.

How Does a Level-Funded Plan Work?

The fixed monthly payment is split into three parts. One part funds a claims account, one pays the administrator, and one pays for stop-loss insurance that caps the employer's exposure on large claims.

If employee claims come in below the amount set aside, many level-funded contracts return some or all of the surplus to the employer at the end of the year, depending on the terms. If claims run above it, stop-loss coverage responds once the attachment points are reached.

Some contracts carry an aggregate cap that the employer can still exceed in a bad year. Reading what happens in each scenario is the most important step before signing.

How Common Are Level-Funded Plans?

They are most visible in the small group market. KFF's 2025 survey found that 37% of covered workers at firms with 10 to 199 workers were in level-funded plans, a share similar to the year before.

Growth has come from carriers and administrators packaging self-funding with simple pricing. That packaging removes much of the complexity that kept small employers out of self-funding in the past.

Interest rises when insured renewals are steep. Level-funded quotes become an alternative that employers can compare against a traditional renewal.

What Should Employers Weigh Before Choosing One?

Level-funded plans trade some certainty for flexibility, so employers should look closely at a few points:

• Underwriting: carriers often ask for medical history, so a group with several high claimants may be declined or priced higher.
• Surplus rules: confirm whether leftover claim dollars are refunded and when.
• Stop-loss terms: check the attachment points and any individual exclusions for known conditions.
• Renewal behavior: a poor claims year can lead to a sharp increase or a move back to insured rates.

The plan's setup is similar to an administrative services only model, so employers should also understand what the administrator does and does not handle.

How Does HR Prepare Employees for a Level-Funded Plan?

From the employee's side, the plan usually looks like any other: an ID card, a network and a set of deductibles. The difference sits with the employer, so communication should focus on plan design and not on funding. Rolling it out well starts with a clear open enrollment process.

HR should still know the funding story. When managers ask why the plan changed, HR needs a plain answer about cost control and risk, without implying anything about individual claims.

How Is a Level-Funded Plan Different From a Fully-Insured Plan?

In a fully-insured plan, the carrier keeps any premium that exceeds claims. In a level-funded plan, the employer's payments fund an account that pays claims, so unused funds may come back to the employer under the contract.

The trade-off is exposure. A fully-insured employer cannot be asked to pay more than the premium during the policy term, while a level-funded employer can be asked to cover claims above the monthly funding, up to the aggregate limit in the stop-loss contract.

Because of that exposure, level-funded plans suit employers that are comfortable with a modest amount of risk and that value data on what drives their costs.

How Can HR Cloud Help With Level-Funded Plans?

HR Cloud's product pages do not cover claims funding or stop-loss tracking, so those stay with your administrator and broker. People HRIS supports the people side with a single employee record, e-forms and e-signatures, and secure document storage with version tracking.

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Frequently Asked Questions

Q: Is a level-funded plan self-funded or insured?

A: It is a hybrid. The employer funds claims directly like a self-funded plan, but the fixed monthly payment and stop-loss coverage make it behave like an insured plan.

Q: Can employers get money back from a level-funded plan?

A: Many contracts return some or all unused claim funds at year end. The amount and timing depend on the agreement, so confirm it in writing.

Q: What happens if claims exceed the monthly funding?

A: The employer may owe more, up to the plan's aggregate limit. Stop-loss coverage then covers large individual claims above the attachment point.

Q: Do level-funded plans require medical underwriting?

A: Often yes. Carriers review the group's health history, which is why some groups get lower quotes than they would in an insured market.

Q: Which employers are the best fit?

A: Small employers with a generally healthy workforce, steady headcount and a wish to keep monthly costs predictable.

Q: Are level-funded plans regulated like insured plans?

A: They are generally treated as self-funded plans for regulatory purposes, so state insurance mandates often do not apply. Stop-loss rules vary by state.