What is a level-funded health plan?
A level-funded arrangement is a form of self-funding that packages expected claims, administration and stop-loss insurance into scheduled monthly payments. Employees use the plan’s provider network and benefits; behind the scenes, the employer funds eligible claims under the plan documents.
The appeal is a more predictable funding schedule, the possibility of sharing in unused claims funds and information to guide future benefits decisions. The right fit depends on your workforce, underwriting, cash flow and the actual contract. Lower costs and surplus payments are possibilities, not guarantees.
Benefit Experts helps Washington employers compare level funding with fully insured group health insurance, including employee benefits and the employer’s financial obligations.
Three parts. One funding arrangement.
1. Claims funding
The portion set aside for eligible medical and, where included, prescription claims. Ask how the funding amount is calculated, who holds it and how reconciliation works.
2. Stop-loss insurance
Coverage for specified claims exposure above contractual thresholds. Specific stop-loss addresses an individual’s covered claims; aggregate stop-loss addresses covered claims for the group.
3. Administration
Services such as claims processing, network access and member support. Confirm which fees are included and which services, reporting or compliance work cost extra.
Watch: What is a level-funded health plan?
See how claims funding, administration and stop-loss fit together.
Apply the overview to your actual proposal. The video describes common features in general terms. Savings are not guaranteed. Stop-loss does not cap every employer expense: exclusions, timing and contract terms matter. Tax treatment varies, and stop-loss premiums may still be subject to premium tax. Read these points alongside the employer checklist below.
Read the video transcript
A level-funded health plan is an increasingly popular approach to providing health insurance
coverage to employees due to its flexibility and cost-saving potential.
Level-funded health plans combine many of the benefits of a self-insured health plan, namely
potential cost savings, flexibility with plan design and access to useful claims data, with
the financial security of a fully insured health plan.
With a level-funded plan, the employer pays a set monthly premium to an insurance carrier
or third-party administrator to cover estimated health care claims for the year, stop-loss
insurance and plan administration expenses.
If an employer's health care claims for the year are lower than estimated, the employer
may receive a refund of all or a portion of the surplus from the carrier or TPA.
If the claims exceeded what the employer paid, in most cases, stop-loss insurance will cover
the overage amount.
There are several reasons level-funded health plans have grown in popularity.
First, they often come with lower monthly costs compared to fully insured plans.
This cost reduction stems from the fact that the monthly fee for level-funded plans is tailored
to the company's specific employee group rather than the broader community, which can
lead to diminished overall risk and expenses when the workforce remains healthy and avoids
high-cost claims.
Additionally, the monthly fee excludes state premium taxes and fees typically associated
with fully insured plans.
Furthermore, these plans provide a sense of predictable expenses and low risk.
Even if claims surpass expectations, employers are not obligated to pay more due to the built-in
stop-loss insurance that comes with level-funded plans.
Level-funded plans also offer flexibility and plan design because they are not subject to
most state insurance mandates and greater access to actionable utilization information, which
can help an employer control future costs while maximizing the potential for a refund
for the current coverage period.
There are, however, some concerns associated with level-funded health plans.
One notable concern is the involvement of complex contract terms, which tend to vary among carriers.
Because level funding is a newer concept, the contract terms may be unfamiliar to most employers,
which can lead to errors or put employers in an unfavorable position.
Additionally, the success of level-funded plans depends heavily on the makeup of the employee
group.
In most cases, the monthly costs for a level-funded plan will vary based on how the employer's own
employee group uses health care.
The employer could see significant savings with a level-funded plan if a company's workforce
is generally young and healthy and doesn't incur high-cost claims.
However, if the employee group is older, has chronic conditions or takes expensive medications,
a level-funded plan could be costlier than a fully insured plan.
In sum, level-funded plans can be a valuable addition to the range of health care options
available to small and medium-sized employers and their employees.
What to consider at your group size.
These are planning ranges, not carrier eligibility rules. At 50 or 100 employees, review both neighboring sections. Total employees, eligible employees, enrolled employees and ACA full-time equivalents are different counts.
5–50 employees
Keep the comparison practical for an owner or a small HR team.
Start with the benefits you need, the employer contribution you can sustain and the fully insured options available to your group. A level-funded proposal can be worth reviewing when you want a predictable payment schedule and are comfortable with underwriting and plan administration.
- Confirm the minimum number of enrolled employees, participation rules, contribution requirements and whether your group is eligible for a quote. Five employees does not automatically mean five eligible or enrolled employees.
- Compare doctors, hospitals, prescriptions, deductibles and out-of-pocket limits before comparing price. A lower employer payment is less useful if key employee benefits change.
- Ask who handles enrollment, employee questions, required documents and self-insured coverage reporting. A small workforce does not remove every plan-sponsor duty.
- Build your budget assuming no surplus refund. Check the cost if enrollment changes or you leave the arrangement.
50–100 employees
Connect your funding choice to growth, payroll and compliance.
At this stage, benefits often need to support multiple locations, more new hires and a larger mix of family coverage. Review how changes in enrollment affect funding and whether HR and payroll can support the plan’s requirements.
- Compare the current renewal and level-funded proposal using the same census, enrollment tiers and employer contribution strategy.
- Check ACA applicable-large-employer status separately. The general threshold is an average of at least 50 full-time employees, including full-time equivalents, in the prior year; related employers may need to be counted together.
- Confirm who tracks coverage offers, affordability and required reporting. Moving to level funding does not remove applicable ACA employer obligations.
- Request sample claims reports and agree on a review schedule. Understand how claims experience, underwriting and enrollment can affect the next renewal.
100+ employees
Evaluate level funding as part of a broader funding strategy.
For a larger employer, compare level funding with both fully insured coverage and a traditional self-funded arrangement with stop-loss. The decision should reflect your tolerance for variable cash flow, internal resources, reporting needs and longer-term benefits strategy.
- Review available medical and pharmacy claims experience, enrollment trends and large-claim exposure through appropriate secure channels.
- Compare stop-loss terms, renewal provisions, reimbursement timing and any individual-specific deductibles or exclusions. Ask how these align with the plan’s promise to pay benefits.
- Evaluate network reach for remote or multistate employees, prescription coverage, member support and the flexibility to change plan design or vendors.
- Assign responsibility for plan documents, notices, privacy, reporting and any Form 5500 filing. Filing requirements depend on plan facts and participant counts, not just company headcount.
Look beyond the monthly quote.
Ask for the same benefits, census and employer contribution assumptions in each proposal.
| Decision | Fully insured | Level funded | Traditional self-funded |
|---|---|---|---|
| Employer payments | Premiums for the enrolled group, subject to rates and enrollment changes. | Scheduled claims funding, stop-loss premiums and administration. Check enrollment adjustments and extra fees. | Claims as incurred or paid, plus administration and any stop-loss premiums; cash needs can vary. |
| Claims exposure | The insurer assumes covered claims risk under the policy. | The employer sponsors a self-funded plan with stop-loss protections defined by separate contracts. | The employer funds plan claims; any stop-loss policy reimburses qualifying losses under its terms. |
| Unused claims funds | No employer claims-fund reconciliation; any rebates or credits follow applicable rules and policy terms. | A potential refund or credit may be available after reconciliation. Share, timing and renewal conditions vary. | The employer retains the benefit of lower claims but must account for unpaid claims and reserves. |
| Information and control | Reporting and plan choices depend on the insurer and group. | Reporting and design options depend on the administrator, product and group size. | May allow more vendor and design flexibility, with more oversight and financial administration. |
Use a no-refund budget. Compare 12 months of scheduled payments plus fees outside the quote. Then review enrollment changes, contract-defined maximum liability, excluded obligations and termination costs separately. Show a potential surplus as an additional scenario.
Know what happens in a good year, a difficult year and your last year.
Stop-loss and high claims
Ask for the specific and aggregate attachment points—the thresholds at which qualifying stop-loss reimbursement starts. Review exclusions, limits, payment deadlines and whether the plan and stop-loss policy define eligible claims consistently.
Who advances the money while reimbursement is pending? What is the employer’s contractual maximum liability, and which obligations fall outside it? A level monthly payment alone does not answer those questions.
Surplus and reconciliation
What portion of unused claims funding can return to the plan? When is it calculated, what fees are deducted and is renewal required? Claims paid after the plan year can affect the calculation.
Ask how any surplus must be used when employees contributed to the plan. Do not assume the entire amount is unrestricted employer cash.
Renewal and leaving the plan
A predictable funding schedule for this year does not guarantee next year’s rate. Ask how claims experience and underwriting influence the renewal and whether stop-loss terms can change.
Review notice requirements, early termination provisions and run-out coverage: claims incurred before termination but processed afterward. Coordinate the replacement plan’s effective date and the old plan’s remaining obligations.
The employee experience
Check the exact network, local hospitals, specialists and prescription formulary. Confirm out-of-area access, referral rules, prior authorizations and ongoing-treatment transitions.
Plan the enrollment message, ID-card delivery, payroll deductions and where employees get help. Funding changes should come with a clear explanation of any benefit or provider changes.
When level funding deserves a closer look.
Worth exploring
You want to compare funding alternatives, can supply the required underwriting information and have a clear owner for plan administration. You value claims reporting and can evaluate the financial terms alongside employee coverage.
Reasons to keep comparing
The quote only looks attractive after an assumed refund, key providers or prescriptions are missing, the contract leaves unclear obligations, or your team cannot support the administration. Fully insured coverage may be the better fit.
Build a proposal you can act on.
Define the starting point
Share your renewal date, current benefits, rates, employer contribution and workforce goals. Start the review before the renewal decision becomes urgent.
Confirm quoting requirements
Prepare an employee census and, where available and requested, prior claims information. Any health questionnaires should go through the carrier’s secure process—not a general contact form.
Compare the full arrangement
Review annual cost without a refund, networks, prescription coverage, stop-loss, reporting, employer duties and exit terms. We help identify the questions each proposal needs to answer.
Plan implementation and review
Set the enrollment timeline, payroll changes, employee education and administrator responsibilities. Schedule plan-performance and renewal reviews using the reporting actually available.
The funding method does not replace a compliance plan.
For private-sector plans subject to ERISA, confirm responsibility for plan documents, the Summary Plan Description, required disclosures and claims procedures. Assign applicable COBRA, privacy, tax and reporting work to named parties rather than assuming it is included in administration.
The IRS requires employers sponsoring self-insured minimum essential coverage to meet coverage-provider reporting responsibilities whether or not they are applicable large employers. The applicable forms and duties depend on the employer and coverage. Review the requirements with your administrator and tax or legal adviser.
Washington’s small employer insurance market generally covers businesses with 1–50 employees. That market classification is separate from the federal ACA calculation and a level-funded carrier’s underwriting or enrollment rules. See our benefits and ACA compliance guidance for related planning.
Level funding, answered.
Can a business with 5 employees qualify?
Some arrangements consider small groups, but availability depends on the carrier, location, eligible and enrolled employees, participation and underwriting. We start by confirming which options will consider your census; headcount alone does not establish eligibility.
Does level funding always cost less?
No. Compare the quoted annual cost without a surplus refund and with equivalent benefits. Underwriting, enrollment, network choices, administrative charges and renewal terms can change the result.
Is a year-end refund guaranteed?
No. A surplus refund or credit depends on claims, reconciliation, the contract and applicable rules. Confirm the share returned, timing and any renewal condition before treating it as potential upside.
Will employees keep their doctors and prescriptions?
Possibly, but the exact network and formulary must be checked. Verify important providers, facilities and medications against the proposed plan, including any transition-of-care arrangements.
What changes when we reach 50 or 100 employees?
Those milestones call for a review, not an automatic plan change. ACA status generally uses prior-year full-time employees plus full-time equivalents, with aggregation and other rules. Plan eligibility and reporting can use different counts. Confirm each threshold separately.
Can we return to fully insured coverage later?
You can explore a switch, commonly at renewal, subject to the replacement insurer’s eligibility, enrollment and effective-date requirements. First resolve termination notice, outstanding claims, run-out protection and any effect on surplus eligibility.
Will we have access to every employee’s claims?
Reporting detail varies by product and group size and is subject to privacy requirements. Request a sample report and discuss the aggregate information available for benefits planning; do not assume unrestricted access to individual medical information.
Resources for an informed decision.
- UnitedHealthcare: how level-funded arrangements work (a product example; terms vary).
- Washington OIC: small business health plan options.
- IRS: determining applicable-large-employer status.
- IRS: employer shared responsibility and self-insured reporting.
- U.S. Department of Labor: group health plan responsibilities.
Reviewed September 21, 2026. General employer education; availability, benefits and obligations depend on the plan, underwriting and contracts.
The rest of the package.
Group Health
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Read more →Group Dental
Review networks, covered services, waiting periods and annual maximums.
Read more →Group Vision
Compare exams, eyewear allowances and participating providers.
Read more →Group Life & Disability
Consider family protection and income replacement, subject to plan terms.
Read more →Voluntary Benefits
Offer optional supplemental coverage with clear employee costs and limits.
Read more →Compare level funding for your workforce.
Tell us your employee count, renewal date and benefits priorities. Benefit Experts can help you evaluate the options for your Washington business.