Level-Funded Group Health Insurance Plans

A Flexible Health Insurance Option That Balances Cost and Coverage

Level-funded group health plans are gaining traction as an alternative to traditional fully-insured and self-funded health insurance. These plans combine the predictability of fixed monthly payments with the potential cost savings of self-funding, making them an attractive option for small to mid-sized businesses.

Employers pay a fixed monthly amount that covers three components:

Administrative Costs: Includes third-party administration (TPA), network access, and customer support

Claims Funding: Allocated for employee healthcare claims

Stop-Loss Insurance: Protects against catastrophic claims by capping the employer’s financial risk

If claims are lower than anticipated, employers may receive a refund of unused funds at the end of the coverage year. Conversely, if claims exceed the funded amount, the stop-loss insurance covers the overage, ensuring financial predictability.

Benefits of Level-Funded Group Health Insurance Plans

There are a few different advantages to having a level-funded insurance plan: 

Avoidance of State Taxes: Since level-funded plans are governed by federal law under ERISA (Employee Retirement Income Security Act), employers can avoid state insurance premium taxes.

Claims Transparency: Employers gain access to anonymized claims data, enabling them to identify trends and implement cost-saving strategies.

Cost Predictability: Fixed monthly payments eliminate the uncertainty often associated with self-funded plans.

Flexibility: Employers can customize the benefits of a level-funded plan to suit their workforce’s needs.

Lower Costs: Level-funded plans often have lower premiums than fully-insured plans, especially for healthy employee groups.

Refund Potential: Employers may receive a refund if claims are lower than anticipated, providing an opportunity for savings.

What to Consider When Choosing a Level-Funded Group Health Insurance Plan

Despite their advantages, level-funded health plans have some elements that employers should carefully consider:

Administrative Complexity: Employers must manage additional administrative tasks when using a level-funded plan — most will partner with TPA for assistance.

Financial Risk: While stop-loss insurance mitigates catastrophic claims, employers are still responsible for regular claims up to the funded amount.

Limited Refunds: Not all surplus funds may be returned at the end of the coverage year — the refund is dependent on the plan’s terms.

Regulatory Requirements: Employers must ensure compliance with federal regulations, including reporting requirements under ERISA — partner with a knowledgeable insurance agency to help you navigate these requirements.

Unsuitability for High-Risk Groups: Businesses with high claims frequency may not see savings and could face higher costs.

For Whom Are Level-Funded Group Health Insurance Plans Best Suited?

Level-funded plans are best suited for:

Cost-Conscious Employers: Those who are seeking predictable costs with the potential for savings

Growth-Oriented Companies: Organizations that want the flexibility to scale benefits as they expand

Healthy Workforces: Employers with low healthcare utilization rates can maximize refund opportunities

Small to Mid-Sized Businesses: Companies with 200-500 employees looking for an alternative to fully-insured plans

When to Enroll in a Level-Funded Group Health Insurance Plan

When employers enroll in health insurance is dependent upon a few factors, but it is usually one of the following:

Fiscal Year Enrollment Period: This enrollment season is tied to the company’s fiscal year, which could differ from a calendar year. During fiscal year enrollment, employers could enroll in coverage whenever it aligns with the end of their fiscal year.