Level-funded plans
Level-funded health plans, from how they work to whether they fit you.
Predictable monthly costs. Year-end refund opportunity. Stop-loss-protected. Best fit for stable groups of 25–150 employees with multi-year planning horizons.
The short version
A level-funded health plan is a hybrid between fully-insured and self-funded coverage. The employer pays a fixed monthly amount that combines projected claims, third-party administrator (TPA) fees, and stop-loss insurance premiums. At year-end, if total claims plus expenses came in under the funded amount, the employer typically receives a refund. If claims exceed the funded amount, stop-loss insurance covers the shortfall. Level-funded plans suit small-to-midsized employers (typically 25–150 employees) with healthy demographics who want predictable monthly costs and the chance to share in claim surplus.
The three components
What's bundled into the monthly bill.
Claims fund
Pays employee medical claims as they come in. Projected based on group demographics and prior claims data where available.
Stop-loss insurance
Caps the employer's risk on catastrophic claims. Specific attachment for individual claims, aggregate attachment for total annual claims.
Admin fees
TPA, network access, plan management. Fixed monthly cost regardless of claims activity.
The employer's monthly bill is roughly: estimated annual claims ÷ 12 + TPA fee + stop-loss premium.
Specific vs aggregate stop-loss
Two layers, one purpose: cap the employer's downside.
Specific stop-loss
Caps the employer's exposure on any one claimant. If one employee has a $500k cancer year and your specific attachment is $50k, the stop-loss carrier covers the $450k overage.
Aggregate stop-loss
Caps total claims for the whole group. If your aggregate attachment is $1.2M and total claims hit $1.5M, the carrier covers the $300k overage.
Year-end reconciliation
The refund is the upside that makes level-funded interesting vs fully-insured.
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Claims under funded amount
Employer typically receives a refund (often 5-25% of premium for healthy groups). Carrier policies vary on the refund formula.
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Claims at funded amount
No refund, no surcharge.
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Claims over funded amount
Stop-loss kicks in; employer doesn't pay more (the cap is the level monthly premium).
Who level-funded fits
Honest scope-setting on group fit.
✓ Strong fit
- ·25-150 employees
- ·Stable, healthy demographics
- ·Multi-year horizon (one bad year shouldn't kill the program)
- ·Employer comfortable with some claims-cost variability
✕ Poor fit
- ·Very small groups (under 15 — claims volatility too high)
- ·Groups with known catastrophic claimants
- ·Groups looking purely for the lowest possible monthly cost
- ·Employers who can't tolerate any year-over-year variability
Funding model comparison
Level-funded vs fully-insured vs self-funded.
Funding model fit · 2026 plan year
| Fully-insured | Level-funded | Self-funded | |
|---|---|---|---|
| Monthly cost | Fixed | Fixed | Variable |
| Year-end refund | No | Possible (5-25% typical) | Yes (you keep claim surplus) |
| Risk | Carrier holds it | Mostly capped by stop-loss | Employer holds (mitigated by stop-loss) |
| Renewal volatility | High (10-30% common) | Moderate | Lower (you see your data) |
| Plan design control | Carrier-driven | More flexible | Fully customizable |
| Best size | Any | 25-150 | 100+ |
FAQ
Frequently asked questions
What is a level-funded health plan?
A level-funded plan is a hybrid between fully-insured and self-funded. The employer pays a fixed monthly amount that bundles projected claims, TPA fees, and stop-loss premium. At year-end, if claims plus expenses came in under the funded amount, the employer typically receives a refund. If claims exceed the funded amount, stop-loss insurance covers the shortfall.
Who are level-funded plans best suited for?
Level-funded fits stable, healthy employee groups of roughly 25-150 employees with a multi-year horizon. Very small groups (under 15 employees) have too much claims volatility for the model to work; very large groups (200+) typically save more with full self-funding. Groups with known catastrophic claimants are usually a poor fit.
How big can the year-end refund be?
Refunds vary by carrier, group health, and the funded amount. Healthy groups commonly see refunds in the 5-25% range of total annual premium. Some carriers cap the refund percentage; others share 100% of underspend. The refund formula is set in the carrier contract and varies meaningfully across providers.
What happens if claims exceed the funded amount?
Stop-loss insurance kicks in. Specific stop-loss caps the employer's exposure on any one claimant; aggregate stop-loss caps total annual claims for the entire group. The employer's monthly cost is fixed at the level-funded amount — they don't owe more than what they've already paid, regardless of actual claims.
How does level-funded compare to ICHRA?
Different products. Level-funded is still a group plan — the employer offers one or two carrier-administered options that all eligible employees can enroll in. ICHRA reimburses employees for individual plans they buy themselves. Level-funded suits stable, healthy single-location groups; ICHRA fits multi-class, multi-location, or demographically variable workforces.
Are level-funded plans subject to ERISA?
Yes. Level-funded plans are technically self-funded under ERISA with stop-loss attached. Standard ERISA requirements apply: Plan Document, SPD, fiduciary duties, Form 5500 filing if 100+ participants. State regulators have been increasingly scrutinizing low-attachment-point stop-loss policies as functionally fully-insured products in disguise — work with a broker who keeps current on state-level guidance.
Want to see the math?
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We model 3 funding options against your current plan: fully-insured, level-funded, and ICHRA. You see the projections for each, with risk-adjusted ranges.