For many small- and mid-sized employers, moving away from a traditional fully insured health plan is an attractive idea that often runs into practical questions: How much risk does it really shift to the employer? What changes for HR? What happens if claims run high? Self-funded health insurance can sound like a strategy reserved for large corporations with deep financial reserves and sophisticated HR teams. But there’s a middle path — increasingly accessible, growing fast and built specifically for employers who want self-funding's advantages without taking on the full operational lift.
Level-funded health plans sit between fully insured plans and Administrative Services Only (ASO) or partially self-funded arrangements. They offer the budget predictability employers value in a traditional plan, with the healthcare cost transparency, potential savings and plan design flexibility that make self-funding attractive. For many mid-sized employers, a level-funded plan is the most practical first step toward taking greater control of their healthcare spend.
How level-funded plans work
In a level-funded arrangement, employers make a fixed monthly payment — similar in structure to a traditional premium — that covers three components: expected claims funding, stop-loss insurance and administrative costs. The stop-loss insurance component is critical. It caps the employer’s financial exposure if claims exceed expectations, protecting the organization against catastrophic or unexpectedly high-cost claim years.
At the end of the plan year, if actual claims are below the funded amount, the employer may receive a refund of unused claims dollars. This is a fundamental difference from fully insured plans, where carriers retain unused premiums regardless of claims performance. In a level-funded arrangement, favorable claims experience benefits the employer directly.
Why small- and mid-sized employers are taking notice
For employers weighing fully insured vs. self-funded health plans, one of the clearest distinctions is healthcare cost transparency. Traditional fully insured plans offer limited visibility into what’s actually driving healthcare costs. Employers pay premiums without access to claims data, making it difficult to understand cost drivers, evaluate plan performance or implement targeted cost management strategies.
Level-funded health plans change that equation. Because the employer is effectively funding their own claims — with stop-loss insurance as a backstop — they gain access to claims data and reporting that’s typically unavailable under a fully insured contract. That visibility is the foundation for more informed benefits decisions over time. The mid-sized employers gaining the most ground on healthcare costs aren’t waiting for their next renewal to ask better questions — they’re building the data infrastructure now.
For employers who’ve experienced repeated premium increases with no mechanism to share in favorable performance, this is the structural shift that changes the relationship with cost. Rather than absorbing annual rate increases determined by the carrier, employers in level-funded arrangements have a clearer view of what’s driving their costs and a direct stake in managing them.
Is a level-funded plan right for your organization?
Level-funded health plans are typically a strong fit for employers exploring alternative funding strategies for employee benefits for the first time and want a lower-risk starting point. They’re particularly well-suited for organizations that have experienced significant year-over-year premium increases, have a stable and healthy workforce and are ready to engage in understanding and managing their healthcare spend.
They aren’t a one-size-fits-all solution. Employers with highly variable claims histories, very small employee populations or bandwidth constraints around plan management may find a fully insured or alternative structure to be a better fit. The right answer depends on a careful evaluation of workforce demographics, financial position, risk tolerance and long-term benefits objectives.
A foundation for long-term benefits strategy
For many employers, a level-funded plan is a beginning, not an endpoint — the start of a journey toward more sophisticated benefits funding strategies. The healthcare cost transparency and cost management experience under a level-funded arrangement positions employers to evaluate more advanced alternative funding strategies for employee benefits — medical stop-loss captives, reference-based pricing and partially self-funded health insurance — when the timing is right.
The right starting point depends on a careful evaluation of where your organization is today and where it aims to go.
HUB’s Alternative Risk Solutions (Employee Benefits) Practice specializes in helping small- and mid-sized employers evaluate the full spectrum of alternative funding options. Connect with a HUB advisor to start the readiness conversation. Learn more at hubinternational.com.