What Is a Level-Funded Health Plan?

A level-funded health plan is a way for an employer to pay a set amount each month for employee health coverage while taking on a defined share of claims risk. It sits between a traditional fully insured plan and a fully self-funded plan. The monthly payment is designed to be predictable, but the plan’s financial structure is different from a standard insurance premium.

That difference is why level funding deserves more than a quick price comparison. A lower-looking monthly number can be meaningful, but it is only useful when the coverage, stop-loss protection, contract terms, employee costs, and renewal expectations all make sense together.

This guide explains the model in plain language and gives employers and brokers a practical way to compare it with the alternatives. It is general information, not legal, tax, or benefits advice for a particular group.

Level funding, in plain language

With level funding, an employer generally pays one fixed monthly amount. That payment commonly combines three pieces: money set aside for expected medical claims, administrative services that help run the plan, and stop-loss coverage that helps limit exposure when claims are much higher than expected.

The word “level” refers to the steadier monthly payment. It does not mean every part of the arrangement is identical to traditional insurance. The employer is typically funding a plan, while stop-loss coverage is designed to protect against claims that go beyond the agreed limits. Plan documents and the proposal spell out how those pieces work for the specific offering.

Level-funded arrangements are not a niche concept. In its 2025 employer benefits survey, KFF reported that 37% of covered workers at firms with 10 to 199 employees were in a level-funded plan. The same survey notes that these arrangements combine a relatively small self-funded component with stop-loss insurance, which is a useful starting point for understanding the model.

For employees, the day-to-day experience may feel familiar: they receive plan materials, use a provider network, and pay the plan’s stated cost sharing. The important work for the employer happens before enrollment, when the group compares the offer, its funding arrangement, and the protections behind it.

How a level-funded plan works

1. The group receives a proposal. The proposal outlines the plan design, estimated claims funding, administrative costs, stop-loss protection, and the employer’s monthly payment.
2. The employer pays a set monthly amount. Rather than paying medical claims one by one as they occur, the employer makes the agreed monthly payment for the plan year.
3. Claims are paid through the plan. A carrier or administrator processes claims and handles the operational work described in the agreement, while the plan’s claims fund is used for eligible costs.
4. Stop-loss protection addresses large claims. Specific stop-loss can apply when one person’s covered claims pass a stated threshold. Aggregate stop-loss can address claims above the plan’s total attachment point, depending on the arrangement.
5. The plan year closes under its contract terms. If claim funding is more than the plan ultimately needs, there may be a surplus. Whether any surplus is returned, credited, or retained depends on the contract. It is never safe to treat a possible refund as guaranteed savings.

The distinction is worth keeping clear: a fixed payment creates budgeting consistency, but it does not erase the need to understand the funding and risk provisions. A practical comparison asks where the employer’s responsibility begins and ends, not just whether the monthly bill fits a target.

Level-funded versus fully insured coverage

With a fully insured group health plan, the employer pays a premium to an insurer, and the insurer takes on the covered claims risk under the policy. The employer still has important choices about plan design, contribution strategy, and employee communication, but it is not directly funding the group’s medical claims in the same way.

A level-funded plan often gives an employer a more detailed view of where its monthly payment goes and may create a surplus opportunity if claims are lower than expected. In exchange, the employer needs to understand underwriting, stop-loss, run-out terms, and what happens at renewal. The arrangement may not offer the same protections or rules as an insured small-group plan.

That is not inherently good or bad. It is a reason to compare the actual documents, not just labels. KFF notes that level-funded arrangements can use health status in rating and underwriting and are not required to provide all essential health benefits required of insured plans. That makes a close review of covered services, exclusions, network access, prescriptions, and employee cost sharing especially important.

Federal guidance also makes the basic distinction between fully insured and self-funded group coverage: CMS explains that private-employer group health plans can be either fully insured or self-funded. Level funding typically belongs on the self-funded side of that comparison, with stop-loss protection designed to reduce the group’s exposure.

Level-funded versus self-funded coverage

Self-funded coverage usually means the employer pays eligible employee health claims from its own funds and contracts for administration and protection against unusually large claims. Larger organizations often use this approach because they may have the financial scale and internal support to take on more direct claims responsibility.

Level funding is often described as a more measured entry point. It still uses a self-funded structure, but the fixed monthly payment and stop-loss coverage can make cash flow and downside protection easier to plan for. It does not automatically make a group ready for more risk. The plan has to fit the group’s size, health profile, financial tolerance, and ability to review the contract carefully.

It also does not make a level-funded plan interchangeable with every other level-funded proposal. Two quotes can have similar monthly payments while carrying different networks, prescription arrangements, attachment points, exclusions, or surplus provisions. Comparing only the rate is how an employer ends up buying a mystery box with a benefits logo on it.

Employers weighing a range of approaches can use GoWell’s medical solutions overview to see how group plans, Choice Arrangements, level-funded options, and other funding models can be considered in the same conversation.

Why the monthly payment is only the start

A stable monthly payment can help an employer plan, particularly when renewal volatility is a concern. But the payment should never be evaluated as if it tells the whole story. A level-funded proposal may include a claims-funding component, administrative fees, stop-loss premiums, network access, pharmacy benefits, care programs, and plan-specific terms.

Employees will experience the benefits through the plan itself, not through the funding label. Before selecting a proposal, look closely at the provider network, prescription formulary, deductible, out-of-pocket maximum, coinsurance, and the services covered before a deductible is met. The 2025 KFF survey found that the average deductible among workers with a general annual deductible was $1,886 for single coverage, which is a good reminder that employee cost sharing belongs in every benefits conversation.

The right question is not “Can we get a refund?” It is “Does this plan provide a workable combination of coverage, employee experience, and financial protection for our group?” A possible surplus may be one consideration, but it should not carry the decision by itself.

When level funding may deserve a closer look

Level funding may be worth exploring when an employer wants a more predictable monthly funding approach but also wants to compare an alternative to a traditional fully insured renewal. It can be especially relevant when a group is asking for more visibility into plan costs, broader plan design options, or a clearer understanding of the tradeoffs behind its medical coverage.

It may be a weaker fit when the group needs the simplicity of a standard insured arrangement, cannot comfortably evaluate a more detailed contract, or is considering a proposal with coverage limitations that do not work for its people. The right answer is not determined by a funding label or a single renewal percentage.

Start with the group’s reality: where employees live, the doctors and medications they use, the contribution the business can sustain, and the help employees will receive at enrollment. Then compare the proposals on the same basis. A plan that is slightly more expensive but easier for people to use, or one that provides a better network and clearer risk protection, can be the better business decision.

That comparison should also include the timeline. Ask when employee materials are available, how network checks and prescription reviews are handled, who answers questions, and what support exists if an employee needs help after enrollment. A well-priced plan can still disappoint if the rollout feels rushed or unclear.

Questions to ask before choosing a level-funded plan

A strong proposal review should turn the headline rate into a real business decision. Ask the broker, carrier, or administrator to explain the following in writing:

• What is included in the monthly payment? Separate estimated claims funding, administration, stop-loss, network, pharmacy, and any additional program costs.
• What are the specific and aggregate stop-loss attachment points? Confirm when protection begins for one high-cost claimant and for the group as a whole.
• How are claims handled at the end of the plan year? Understand run-out, terminal liability, and any other terms that affect claims incurred near the end of coverage.
• What happens to unused claims funding? Ask whether a surplus can be returned or credited, when it is calculated, and what conditions apply. Do not assume it will be available.
• How was the quote underwritten? Ask what information informed the pricing and what could change at renewal.
• What coverage and network tradeoffs are we making? Review the summary of benefits, provider access, prescriptions, exclusions, and cost sharing alongside the funding arrangement.
• Who supports employees during enrollment? The plan may be well designed on paper and still create frustration if people cannot understand their choices or get help when they need it.

Bring the answers back to the workforce. A group with employees in different locations, regular specialist needs, high-cost medications, or a tightly defined benefits budget needs more than an average-case comparison. Qualified benefits, legal, and tax advisers can help an employer evaluate the terms that apply to its particular plan and workforce.

How GoWell helps employers compare medical options

GoWell helps employers and brokers move from a single-plan mindset to a clearer comparison of the medical options available to their group. That can include traditional group plans, level-funded options, Choice Arrangements, supplemental benefits, and the enrollment experience that brings the final choice to employees.

The goal is not to force every group into the same funding model. It is to create a more useful discussion around budget, coverage, employee needs, and the terms that matter after the quote is accepted. GoWell’s marketplace gives teams a place to compare the broader benefits picture before they move toward enrollment.

If you are reviewing an upcoming renewal or exploring alternatives, explore the GoWell marketplace or talk with GoWell about the medical and enrollment paths that may fit your group.