Level Funding Explained

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Level Funding... How It Works

With level funding, an employer pays a fixed monthly amount that covers three components:

 1. Claims funding – Money set aside to pay for employees’ actual medical claims.

2. Administrative costs – Fees paid to the insurance company or third-party administrator (TPA) for managing the plan.

3. Stop-loss insurance – Protection for the employer against unexpectedly high claims (both individual and total group).

Year-End Settlement

• If total claims are less than expected: The employer may get a refund of the unused claims portion.

• If claims are higher than expected: The stop-loss insurance kicks in, so the employer doesn’t pay more than the fixed monthly amount.

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Pros

• Cost Savings: If claims are low, the employer may get a refund, unlike in fully insured plans where the insurer keeps the surplus.

• Budget Predictability: Fixed monthly payments provide stability.

• Transparency: Employers often get more detailed data about healthcare usage.

• Flexibility: Often customizable compared to traditional plans.

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Cons

• Risk Exposure: Although capped by stop-loss insurance, the employer still takes on some claim risk.

• Regulatory Differences: Level-funded plans may not have to follow certain ACA (Affordable Care Act) rules (e.g., essential health benefits), which can be good or bad depending on the needs of the workforce.

• Refund Restrictions: Not all employers get 100% of unused claim funds—some may be retained by the insurer or TPA.

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Ideal For

• Companies with healthy employees and a desire to take more control over healthcare costs.

• Small to mid-sized businesses (typically 5–250 employees) looking for an alternative to high-cost fully insured plans.