This is for companies with 20 to 99 employees that keep hearing about level funding. It is also for owners already on a level-funded plan who never got a plain answer.
Here is that answer.
The short version
A level-funded plan is one way to pay for your team’s health coverage.
You pay a set amount each month. That money covers three things:
Your team’s expected claims. Claims are the bills for doctor visits, hospital stays and prescriptions.
The cost to run the plan. Paying bills, ID cards, customer service and reports.
Stop-loss insurance. A safety net that pays when claims get very large.
If your team’s claims come in lower than expected, you may get some money back.
The three ways to pay for a health plan
Fully insured. The standard, off-the-shelf plan. You pay the carrier a set price each month. The carrier pays the claims and keeps the risk.
Level funded. You pay a set amount each month. It covers expected claims, the cost to run the plan and stop-loss. If claims run low, you may get money back.
Self funded. The company pays claims as they come in, usually with stop-loss behind it. Costs go up and down. It is more common at larger companies.
Level funding sits in the middle. On paper, it is a kind of self-funded plan. The set monthly payment is what makes it feel like a fully insured one.
For the two side by side, read Level Funded vs. Fully Insured: What’s the Difference?
What your employees notice
Often, not much. They still get ID cards and a network of doctors. The plan looks and works like a normal health plan.
The one thing to check is the network. If their doctors and medicines are covered, most employees will barely see a change.
What happens at the end of the year
This is where level funding is different.
If claims run low, some of what is left may come back to you. It may be a refund or a credit toward next year. It is often only part of what is left. Some plans pay it only if you renew.
If claims run high, stop-loss pays above its line. Your monthly payment does not go up during the year. Your price at the next renewal may.
On a fully insured plan, a healthy year for your team does not come back to you.
Free guide: If some of these words are new, keep the free Health Plan Funding Glossary. It explains each one in plain English.
Where stop-loss fits
Most owners ask the same first question. “What if someone on my team gets really sick?”
Stop-loss is the answer. It works two ways:
For one person. If one person’s claims pass a set amount in a year, stop-loss pays the rest.
For the whole team. If your team’s total claims pass a set line, stop-loss pays above it.
That is how the monthly payment stays level, even in a rough year. It is also where the name comes from.
Three things to know before you look
Level funding fits some companies and not others. Know these up front.
The price looks at your team’s health. Employees may be asked to fill out a short health form. A team with costly conditions may pay more or be turned down. A fully insured plan for a group of up to 50 employees cannot price on health.
It is not locked in. After a rough year, the price can jump. One person can be given their own, higher stop-loss line. The carrier can also decline to renew.
You take on a few yearly tasks. For example, a small federal fee for each person covered and a tax form for employees. On a fully insured plan, the carrier handles these.
How common it is
Level funding is not a fringe idea. About 37% of firms with 10 to 199 workers that offer health benefits say they offer a level-funded plan. That comes from KFF, a health research group.
The question worth asking
Most employers know their carrier and their deductible. Far fewer understand how their health plan is actually funded.
The costly habit is not picking the wrong one. It is renewing every year without ever comparing the two.
See where you stand
Answer 8 quick questions and see if level funding could fit your company. It takes 2 minutes.
Take the 2-Minute Health Plan Funding Assessment →
Sources
KFF, “2025 Employer Health Benefits Survey”, KFF 2025 Employer Health Benefits Survey
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