Most small companies pay one set price to an insurance company for their health plan. That’s the standard way. If your company does it differently, or you’re thinking about a change before your plan renews, level funding will likely come up.

The short version

A level-funded plan is one way to pay for your team’s health coverage. You pay the same amount every month. That money covers three things:

1) Your team’s expected medical bills. Doctor visits, hospital stays and prescriptions.

2) The cost to run the plan. Paying the bills, ID cards, customer service and reports.

3) Stop-loss insurance. A safety net that pays when someone’s medical bills get very large.

If your team’s medical bills come in lower than expected, you may get some money back.

The three ways to pay for a health plan

1) Fully insured. The standard, off-the-shelf plan. You pay the insurance company a set price each month. The insurance company pays the medical bills and takes the risk.

2) Level funded. You pay the same amount every month. It covers expected medical bills, the cost to run the plan and stop-loss. If bills run low, you may get money back.

3) Self funded. Your company pays its own medical bills as they come in, usually with stop-loss behind it. Costs go up and down from month to month. It’s more common at bigger companies.

Level funding sits in the middle. On paper, it’s a kind of self-funded plan. Paying the same amount every month is what makes it feel like a standard one.

What your employees notice

Most of the time, not much. They still get ID cards and a network of doctors. The plan looks and works like any other health plan.

The one thing to check is the network. If their doctors and medicines are covered, most of your people will barely notice a change.

Where stop-loss fits

Most owners ask the same first question: “What if someone on my team gets really sick?”

That’s what stop-loss is for. It works two ways:

1) For one person. If one person’s medical bills pass a set amount in a year, stop-loss pays the rest.

2) For the whole team. If your team’s total bills pass a set amount, stop-loss pays the rest.

That’s how the monthly payment stays the same, even in a rough year. That steady payment is where the name “level funded” comes from.

What happens at the end of the year

This is where level funding is different.

If your team’s medical bills run low, some of what’s left may come back to you. It might be a refund or a credit toward next year. It’s often only part of what’s left. Some plans pay it only if you renew.

If bills run high, stop-loss pays the very large ones. Your monthly payment doesn’t go up during the year. Your price for next year might.

On a standard plan, you don’t get money back after a healthy year.

Three things to know before you look

Level funding fits some companies and not others. Before you look into it, check these three things.

1) Your price depends on your team’s health. Your employees may fill out a short health form. A team with costly health conditions may pay more or be turned down. A standard plan for a group of up to 50 employees can’t set its price on your team’s health.

2) The price isn’t locked in. After a rough year, your price for next year can jump. If one person on your team has very large bills, that alone can raise it. The insurance company behind the plan can also decide not to renew it.

3) You take on a little paperwork. There’s a small federal fee, a few dollars a year for each person on the plan, paid to the IRS. Your accountant can file it for you. Your employees also get a yearly tax form showing they had coverage. On a standard plan, the insurance company handles both.

How common it is

Plenty of companies your size use it. About 37% of companies with 10 to 199 workers that offer health benefits say they offer a level-funded plan. That’s from KFF, a health research group.

Source: KFF, “2025 Employer Health Benefits Survey”

Before your plan renews

Most owners know their insurance company and roughly what the plan costs. Far fewer know how the plan is paid for. Many renew every year and never compare the options.

We go over all 3 ways to pay with owners before their plan renews, using their own numbers. You’ll see which way of paying fits your company and why, before you have to decide.

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