October 13, 2025
For small and mid-sized businesses navigating rising health insurance premiums, level-funded health plans offer a compelling alternative between fully insured and self-insured models.
We recently worked with a 15-employee group on a fully insured plan and helped them save over $52,000 annually by switching to a level-funded model—all while maintaining robust employee benefits.
What Is Level Funding?
Level funding is a hybrid approach:
- Like fully insured plans, you pay a predictable monthly premium.
- Unlike fully insured, you gain full transparency into where your money goes, broken down into: stop-loss premiums, administration/sales/general expenses, and the claims account.
The kicker: if money remains in the claims account at year-end, it’s refunded to your company—something fully insured plans never offer. And if claims exceed expectations, stop-loss insurance caps your financial exposure, protecting you like a self-insured plan.
The only real risk? A higher renewal next year—common to all plan types.
Health Plan Funding Models at a Glance
Fully Insured Plans
How it works: Fixed premiums paid to the carrier; they assume all risk.
Pros: Predictable monthly costs, minimal risk to employer, carrier handles compliance & claims.
Cons: No refunds for low claims, limited flexibility, minimal claims transparency.
Self-Insured Plans
How it works: Employer pays claims directly, often with a TPA managing administration.
Pros: Potential for significant savings if claims are low, full control and customization, tailored benefits for workforce needs.
Cons: High risk from unexpected claims, requires strong cash flow, more administrative responsibility.
Level-Funded Plans
How it works: Fixed monthly premiums cover expected claims, stop-loss, and administration, with refund potential if claims run low.
Pros: Predictable costs with potential refunds, claims transparency and plan customization, stop-loss protects against large claims.
Cons: Underwriting required (often via confidential employee health questionnaires), slightly more complex than fully insured plans, renewal risk (comparable to other models).
2025 Trends to Watch
- Level-funded adoption is rising fast: 42% of small businesses now offer these plans (up from 13% in 2020).
- Large employers remain predominantly self-insured: covering 83% of workers.
- Pharmacy spend drives costs: Rx accounts for 20–30% of total healthcare spend, making pharmacy optimization a top priority.
Why TPAs Are Gaining Ground
Third-Party Administrators (TPAs) are no longer just “back-office” processors. Today’s TPAs provide:
- Custom plan design tailored to workforce needs
- Real-time claims transparency and analytics
- Stop-loss integration for risk management
- Member-focused support that rivals traditional carriers
TPA Leaders to Watch
- Angle Health: Tech-driven with AI, telehealth, and modern UX—ideal for startups and growth-stage employers
- Luminare Health (Trustmark): Deep experience with custom self-funded plans; strong fit for mid-to-large employers
- Allstate / Nationwide: Leverage legacy insurers’ financial strength and broad networks to expand level-funded solutions
Your Next Step
As an independent PEO and health insurance broker, I shop across fully insured, level-funded, and self-insured plans, as well as TPAs and PEOs, to find the best fit for your business.
Whether you’re a 10-person startup or a 500+ employee organization, I’ll run a free side-by-side analysis to show you where the savings and opportunities are.
Contact: suzanna@peofortheceo.com
Stay Tuned: In the next article of our series, we’ll explore GAP & HRA Strategies—how small businesses can reduce employee out-of-pocket costs while lowering total healthcare spend.