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Everything You Need to Know About Level-Funded Health Insurance

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Everything You Need to Know About Level-Funded Health Insurance


Level-funded health insurance is a strategic choice for small to medium-sized business owners looking for a balance between cost control and flexibility in their health care options. Essentially, this hybrid model combines elements of both fully insured and self-funded plans, aiming to provide more predictable costs while still offering potential savings.

Right off the bat, if you’re exploring level-funded health insurance, you should know that it functions with a fixed monthly payment that covers all your claims up to a stop-loss limit. This means you won’t face unexpected high claims as the stop-loss insurance kicks in to cover excess costs. Additionally, if claims are lower than expected, there might be a refund or credit at the end of the year, making it a financially appealing option.

Level-funded plans also grant you access to detailed monthly reports on healthcare usage, which can help in forecasting and managing future health care costs more effectively. For businesses keen on maintaining a handle over health expenses without compromising on employee benefits, level-funded health insurance emerges as an attractive choice.

Detailed infographic explaining the payment structure, stop-loss coverage, and potential refund benefits of level-funded health insurance plans - level-funded health insurance infographic flowmap_simple

Understanding Level-Funded Health Insurance

Level-funded health insurance is a strategic blend of self-insurance and traditional fully insured plans. It’s designed to offer businesses, especially small to mid-sized ones, more control over their healthcare costs while still providing comprehensive benefits to their employees.


In simple terms, a level-funded health insurance plan is where the employer pays a fixed monthly amount to cover the health benefits. This amount typically goes into three pots: the claims fund, stop-loss insurance, and administrative fees. The unique part? If the claims are lower than expected, the employer may get a refund or credit, making it a financially smart choice for many businesses.

How it Works

Here’s how it typically unfolds:
Monthly Premiums: Employers pay a set monthly premium that’s similar to traditional health insurance costs.
Claims Payment: Out of this premium, a portion is reserved to pay employee health claims.
Stop-Loss Insurance: This acts as a safety net. If claims exceed a predetermined threshold, this insurance covers the excess, protecting the business from high medical costs.
Administrative Fees: Part of the premium covers the expense of having a third party administer the plan, handling tasks like billing and customer service.

UnitedHealthcare Example

To illustrate, let’s consider a hypothetical example involving a well-known provider like UnitedHealthcare. Imagine a small business chooses a level-funded plan through UnitedHealthcare. They pay a consistent monthly premium that is used to manage employee health claims up to $50,000. Any claims surpassing this limit within the year are covered by stop-loss insurance, ensuring that the business isn’t suddenly overwhelmed by medical expenses. This setup provides predictability in budgeting and shields the company from potential high costs due to unforeseen medical issues.

Through this structure, level-funded health insurance offers a middle ground between assuming all the risk (as in self-funded plans) and paying high premiums for traditional insurance, making it an appealing option for many businesses looking for flexibility and cost control in their health benefit offerings.

Level-Funded vs Other Health Insurance Models

When comparing level-funded health insurance to other types of health plans, it’s crucial to understand the distinct features and benefits each model offers. This section explores how level-funded plans stack up against fully insured and self-funded plans, as well as the role of stop-loss insurance.

Fully Insured Plans

In a fully insured plan, the employer pays fixed premiums to an insurance carrier. The insurance carrier then assumes all the risk for the employees’ health claims. These plans are straightforward and offer predictable costs, which can be easier for budgeting. However, they often lack flexibility in plan design and can be more expensive due to higher premium costs.

Self-Funded Plans

Self-funded plans allow employers to pay for their employees’ health claims directly. This model offers significant customization of the health plan, which can be tailored to meet the specific needs of the workforce. Employers in this model can retain surplus funds if claims are lower than expected, providing a potential cost-saving advantage. However, this model requires a larger commitment to managing the health plan and a greater risk if claims are higher than anticipated.

Stop-Loss Insurance

A critical component for both self-funded and level-funded plans is stop-loss insurance, which acts as a safety net. This insurance protects employers from significant financial loss by setting a fixed annual limit on how much the employer must pay in claims. Once claims exceed this threshold, the stop-loss insurance covers the additional costs. This setup provides employer protection from the volatility of high-cost claims, making it a key feature for managing financial risk in less predictable funding models.

Through these comparisons, it’s evident that level-funded health insurance provides a balanced approach, offering more predictability and cost control than self-funded plans, but with more flexibility and potential cost savings compared to fully insured plans. As businesses evaluate their health insurance options, understanding these differences is crucial for selecting the right model that aligns with their financial and operational goals.

Pros and Cons of Level-Funded Health Insurance


Predictable Costs: One of the most significant advantages of level-funded health insurance is the predictability it offers in terms of monthly payments. Businesses know exactly what they owe each month, which simplifies budgeting and financial planning.

Lower Monthly Costs: Generally, these plans can be less expensive on a monthly basis compared to traditional fully insured plans because they offer the possibility of refunds or credits if claims are lower than expected.

Plan Design Customization: Employers have the flexibility to tailor their health plan features to suit the specific needs of their workforce, which is not always possible with standard fully insured plans.

Surplus Retention: If the claims are lower than the funded amount, the surplus can either be returned to the employer or deducted from future premiums, providing a financial incentive for maintaining a healthy workforce.

Detailed Claims Data: Employers gain access to comprehensive claims data, which can help them make informed decisions about health care benefits and identify trends that could impact their costs.

Premium Tax Reduction: Level-funded plans are often subject to fewer state taxes and regulations than fully insured plans, potentially resulting in significant tax savings.


Potential for Higher Renewal Rates: If the claims are consistently higher than expected, employers might face steep increases in renewal rates, which could negate some of the cost benefits of a level-funded plan.

Administrative Resources: While less burdensome than self-funded plans, level-funded plans still require a degree of administrative effort. Employers must manage aspects like claims processing and plan management, which might require additional resources or outsourcing.

Compliance Requirements: There are specific regulatory and compliance requirements associated with level-funded plans, such as adherence to the Affordable Care Act (ACA) and other federal mandates, which can be complex and require careful management.

Lack of Wellness Programs: Unlike some fully insured plans that come with built-in wellness programs, level-funded plans might not automatically include these. Employers may need to implement their own programs to promote employee health and wellness, which could add to costs and administrative duties.

In conclusion, while level-funded health insurance offers several appealing benefits such as cost predictability and customization, it also comes with its own set of challenges. Businesses considering this option should weigh these pros and cons carefully to determine if it aligns with their financial capabilities and administrative capacity. As always, consulting with experienced professionals and comparing different insurance models can aid in making the best decision for your organization.

Implementing a Level-Funded Health Plan

Transitioning to a level-funded health insurance plan can seem daunting, but with the right approach, it can be smooth and beneficial for your organization. Here’s a step-by-step guide on how to implement such a plan effectively:

Consult Experts

Begin by consulting with health benefits advisors who specialize in level-funded health insurance. These experts can provide a preliminary analysis of your current health plans and offer insights into how a level-funded plan could benefit your organization. Engaging professionals early, ideally 3 to 6 months before your plan renewal date, ensures ample time for a thorough evaluation and a well-informed decision.

Compare Proposals

Don’t settle for the first option that comes your way. It’s crucial to compare proposals from multiple stop-loss carriers and Third Party Administrators (TPAs). Each provider will have different strengths, cost structures, and levels of customer service. Assessing multiple proposals helps you understand the market better and choose a partner that aligns with your organization’s needs and budget.

Plan Design

Designing your health plan is a critical step. Work with your chosen provider to customize the plan design that best fits your company’s and employees’ needs. Consider factors like coverage options, deductibles, and co-payments. A well-designed plan not only caters to your employees’ health needs but also manages costs effectively for your business.

Educate Employees

Once your new plan is ready to roll out, focus on educating your employees about the changes. Provide clear and concise information on what the new plan entails, how it differs from the old plan, and the benefits it offers. Ensure they have access to resources like network links and FAQs. Understanding the new plan increases employee satisfaction and minimizes confusion or resistance.

Wellness Incentives

Incorporating wellness incentives into your health plan can significantly reduce health-related costs. Encourage preventive care, regular health screenings, and the use of wellness programs such as fitness memberships, mental health support, and telemedicine services. These programs not only foster a healthier workforce but can also decrease the frequency and severity of claims, benefiting both the employees and the employer financially.

By following these steps, you can implement a level-funded health plan that maximizes benefits for both your company and your employees. This approach helps manage costs while providing flexible, comprehensive health coverage. The key to a successful implementation is thorough preparation and clear communication.

Frequently Asked Questions about Level-Funded Health Insurance

What is Level-Funded United Healthcare?

Level-funded United Healthcare refers to a specific plan offered by United Healthcare that combines the cost predictability of fully insured plans with the potential savings of self-funded plans. Employers pay a fixed monthly fee which covers the administration, claims funding, and stop-loss insurance. This structure helps shield businesses from the high costs of catastrophic claims while offering the chance to receive a refund if claims are lower than expected.

How does Level-Funded differ from Graded Funded?

Level-funded plans are distinct from graded funded plans primarily in how employer liabilities are calculated and managed. In a level-funded plan, the employer’s costs are consistent each month, based on estimated expenses. In contrast, graded funded plans adjust the funding levels based on various metrics or scales, which can vary throughout the plan year. This makes level-funded plans more predictable in terms of budgeting for healthcare costs.

What does Fully Funded mean in health insurance?

In a fully funded health insurance plan, the employer pays a fixed premium to an insurance company, which then takes on all the risk and responsibility for paying health claims. This is the most traditional form of health insurance for businesses. The premiums are generally not adjustable during the policy period, regardless of the actual claims incurred. This model offers simplicity and predictability but often at a higher cost compared to level-funded plans.

By choosing a level-funded health plan, businesses can enjoy the stability of predictable billing and the potential for cost savings, making it a compelling option for those looking to manage their healthcare expenses actively. Understanding the nuances between different funding strategies can significantly impact your company’s financial health and the well-being of your employees.


At NPA Benefits, we understand that navigating health insurance can be complex and often daunting. That’s why we’re committed to offering solutions like level-funded health insurance that combine cost control with flexibility, giving businesses like yours the reins to manage health care expenses more effectively.

Level-funded health insurance plans are designed to offer the predictability of fixed monthly payments while still providing the opportunity for cost savings if claims are lower than expected. This unique blend allows your business to budget more accurately while potentially receiving a refund on unused claim funds. It’s a win-win situation where you can enjoy the security of traditional health insurance with the cost-saving benefits typically associated with self-funded plans.

Here are a few key reasons why partnering with us at NPA Benefits for your level-funded health insurance needs can be a transformative decision for your business:

  • Cost Control: Our level-funded plans are structured to keep your costs predictable, but flexible enough to adjust to your specific needs. You pay a set amount each month, which covers all administration fees and stop-loss insurance, making financial planning straightforward and reliable.

  • Flexibility and Control: Unlike traditional fully insured plans, level-funded insurance gives you more control over your health plan design. This means you can tailor your plan to fit the unique needs of your workforce, potentially leading to higher satisfaction and better overall health outcomes.

  • Potential Cost Savings: If your claims are lower than the funding allocated, the surplus can be returned to you. This not only provides an incentive to promote healthier workplace practices but also can lead to significant financial benefits.

  • Transparency and Insight: With detailed reports on claims data, you gain greater insight into your healthcare spending. This transparency helps in making informed decisions that can further drive down costs.

Choosing the right health insurance plan is crucial, not just for managing costs but also for attracting and retaining top talent. By opting for a level-funded health insurance plan through NPA Benefits, you position your business as a forward-thinking organization that values the health and well-being of its employees.

Explore our health insurance benefits services to discover how we can help you gain better control over your health care costs while still providing excellent coverage for your team. Together, let’s design a health plan that not only meets your financial goals but also supports the health and productivity of your workforce.

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