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What Is Level Funded Health Insurance

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What Is Level Funded Health Insurance

A healthy workforce is vital for the success of any business. As an employer, providing health insurance coverage to employees has become increasingly important to attract and retain talented workers. Level-funded health insurance emerges as an alternative that combines the cost-saving benefits of self-insurance with the financial security and predictability of fully funded plans.

In essence, employers pay a predetermined, fixed amount each month. This amount covers anticipated claim costs, administrative fees, and stop-loss insurance, which protects against high-cost claims that exceed the predicted amount. This model allows employers greater cost control and transparency without exposing them to the financial risks of unexpected high-cost medical claims.

NPA Benefits, a leading employee benefits consulting firm, reports that level-funding health insurance plans have been gaining popularity among small and mid-sized business owners in recent years. In this guide, we will delve into the details of level-funded health insurance and its benefits to help you determine if it is the right choice for your business and employees.

Level Funded Health Insurance | A Basic Intro

Level-funded health insurance is a hybrid between self-insured and fully insured plans. In a self-insured plan, the employer pays for employee medical claims directly. In contrast, in self-funded plans in a fully insured plan, the employer pays fixed premiums to an insurance company, which assumes all risks associated with claim costs.

With level-funded plans, employers pay predictable monthly contributions that cover anticipated claim costs, stop-loss insurance, and administrative fees. If the total claim costs in a year exceed the predetermined amount, stop-loss coverage kicks in to cover those excess costs. Conversely, employers can receive refunds on their contributions if claims are less than the predicted amount.

Level Funding Health Insurance | Who Needs It

Level-funded health insurance is a unique and flexible option that caters to the diverse needs of different groups and individuals. Unlike traditional health insurance plans, level-funded health plans offer a blend of self-funding and traditional coverage, providing an alternative that appeals to a specific demographic.

Small And Medium-Sized Businesses

Small and medium-sized businesses often find self-funded health plans advantageous due to their cost-effectiveness and flexibility. These plans allow businesses to partially self-fund their employee health benefits, contributing fixed monthly amounts while gaining the financial advantages of self-insurance.

Level-funded plans provide a balance by capping the financial exposure, offering protection against catastrophic claims, and sharing the risk with the insurance carrier. This makes it an attractive option for businesses seeking stability in their health insurance costs while maintaining the ability to tailor coverage to meet the unique needs of their workforce.

Cost-Conscious Employers

Employers prioritizing cost control and transparency in their benefits programs may prioritize level-funded health insurance. With self-insured health plans, employers have a clearer understanding of their financial obligations, as fixed monthly contributions make budgeting more predictable.

The potential for cost savings also arises from employers only paying for the actual claims incurred by their employees, as opposed to traditional plans with pre-determined premiums.

Stop-loss insurance kicks off costs with actual healthcare utilization, and wellness programs allow employers to manage their budgets better while providing essential health coverage for their workforce.

Companies With A Healthy Employee Population

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Level-funded plans are particularly appealing to companies with a predominantly healthy employee population. In such cases, the reduced risk of high claims translates to potential cost savings. The employee’s monthly contributions, including claims funding, administrative health care costs, and pharmacy benefit managers, are often lower than traditional premiums.

This makes level-funded health insurance an attractive option for businesses with employees who are proactive about their health and may not frequently utilize medical services. Additionally, the surplus from lower-than-expected claims can be refunded to the employer or used to offset future healthcare costs.

Organizations Seeking Customization Options

Level-funded health insurance stands out for its customization options, allowing employers to tailor plans to the specific needs of their workforce. This flexibility extends to choosing benefit designs, networks, and ancillary coverages.

Employers can collaborate with insurers to create a benefits package that aligns with the unique requirements of their employees. This level-funded insurance plan of customization empowers organizations to offer competitive and attractive benefits, aiding in talent acquisition and retention efforts.

Entities Wanting Employee Wellness Incentives

For organizations prioritizing employee well-being and wellness initiatives, level-funded health insurance aligns well with these goals. Employers can actively engage employees in health promotion by structuring wellness programs and incentives.

The potential for cost savings in a level-funded plan can be reinvested into wellness initiatives, creating a positive cycle that benefits both the employer and the workforce. This emphasis on preventive care and healthy lifestyles can contribute to a healthier and more productive employee population.

Level-funded health insurance caters to diverse entities, including small and medium-sized businesses, cost-conscious employers, employee claims recovery, those with a healthy employee population, organizations seeking customization options, and entities prioritizing employee wellness incentives.

How Does Level-Funded Health Insurance Work?

Level-funded health insurance works similarly to traditional fully-funded plans. Employers pay monthly premiums to the insurer, who assumes the financial risk of providing healthcare coverage to employees.

Level-funded health insurance is an alternative approach to traditional health insurance plans that offers a unique blend of risk and cost management for employers. This model combines aspects of self-funding and fully insured plans, providing a flexible and potentially cost-effective solution for businesses seeking more control over their healthcare expenses.

The Basics Of Level-Funded Health Insurance

At its core, level-funded health insurance is a form of self-insurance. Unlike traditional fully insured plans, where employers pay a fixed premium to an insurance carrier, level-funded plans involve the employer paying a lower, “level” premium to a carrier. This premium typically covers administrative costs, stop-loss insurance, and a claims fund.

Claims Fund And Employee Contributions

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One key element of level-funded plans is establishing a claims fund. A portion of the premium paid by the employer goes into this fund, which is used to cover the employees’ medical claims throughout the year. This claims fund structure introduces an element of self-funding, allowing employers to retain some control over their healthcare costs.

Risk Mitigation With Stop-Loss Insurance

To protect against unforeseen high claims, level-funded plans incorporate stop-loss insurance. This insurance kicks in when the total claims for the year exceed a predetermined threshold, providing financial protection to the employer. Stop-loss insurance ensures that the employer is not exposed to excessive financial risk in the event of catastrophic claims.

Monthly Payment Stability

One of the significant advantages of level-funded plans is the stability of monthly payments. Unlike traditional self-insured plans, where monthly costs fluctuate based on actual claims, level-funded plans offer predictability. Employers pay a fixed monthly premium, making budgeting and financial planning more manageable.

Transparency And Data Access

Level-funded plans often provide employers with detailed claims data and analytics, offering insights into employee healthcare utilization and costs. This transparency empowers employers to make informed decisions about wellness programs, cost-saving measures, and other strategies to manage healthcare expenses more effectively.

Potential Cost Savings

While level-funded plans do carry some risk, they also offer the potential for cost savings. If claims are lower than expected, the surplus in the claims fund can be refunded to the employer or used to offset future premium increases. This financial incentive encourages employers to actively manage and improve employee health, ultimately contributing to potential long-term cost savings.

Flexibility In Plan Design

Level-funded health insurance allows for greater customization of plan designs to meet the specific needs of the employer and employees. This flexibility enables employers to tailor benefits, cost-sharing structures, and wellness programs, creating a more personalized approach to employee healthcare.

Employee Wellness Programs And Incentives

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Many level-funded plans incorporate wellness programs to control healthcare costs further and promote a healthier workforce. These initiatives encourage employees to adopt healthier lifestyles, leading to potential reductions in medical claims.

Employers may offer incentives, such as reduced premiums or other rewards, to motivate employees to participate actively in wellness programs.

Level-funded health insurance represents a hybrid approach that combines elements of self-funding with the stability of fully insured plans. NPA Benefits, an experienced employee benefits consulting firm, can help employers navigate the complexities of level-funded plans and provide customized solutions to meet their unique needs.

Level Funded Health Plan | Benefits

Level-funded health insurance is an innovative approach to providing employee health benefits that combines elements of traditional insurance with the advantages of self-funding.

In this model, employers pay a fixed monthly amount to a third-party administrator, which covers employees’ medical claims and administrative expenses. This arrangement offers several distinct benefits for employers and employees, making it an increasingly popular choice in employee benefits.

Cost Transparency And Predictability

One of the primary advantages of level-funded health insurance is the transparency and predictability it brings to healthcare costs. Unlike traditional fully insured plans, where employers pay a fixed premium regardless of actual claims, level-funded plans allow businesses to understand their financial commitments more clearly.

With monthly fixed costs and a clear understanding of administrative fees, employers can budget more effectively, helping to mitigate the uncertainty associated with traditional insurance plans.

Potential Cost Savings For Employers

Level-funded plans can offer cost savings for employers, especially those with a relatively healthy workforce. In traditional fully insured plans, any unused premium dollars at the end of the year remain with the insurance carrier. In contrast, with level-funded plans, surplus funds can be returned to the employer after claims and expenses are paid.

Customization And Flexibility

Level-funded health insurance provides employers with a high degree of customization and flexibility in designing their benefit plans. Employers have the freedom to tailor coverage options, such as deductibles, copayments, and out-of-pocket maximums, to meet the specific needs of their workforce.

This flexibility allows businesses to create benefits that align with their budget constraints while providing attractive options to employees, fostering a sense of value and satisfaction.

Risk Mitigation Through Stop-Loss Insurance

Level-funded plans often incorporate stop-loss insurance to address concerns about potential high claim costs. This insurance protects employers by limiting their financial exposure in the event of catastrophic claims. With stop-loss coverage, the insurance carrier assumes responsibility for claims that exceed a predetermined threshold, offering employers an added layer of financial security and peace of mind.

Employee Engagement And Satisfaction

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Level-funded health insurance can contribute to higher employee engagement and satisfaction levels. These plans’ transparency and cost-sharing nature often lead to increased employee awareness and appreciation for the value of their health benefits.

The potential for cost savings and the ability to customize coverage can enhance the perceived value of the benefits package, fostering a positive work environment and aiding in employee retention efforts.

Access To Health And Wellness Programs

Many level-funded plans include access to health and wellness programs aimed at promoting a healthier workforce. These programs may include preventive care initiatives, wellness screenings, and employee assistance programs. Employers can reduce long-term healthcare costs and improve productivity and morale by investing in employee well-being.


In conclusion, level-funded health insurance offers a host of benefits for both employers and employees. This model provides a unique approach to employee health benefits, from cost transparency and potential savings to customization and flexibility.

By combining the advantages of self-funding with the risk mitigation of stop-loss insurance, level-funded plans empower employers to take control of their healthcare expenditures while promoting a healthier and more engaged workforce.

As businesses seek innovative solutions to navigate the complexities of employee benefits, level-funded health insurance emerges as a compelling option that aligns financial prudence with the workforce’s well-being. NPA Benefits stands ready to assist employers in exploring and implementing this groundbreaking employee benefits model. Please contact us today to learn how we can help your business.

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