Why Level-Funded Health Plans Are Gaining Popularity
Healthcare costs remain one of the biggest challenges for employers. Fully insured plans feel expensive and rigid, while self-funded plans can seem risky or overwhelming.
Level-funded health plans offer a practical middle ground, combining the predictability of fixed premiums that smooth the ups and downs of claims funding with the cost-saving potential of self-funding.
Ready to explore level funding? Visit memberlybenefits.com/self-funded-ppo-plans or call (631) 905-6555 to speak with Dom Maggiore about options for your organization.
What Is a Level-Funded Health Plan?
A level-funded plan is a type of self-funded health plan that uses consistent, predictable monthly payments. Unlike traditional self-funded plans where claim costs fluctuate month-to-month, level funding provides budget stability similar to fully insured premiums.
How Level-Funded Plans Work
Employers pay a set amount each month that covers three essential components:
1. Claims Funding Based on Expected Utilization Monthly claim funding is determined by the stop-loss carrier based on your group’s demographics, claims history, and plan design. This represents the money set aside to pay employee medical claims.
2. Administrative Costs TPA (Third-Party Administrator) fees to manage day-to-day plan operations including claims processing, eligibility management, customer service, and reporting.
3. Stop-Loss Insurance Protection Insurance coverage that protects against:
- Specific stop-loss – Catastrophic claims that exceed the individual deductible
- Aggregate stop-loss – Total claims that exceed the minimum aggregate deductible
Together, these three components create a predictable monthly payment that functions like an insurance premium but maintains the fundamental structure and benefits of self-funding.
Understanding Level-Funded Funding Levels
Level-funded plans can be structured at different funding levels relative to the maximum claim liability (the stop-loss attachment point). The funding level you choose affects both cash flow and potential surplus returns.
Common Level-Funded Structures
50% of Maximum Claim Liability
- Lowest monthly payment option
- Provides immediate cash-flow relief
- Exposes employer to more mid-year claim variability
- Smaller potential surplus returns
- May require additional contributions if claims exceed funding
75% of Maximum Claim Liability
- Balanced approach between cash flow and risk management
- Moderate monthly payments
- Some protection against mid-year claim fluctuations
- Moderate surplus return potential
- Reduced likelihood of mid-year funding adjustments
100% of Maximum Claim Liability (“Funded to the Max”)
- Highest monthly payment structure
- Maximum protection against claim variability
- Employer’s liability is fully capped at the stop-loss attachment point
- Largest potential surplus returns when claims run favorably
- No risk of mid-year funding shortfalls
What “Funded to the Max” Means for Employers
When funded at 100% of maximum claim liability, the employer achieves complete cost certainty:
✓ Capped Liability – Once the stop-loss attachment point is reached, the stop-loss policy begins paying, ensuring the employer has no further liability regardless of claim amounts
✓ Surplus Return Potential – If actual claims come in lower than expected, the employer may receive a refund or credit at the end of the year
✓ Stop-Loss Protection – If claims are higher than expected, stop-loss coverage ensures the employer does not exceed their maximum liability
✓ Larger Surplus Opportunity – Employers funding at 100% of the max may see larger potential surplus returns compared to those funding at 75% or 50%
✓ Budget Certainty – No surprises, no additional contributions required mid-year
Considering which funding level is right for you? Call (631) 905-6555 or email dom.maggiore@memberlybenefits.com to discuss your options with Memberly’s team.
Why Employers Choose Level-Funded Health Plans
Level funding is designed for employers who want the benefits of self-funding without the monthly payment volatility.
Key Benefits of Level Funding
Predictable Cash Flow Fixed monthly payments simplify budgeting and eliminate the stress of unpredictable claim months. CFOs and finance teams can forecast annual benefits costs with confidence.
Upside Potential Through Surplus Employers share in surplus savings when claims run lower than projected. Unlike fully insured plans where unused premiums stay with the carrier, level-funded plans return surplus to the employer.
Protection from Catastrophic Risk Stop-loss insurance caps liability, protecting the organization from financial disaster if claims exceed expectations. Employers gain self-funded savings without self-funded risk exposure.
Claims Data Transparency Employers own their claims data and can see exactly where healthcare dollars are spent. This transparency enables informed decisions about future plan design, vendor selection, and wellness initiatives.
Plan Design Flexibility Unlike fully insured plans with standardized designs, level-funded plans allow customization of deductibles, copays, covered services, and network options to match your workforce needs.
ERISA Compliance Benefits As self-funded plans, level-funded arrangements are governed by federal ERISA law, not state insurance mandates, providing greater flexibility and fewer regulatory restrictions.
Level-Funded vs Fully Insured vs Traditional Self-Funded Plans
Understanding how level funding compares to other plan types helps employers make informed decisions.
| Feature | Fully Insured | Level-Funded | Traditional Self-Funded |
| Monthly Payment | Fixed premium | Fixed payment | Variable based on claims |
| Budget Predictability | High | High | Low |
| Surplus Potential | None | Yes | Yes |
| Claims Transparency | No | Yes | Yes |
| Plan Flexibility | Limited | High | High |
| Stop-Loss Included | N/A | Yes | Purchased separately |
| Risk Exposure | None | Capped | Capped with stop-loss |
| Cost Savings | Lowest | 15-25% vs FI | 20-30% vs FI |
Who Should Consider Level-Funded Health Plans?
Level funding works well for a wide range of employers, but certain characteristics make it especially attractive.
Ideal Candidates for Level Funding
Small to Mid-Sized Employers Groups with 25-500 employees often find level funding offers the best balance of savings and simplicity. Smaller groups benefit from predictable payments, while larger groups maximize surplus opportunities.
Employers Seeking Budget Certainty Organizations that need predictable monthly expenses for financial planning and board reporting find level funding eliminates the volatility of traditional self-funding.
Companies Leaving Fully Insured Plans Employers frustrated with annual double-digit premium increases often switch to level funding and lock in 15-25% immediate savings while maintaining payment predictability.
Organizations Without Benefits Expertise Level funding requires less day-to-day management than traditional self-funding because the TPA and stop-loss carrier handle most administrative complexities.
Groups with Stable Workforce Companies with consistent employee counts and predictable enrollment patterns benefit most from level funding structures.
The Cost Savings Reality: How Much Can Employers Save?
One of the primary reasons employers choose level-funded plans is the significant cost reduction compared to fully insured coverage.
Expected Savings with Level Funding
15-25% Savings Range Employers who switch to level-funded plans often save 15 to 25 percent compared to fully insured coverage. These savings come from:
- Elimination of carrier profit margins
- Removal of state premium taxes
- Reduction in carrier risk charges
- Access to wholesale network pricing
- Transparency in administrative fees
Savings Vary by Group Characteristics Healthier groups with favorable claims experience may see savings at the higher end of the range, while groups with higher utilization typically see savings at the lower end.
Surplus Returns Enhance Total Savings Beyond the initial 15-25% reduction in monthly costs, employers may receive year-end surplus refunds if claims run lower than projected, further increasing total savings.
Long-Term Compounding Benefits Unlike fully insured plans that reset to market rates annually, level-funded plans allow employers to build on favorable claims experience year after year, compounding savings over time.
State Rules and Group Size Even smaller groups can qualify for level funding, depending on state insurance regulations. Many states allow groups as small as 25 employees to access level-funded arrangements.
How Memberly Helps Employers with Level-Funded Plans
Memberly specializes in designing level-funded solutions that fit the size, industry, and risk profile of each employer.
Memberly’s Level-Funded Services
Customized Plan Design We analyze your group’s demographics, claims history, and budget requirements to design a level-funded structure that maximizes savings while protecting employees and employers from financial surprises.
TPA and Carrier Coordination Our team coordinates with best-in-class TPAs and stop-loss carriers to create a comprehensive solution. We handle negotiations, contract reviews, and ongoing vendor management.
Funding Level Optimization We help you choose the right funding level (50%, 75%, or 100% of max) based on your cash flow needs, risk tolerance, and surplus goals.
Stop-Loss Strategy We source competitive stop-loss coverage with appropriate specific and aggregate attachment points, ensuring your organization is protected without overpaying for unnecessary coverage.
Ongoing Plan Management Throughout the year, we monitor claims activity, track funding adequacy, provide monthly reporting, and alert you to any adjustments needed to optimize performance.
Surplus Maximization At year-end, we work with your TPA and stop-loss carrier to ensure accurate surplus calculations and timely refund processing.
Renewal Optimization Before each renewal, we analyze your claims data, benchmark your pricing, and negotiate with carriers to secure the most competitive rates for the upcoming plan year.
Is Level Funding Right for Your Organization?
Level-funded health plans offer a compelling alternative to fully insured coverage, delivering significant cost savings with predictable monthly payments.
Questions to Ask When Considering Level Funding
- Do we want to reduce healthcare costs by 15-25% compared to fully insured?
- Would predictable monthly payments simplify our budgeting process?
- Do we want to benefit from surplus returns when claims are favorable?
- Would claims data transparency help us make better benefits decisions?
- Do we need more flexibility in plan design than fully insured options allow?
- Are we comfortable with the concept of self-funding if risk is capped by stop-loss?
If you answered “yes” to most of these questions, level funding may be an excellent fit for your organization.
Ready to explore level funding options?
📞 Call: (631) 905-6555
📧 Email: dom.maggiore@memberlybenefits.com
🌐 Learn more: memberlybenefits.com/self-funded-ppo-plans
📅 Schedule a consultation: Contact Dom Maggiore, CEO of Memberly
Memberly will analyze your current plan costs, design a level-funded structure tailored to your organization, and show you exactly how much you can save while maintaining or improving employee benefits.
Frequently Asked Questions About Level-Funded Health Plans
What is the difference between level-funded and fully insured plans?
Level-funded plans are self-funded arrangements with fixed monthly payments that include claims funding, stop-loss insurance, and administrative fees. Fully insured plans charge premiums to an insurance carrier that assumes all risk. Level-funded plans typically cost 15-25% less and offer surplus return potential, while fully insured plans provide no cost savings or surplus opportunities.
How does stop-loss insurance work in a level-funded plan?
Stop-loss insurance protects the employer from catastrophic claims. Specific stop-loss covers individual claimants who exceed a set threshold (e.g., $50,000), while aggregate stop-loss protects against total claims exceeding a maximum amount. This insurance caps the employer’s liability, making level funding financially safe.
Can small employers use level-funded plans?
Yes. Many states allow groups as small as 25 employees to access level-funded arrangements. Smaller groups benefit from the predictability of fixed monthly payments while gaining access to self-funded cost savings. State regulations vary, so it’s important to work with an advisor who understands your local market.
What happens if claims exceed the funding level?
If claims exceed your funding level (50%, 75%, or 100% of max), the impact depends on your structure. Employers funded at 100% have no additional liability—stop-loss covers excess claims. Employers at 50% or 75% may need to contribute additional funds mid-year if claims exceed their funding level before stop-loss activates.
How is surplus calculated and returned?
Surplus is calculated at plan year-end by comparing total collected claim funding to actual paid claims. If claims are lower than projected, the difference (minus any fees or reserves) is returned to the employer. Surplus return timing and terms are specified in your stop-loss and TPA contracts, typically paid 60-90 days after plan year-end.
Is level funding the same as self-funding?
Yes. Level-funded plans ARE self-funded plans. The key difference is the payment structure: traditional self-funded plans have variable monthly costs based on actual claims, while level-funded plans have fixed monthly payments that average out claim variability over the year.
What happens if we leave a level-funded plan mid-year?
Mid-year termination of level-funded plans can be complex and costly. Most contracts require 90-180 days notice and may include run-out periods where you continue paying for claims incurred but not yet paid. It’s important to review termination provisions carefully before signing and plan transitions well in advance.
How does Memberly get paid for level-funded plan services?
Memberly’s compensation is transparent and disclosed upfront. We may receive compensation from TPAs or stop-loss carriers, or work on a direct fee-for-service basis with employers. We always disclose our compensation structure so employers understand all costs and can make informed decisions.
