Level-funded health plans have become one of the most popular alternatives to fully insured coverage because they combine predictable monthly payments with the savings potential of self-funding. But within level funding, there are important choices to make — one of the biggest is whether to fund to the max or use a lower percentage such as 75% or 50%.
Understanding these funding options and their implications for your organization is critical to making the right choice for your workforce and bottom line.
What Does “Max Level-Funded” Mean?
In a level-funded health plan, the employer pays a set monthly amount that covers three essential components:
Claims Funding: Money set aside to pay employee medical claims as they occur throughout the plan year.
Administrative Fees: Paid to the Third-Party Administrator (TPA) for running the plan, processing claims, and managing network access.
Stop-Loss Insurance Premiums: Protection against catastrophic claims that exceed expected levels.
Understanding Maximum Funding
When a plan is funded to the max, the monthly contributions are calculated based on the maximum possible claims liability, also known as the stop-loss attachment point. This means the employer has prepaid for the highest expected claims level. If actual claims come in lower than projected, the difference is returned as surplus or credited to the next plan year.
Max funding provides the highest level of financial predictability and the greatest potential for year-end refunds.
Learn more about level-funded plan structures →
Is Max Funding Like a Deductible?
Yes, but it operates at the group level rather than the individual level. The stop-loss attachment point acts like a deductible for the employer organization.
Instead of hoping claims won’t occur, level-funded health plans assume that claims will happen and funding must be ready to cover them. The attachment point defines the maximum amount the employer will pay before stop-loss insurance coverage kicks in to protect against higher-than-expected claims.
Could There Be Additional Expenses Beyond the Max?
Generally, no. When a level-funded plan is fully max-funded, the employer’s liability is capped at the stop-loss attachment point. Claims that exceed this threshold become the responsibility of the stop-loss insurance carrier.
Important Exception: Administrative expenses and any excluded stop-loss items (rare, but possible depending on policy terms) may still apply outside of the maximum funding calculation. These costs should be clearly outlined in your plan documents.
Contact us to review your stop-loss coverage and funding structure →
Why Would an Employer Fund Less Than 100%?
Some employers choose to fund at 75% or 50% of the maximum claim liability to reduce their monthly cash outlay. Here’s what these funding levels mean:
75% Funding
The employer only pre-funds 75% of the expected maximum claims liability. If claims run higher than this funded amount, the employer may need to contribute additional funds mid-year to cover the gap between actual claims and the pre-funded amount.
50% Funding
A more aggressive funding approach that leaves more financial risk to be addressed later if claims exceed the funded amount. This option requires stronger cash reserves and higher risk tolerance.
Key Understanding: Lower funding percentages reduce upfront monthly costs but increase the likelihood of needing to make additional contributions during the plan year if claims run unfavorably.
How Funding Levels Impact Employee Premiums and Experience
What Employees See
When an employer funds below the max, employees often see lower monthly premiums because the total monthly plan cost is reduced. However, this premium reduction is somewhat artificial — the true underlying cost of medical claims doesn’t change based on how the employer chooses to fund the plan.
Employer Liability, Not Employee Risk
Critical Point: If claims run higher than the pre-funded amount, the employer — not the employees — must cover the difference. Employers cannot go back mid-year and request additional contributions from employees to make up for underfunding.
Employee Experience Remains Consistent
From the employee perspective, the health plan functions identically regardless of funding level. Benefits, claims processing, network access, and coverage do not change whether the employer funds at 50%, 75%, or 100%. The difference lies entirely in how the employer manages financial risk and cash flow behind the scenes.
Schedule a consultation to model different funding scenarios →
Important Note: Fixed Costs vs. Claims Funding
Lower funding levels only apply to the claims funding component of the level-funded plan. Administrative fees and stop-loss insurance premiums remain fixed regardless of the funding percentage you choose.
What This Means: Underfunding does not reduce your fixed administrative costs or stop-loss premiums — it only reduces the amount deposited monthly to pay for actual employee claims. You still pay the same TPA fees and stop-loss premiums whether you fund at 50% or 100%.
This is a critical distinction that affects true cost savings calculations when comparing funding options.
Does Funding to the Max Make Sense for Your Organization?
For most small to mid-sized employers, funding to the max provides the greatest financial peace of mind and planning certainty. Maximum funding ensures:
No Surprise Cash Calls Mid-Year: Your liability is capped, eliminating unexpected funding requests that can disrupt budgets.
Predictable Budgeting and Accounting: Finance teams can accurately forecast annual healthcare costs without worrying about mid-year adjustments.
Largest Potential Surplus Refund: By pre-funding the maximum amount, you create the greatest opportunity for year-end refunds if claims run favorably.
Simplified Financial Management: Reduces complexity in cash flow planning and eliminates the need to monitor funding gaps throughout the year.
When Lower Funding Levels May Work
Lower funding levels (50–75%) may be appropriate for employers with:
- Strong cash reserves available to cover potential mid-year funding gaps
- High tolerance for mid-year financial variability
- Historical data showing consistently low claims experience
- Sophisticated finance teams equipped to monitor and manage funding needs monthly
Get expert guidance on choosing the right funding level →
Comparing Funding Level Options
| Funding Level | Monthly Cost | Mid-Year Risk | Refund Potential | Best For |
| 100% (Max) | Highest | None – fully capped | Highest – maximum surplus possible | Employers seeking predictability and maximum refund opportunity |
| 75% | Moderate | Moderate – may need additional funding | Moderate – some surplus possible | Employers with moderate risk tolerance and good cash reserves |
| 50% | Lowest | Highest – significant gap if claims run high | Lowest – minimal surplus opportunity | Employers with strong cash reserves and high risk tolerance |
Key Takeaway: Match Funding to Your Financial Profile
The choice between max level funding and partial funding depends on your organization’s financial strength, risk tolerance, and cash flow needs.
Max level funding caps liability and maximizes surplus potential, making it ideal for organizations that value predictability and want to avoid mid-year surprises.
Partial funding (50–75%) reduces monthly costs but introduces more employer-side risk, requiring stronger cash reserves and more active financial management throughout the plan year.
Neither option changes the employee experience or the quality of coverage — the difference is entirely in how financial risk is managed on the employer side.
How Memberly Helps Employers Choose the Right Funding Strategy
Memberly helps employers model different funding strategies — showing the detailed trade-offs between 50%, 75%, and 100% funding levels — so you can make the right decision for your workforce and bottom line.
Our Funding Analysis Includes:
- Scenario Modeling: We project outcomes at different funding levels based on your claims history
- Cash Flow Impact Analysis: Understanding monthly obligations and potential mid-year funding needs
- Risk Assessment: Quantifying your exposure at each funding level
- Surplus Potential Calculation: Estimating refund opportunities if claims run favorably
- Stop-Loss Strategy: Ensuring your attachment points and coverage align with your funding approach
Explore level-funded and self-funded plan options →
Ready to Determine Your Optimal Funding Level?
Don’t guess about funding strategies — let Memberly provide the data-driven analysis you need to make confident decisions about your health plan funding.
Contact Dom Maggiore:
- Phone: (631) 905-6555
- Email: dom.maggiore@memberlybenefits.com
- Web: memberlybenefits.com/self-funded-ppo-plans
Schedule your funding strategy consultation today →
Memberly Benefits | Expert Guidance on Level-Funded and Self-Funded Health Plans
