Level Funded Health Insurance: What Employers Need To Know

Are you an employer looking to provide your team with affordable and comprehensive health insurance? Look no further! 

In today’s blog post, we are demystifying level funded health insurance – a game-changer in the world of employee benefits. Whether you’re a small business owner or part of a large corporation, understanding this innovative option is crucial for maximizing cost savings while still ensuring top-notch healthcare coverage for your employees. Get ready to unravel the mysteries and discover what level funded health insurance can do for your organization!

Benefits Of Level Funded Health Insurance For Employers

1. Cost Savings: One of the primary reasons why employers choose level funded health insurance is because it can result in significant cost savings. With traditional fully-insured plans, employers pay a fixed premium each month based on the number of employees covered, regardless of their actual healthcare usage. However, with level funded plans, premiums are calculated based on the predicted claims amount for the year plus an administrative fee. Any unused funds at the end of the year are returned to the employer, resulting in potential savings.

2. Customization: Level funded plans offer more flexibility and customization options compared to traditional fully-insured plans. Employers have more control over plan design and can tailor coverage options according to their employees’ needs and budget constraints. This allows for a more personalized approach to healthcare benefits and can lead to higher employee satisfaction.

3. Cash Flow Management: Since level funded plans require monthly contributions instead of upfront annual premiums, cash flow management becomes easier for employers. They have better control over their finances as they only need to pay for actual healthcare usage rather than paying a flat rate.

4. Transparency: Unlike fully-insured plans where premiums include hidden costs such as taxes and fees, level funded plans offer transparency in terms of costs involved. Employers know exactly what they are paying for and how much money is going towards actual claims expenses.

5. Increased Control Over Claims Data: With traditional fully-insured plans, employers do not have access to detailed information about their employees’ healthcare usage or claims data until after the policy period ends. However, with level funded plans, they have access to real-time data, allowing them to identify any potential healthcare spending trends and make necessary adjustments.

6. Reduced Risk: Level funded plans are considered less risky for employers as they only pay for the actual healthcare expenses incurred by their employees. In fully-insured plans, if claims exceed the premiums paid, employers are responsible for covering the difference. With level funded plans, stop-loss insurance is typically included to protect against excessive claims.

Considerations For Choosing A Level Funded Plan

1. Company Size: Level funded plans are typically most beneficial for mid-sized to large companies with 50 or more employees. This is because these plans require a larger pool of employees to spread out the risk and ensure financial stability. Smaller companies may struggle with cash flow if there are unexpected high claims, making this type of plan less suitable.

2. Financial Stability: As mentioned above, level funded plans come with an increased risk for employers as they are responsible for paying claims up to a certain amount before stop-loss insurance kicks in. Therefore, it’s crucial for employers to have strong financial stability and adequate reserves in case of higher than expected claims.

3. Cost Savings Potential: One of the biggest benefits of level funded plans is their potential cost savings compared to traditional fully-insured plans. Employers can save money on premiums by only paying for actual claims rather than estimated costs included in premiums by insurance carriers.

4. Employee Population: The demographics and health status of your employee population should also be taken into consideration when choosing a level funded plan. If your employees are generally young and healthy, you may benefit from lower premiums due to fewer expected claims. However, if you have older or sicker employees, you may want to carefully analyze your risks before opting for this type of plan.

5. Administrative Support: With level funded plans, employers take on more responsibility in terms of administrative tasks such as claim processing and handling appeals. It’s essential to consider whether your HR team has the resources and expertise necessary to handle these tasks effectively or if you will need to outsource these services.

6. Stop-Loss Insurance Coverage: As mentioned earlier, stop-loss insurance provides a safety net for employers in case of high claims. It’s crucial to carefully review the terms and coverage limits of your stop-loss policy before choosing a level funded plan. Employers should ensure that their maximum liability is not too high and that they have enough coverage to protect them from catastrophic claims.

Common Misconceptions About Level Funding

Level funding is a type of health insurance plan that has gained popularity among employers in recent years. However, there are still some misconceptions about this funding option that may prevent businesses from taking advantage of its benefits. In this section, we will address and debunk some of the common misconceptions surrounding level funding.

Misconception #1: Level Funding is Only for Large Companies

One of the biggest misconceptions about level funding is that it is only available for large companies with hundreds or thousands of employees. This is not true – level funded plans can be customized to fit the needs of small and mid-sized businesses as well. In fact, smaller companies can often benefit even more from level funding due to their lower healthcare utilization rates.

Misconception #2: Level Funding is More Expensive than Traditional Plans

Another common misconception is that level funding is more expensive than traditional fully-insured plans. While it’s true that monthly premiums for level funded plans may appear higher at first glance, these plans offer significant savings in the long run through lower administrative costs and potential refunds if claims are lower than expected.

Misconception #3: Employers Will Be Responsible for All Claims Costs

Many employers believe that with level funding, they will be solely responsible for all claims costs incurred by their employees. This misconception stems from a lack of understanding about how stop-loss insurance works in conjunction with a level funded plan. Stop-loss insurance provides protection against high claim costs by reimbursing the employer when individual or overall claims exceed a certain threshold.

Misconception #4: There Is No Flexibility with Level Funding

Some employers may think that once they sign up for a level funded plan, they are locked into a rigid structure with no flexibility. However, this couldn’t be further from the truth. With level funding, employers have control over designing their own plan and choosing coverage options that best suit their employees’ needs. They also have the flexibility to adjust their plan as needed throughout the year.

Misconception #5: Level Funding is Too Complex and Time-Consuming

Another common misconception is that level funding is complicated and time-consuming to set up and manage. While it’s true that there may be more involvement from employers in terms of managing claims and choosing benefits, most insurance carriers https://npabenefits.com/level-funded-health-insurance offer support and resources to help streamline the process. In fact, many employers find that the transparency and control offered by level funding ultimately saves them time and effort compared to traditional plans.

Is Level Funded Health Insurance Right for Your Business?

Level funded health insurance is a type of self-funded health plan that offers small and medium-sized businesses an alternative to traditional fully insured plans. It has been gaining popularity in recent years as more employers are looking for ways to reduce their healthcare costs while still providing quality coverage for their employees.

What is Level Funding?

Level funding is a hybrid model that combines elements of both self-funded and fully insured plans. Under this arrangement, an employer pays a fixed monthly premium to a third-party administrator (TPA) who manages the plan on behalf of the employer. The TPA then uses this money to cover claims made by employees throughout the year.

If claims costs are lower than expected, the employer can receive a refund at the end of the year. On the other hand, if claims exceed expectations, there may be additional costs incurred by the employer. This shared risk structure allows for potential cost savings compared to traditional fully insured plans where premiums are set by insurance carriers without any opportunity for refunds or savings.

Benefits of Level Funding

One of the main advantages of level funding is cost control. With traditional fully insured plans, employers have little control over their healthcare expenses as premiums are based on community rating, which takes into account factors such as age and location rather than their own employee population’s specific risks and needs. With level funding, employers have greater transparency into their claims data and can make informed decisions about how to manage their healthcare spending.

In addition, because TPAs typically offer services such as wellness programs and disease management initiatives as part of their package, level funded plans often come with added value-added services that can help improve employee health outcomes while also reducing overall claim costs.

Drawbacks of Level Funding

Despite its potential benefits, level funding may not be suitable for every business. One of the main drawbacks is the potential for higher risk and costs if claims exceed expectations. This could be especially challenging for smaller businesses with a limited budget.

Additionally, level funding requires more involvement from employers in managing their healthcare plan, as they need to monitor claims data and make decisions about cost containment strategies. This can be time-consuming and may require additional resources or expertise.


Level funded health insurance offers a unique solution for employers looking to provide quality healthcare benefits while managing costs. By understanding the concept of self-funding and its advantages, employers can make an informed decision about whether level funded health insurance is right for their organization. With proper risk management and thorough plan evaluation, this option can be a valuable tool in building a comprehensive employee benefits package that meets the needs of both the company and its employees.

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