Understanding Level-Funded Health Plans

Understanding Level-Funded Health Plans

When it comes to providing health insurance, small and medium-sized businesses consistently grapple with balancing costs with the need to offer competitive benefits. Traditional options have included fully insured plans, which are straightforward but can be expensive, and self-funded plans, which offer cost savings but include a degree of financial risk. However, there’s a growing trend towards a middle ground that combines the best of both worlds: level-funded health plans. Understanding what level-funded health plans are and why they might be beneficial could transform the way your business approaches employee healthcare. 

What Are Level-Funded Health Plans? 

Level-funded health plans represent a blend of traditional health insurance funding methodologies, crafted to provide a moderated risk approach suitable for many small to medium-sized businesses. Here’s a closer look at what level-funded health plans are and the unique attributes they offer: 

Core Principles of Level-Funded Health Plans 

Level-funded health plans are rooted in the same fundamental principle as self-insurance: financial responsibility for medical claims falls directly on the employer. However, unlike traditional self-insurance, which requires employers to set aside significant reserves to cover unexpected high costs, level-funded plans offer greater predictability and risk management through stop-loss insurance. 

Predictable Monthly Costs 

With level-funded plans, the employer agrees to pay a fixed monthly fee to the insurer or plan administrator. This monthly fee is not arbitrary; it is meticulously calculated based on the specific demographics and historical claims data of the company’s employees. Actuarial predictions come into play to estimate the expected amount of healthcare claims the company will file over the year. 

Breakdown of Payments 

The level monthly payment is segregated into three primary components: 

  • Claims Funding: This portion of the payment is set aside for actual medical claims incurred by the employees. It functions similarly to paying a premium in a fully insured plan—only in this case, unspent claim funds may potentially be returned to the employer. 
  • Administrative Fees: Managing a health plan requires resources for processing claims, compliance with health regulations, customer service, and other administrative duties. This part of the payment goes towards covering the expenses associated with these services. 
  • Stop-Loss Premiums: To protect against unexpectedly high claims, level-funded plans include stop-loss insurance. There are typically two forms of this coverage: ‘specific stop-loss’ which limits liability per individual claim, and ‘aggregate stop-loss’ which caps overall liability for all claims. 

Financial Risk Management 

The decision to opt for a level-funded health plan is often driven by an employer’s desire to mitigate the risk associated with self-funding while retaining some of the cost-saving opportunities it presents. The stop-loss insurance is a significant aspect of this risk mitigation, acting as a safety net against the fiscal uncertainty inherent to self-funded plans. 

The Reconciliation Process 

At the end of the policy year, a ‘true-up’ or reconciliation process takes place to compare the company’s actual healthcare costs against the funds set aside for claims. If the actual costs are less than the amount funded, the plan may return the difference to the employer either in cash or in the form of a credit toward the following year’s premiums. 

Benefits of Level-Funded Health Plans 

  • Cost Control: One of the primary advantages of level-funded plans over traditional fully insured plans is potential cost savings. Because employers are paying for actual claims rather than a flat fee based on insurer risk assessments, there is often an opportunity for savings, especially if claims are lower than expected. 
  • Refunds on Low Claims: If the total claims are less than the funded amount, many level-funded plans may offer a refund or credit towards the next plan year’s premiums. This can provide an extra incentive for employers to promote healthy lifestyles and preventive care among their workforce. 
  • Predictability of Payments: Unlike traditional self-funded plans where claim costs can fluctuate drastically, level-funded plans provide the predictability of fixed monthly payments, making budgeting easier for employers. 
  • Regulatory Benefits: Level-funded plans may also offer regulatory benefits. Since these plans are considered self-funded under federal law, they are often exempt from state insurance regulations and health insurance taxes, which can further reduce costs. 
  • Flexibility in Plan Design: Employers have more flexibility to design a plan that’s suited to their workforce. Unlike fully insured plans, which may have more rigid structures, level-funded plans can be customized with the needs of the employer and employees in mind. 
  • Access to Claims Data: Employers gain access to detailed claims data, allowing them to identify trends and potentially address specific health issues within their workforce. This can help in tailoring wellness programs and other initiatives to improve overall employee health and reduce future claim costs. 
  • Effect on Employee Coverage: From the employee’s perspective, a level-funded health plan feels much like a traditional health plan. This means that, despite the behind-the-scenes financial and administrative differences, the shift to a level-funded plan often goes unnoticed by the staff – allowing them to concentrate on their health and wellbeing without coverage disruption. 
  • Versatility for Various Business Sizes: While level-funded plans are particularly appealing for small to medium enterprises (SMEs), they are versatile enough to be adapted for larger organizations that are also looking for ways to stabilize their healthcare spending. 

Considerations Before Choosing Level-Funded Health Plans 

While level-funded health plans have clear advantages, there are also certain considerations: 

  • Risk Assessment: Businesses need to assess if they have a relatively healthy workforce to benefit from potential savings. Companies with a high number of claims might not save as much. 
  • Administrative Responsibilities: Although less than with fully self-funded plans, level-funded options still require employers to take a more active role in plan administration. 
  • Stop-Loss Premiums: Employers must ensure they understand the stop-loss insurance terms, such as individual and aggregate stop-loss limits, and any additional costs. 
  • Cash Flow Impact: Businesses must consider the cash flow impact of level premiums and the potential payout at the end of the year if claims are lower than expected. 

The Carepath Approach to Level-Funding 

Level-funded health plans offer a strategic alternative for employers who are drawn to the potential cost savings and control of self-insured plans, but are wary of their unpredictability. By blending fixed payments, access to claims data, and protective stop-loss insurance, level-funded health plans can be finely attuned to a company’s financial and employee healthcare goals, offering a smart, flexible solution for managing healthcare benefits. 

When specifically looking at Carepath Benefits, the model clearly illustrates the positive dynamics of a level-funded health plan. Carepath is constructed to offer a thoughtful balance, aiming to protect businesses from the volatility of traditional self-funding while offering financial advantages not usually found in fully insured models. 

Carepath’s approach makes it easier for SMBs to predict and control healthcare costs—by leveling out the monthly cost, companies can plan their budget with confidence. And the potential for year-end refunds incentivizes a company-wide focus on wellness and preventive care, positively influencing the health profile of the entire team. 

Moreover, Carepath’s level-funded plans come with an array of supportive and administrative services that can ease the burden on business owners and HR departments. The provision of detailed analytics and claims data empowers businesses to make informed decisions that can lead to smarter healthcare strategies and possibly more savings. 

In the landscape of employee health benefits, where rising costs often outpace inflation and budget projections, Carepath’s level-funded plans may provide a solid foundation for financial planning and cost management. For businesses striving to offer attractive employee benefits while keeping an eye on the bottom line, the tailored solutions provided by Carepath could represent a secure stepping stone to financial predictability and improved employee health. 


Understanding level-funded health plans is a key step for any business leader looking to make informed decisions about employee healthcare. Such plans offer an attractive blend of cost control, potential savings, and budget predictability, without sacrificing the coverage employees need. It’s a forward-thinking approach that reflects the evolving nature of both healthcare and the needs of a dynamic workforce. 

Carepath Benefits amplifies these advantages by customizing its level-funded models to fit the unique contours of your business needs—providing the stability and predictability SMBs are seeking in the often unpredictable realm of healthcare costs. 

If you’re considering a shift in your company’s health benefits structure, or if you’re curious about the potential savings and value a level-funded plan could bring to your organization, it might be time to evaluate Carepath’s solutions. Level-funded health plans are not just about managing costs—they’re about investing in the health and future of your workforce. 

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