Pros and Cons of Level Funded Healthcare

In our previous blogs, we focused on three key questions employers need to answer under the Affordable Care Act (ACA): Do you offer coverage? Is the coverage meaningful? And is it affordable for employees? These are the building blocks of compliance, tied to Minimum Essential Coverage (MEC), Minimum Value (MV), and affordability standards. But there is another question that is just as important: How are you funding that coverage?

For small and mid-sized employers, level funding has become an increasingly important part of that conversation. According to the 2025 KFF Employer Health Benefits Survey, 37% of employers with 10 to 199 workers that offer health benefits offer a level-funded plan.

Plan design and compliance are only part of the picture. The way a health plan is funded can directly impact cost, flexibility, transparency, and long-term sustainability.

What Is a Level-Funded Health Plan?

Level funding refers to how a health plan is paid for rather than the benefits themselves.

With a level-funded health plan, employers make one predictable monthly payment that typically includes:

• Estimated claims funding
• Stop-loss protection
• Administrative costs

This funding model sits between a traditional fully insured plan and a fully self-funded plan. With a fully insured plan, employers pay a fixed premium, and the carrier assumes the financial risk. With a self-funded plan, employers fund claims directly and assume more of that risk themselves.

A level-funded plan offers a middle ground. Employers benefit from more predictable monthly costs, while stop-loss protection helps limit financial exposure if claims are higher than expected.
Level-funded plans can also offer a more robust plan design that more closely resembles the look and feel of a traditional fully insured plan, including broad network access and benefit options tailored to the workforce.

Level Funded vs. Fully Insured Health Plans

The difference is what happens behind the scenes. Employers may gain greater access to claims data and plan performance insights than they would with a fully insured plan. This allows them to better understand utilization, identify cost drivers, and make more informed decisions about their benefits strategy.

That transparency matters. Rather than simply seeing the cost of coverage change from year to year, employers may be able to better understand what driving plan performance is and use that information to guide future decisions.

How Level Funding Supports ACA Compliance and Plan Design

MEC, Minimum Value, and affordability define what employers are required to offer under the ACA. Level funding answers a different question: How will the employer pay for that coverage and manage the financial risk?

An employer can offer MEC, a Minimum Value plan, or a combination of coverage options while using level funding as the financial structure supporting those benefits.

Level funding can also provide greater flexibility in plan design. Employers may be able to build benefit options around the needs, demographics, and budget of their workforce rather than relying solely on a one-size-fits-all approach. Access to claims data can further inform future decisions around plan design, employee contributions, utilization, and overall benefits strategy.

In simple terms, compliance sets the requirements. Funding determines how those requirements are supported.

Managing Risk with Stop-Loss Protection

One of the key differences between fully insured, self-funded, and level-funded plans is how risk is managed. Stop-loss protection is built into the level-funded structure to help protect employers from large or unexpected claims beyond specified limits. It’s not something that is purchased separately. This allows employers to gain some of the advantages associated with other funding strategies while maintaining true financial protection.

Depending on the plan structure, employers may also have an opportunity to benefit when actual claims perform better than projected. 

We know we can’t fully eliminate risk, but there are ways to better manage it to fit the needs of the company.

When Does a Level-Funded Health Plan Make Sense?

Level-funded health plans may be a good fit for employers that:

• Want predictable monthly healthcare costs
• Are looking for greater claims and utilization transparency
• Want more flexibility in health plan design
• Need to manage rising healthcare expenses
• Want robust benefits and provider network options
• Are evaluating alternatives to traditional fully insured coverage

The right fit depends on the organization. Workforce size, demographics, healthcare utilization, budget, risk tolerance, and long-term goals can all play a role.

However, not all level-funded plans are structured the same way, making it important for employers to understand the specific costs, protections, plan design options, and potential opportunities before deciding.

The Strategic Takeaway

Compliance defines what employers are required to offer. Funding determines how those benefits are sustained. Level-funded health plans can provide predictable monthly costs, built-in financial protection, greater claims transparency, and more flexibility in plan design while still providing employees with a healthcare experience that can closely resemble traditional fully insured coverage.

For employers, the opportunity is not simply to offer coverage. It is to better understand where healthcare dollars are going and build a benefits strategy that balances affordability, compliance, and employee needs.

It's another way employers can Think Beyond traditional health plans.

Sources

• Kaiser Family Foundation. “2025 Employer Health Benefits Survey.” Section 10: Plan Funding.
• https://www.kff.org/health-costs/2025-employer-health-benefits-survey/
• Internal Revenue Service. “Affordable Care Act Tax Provisions for Employers.” https://www.irs.gov/affordable-care-act/employers
• U.S. Department of Labor. “Self-Insured Health Benefit Plans.” https://www.dol.gov/general/topic/health-plans/self-insured
• Healthcare.gov. “How to Get or Keep Employer-Based Coverage.” https://www.healthcare.gov/job-based-coverage/