Originally published in September 2025, we are sharing this article again because the information remains relevant for business owners and HR benefit professionals, today.
As healthcare costs continue to rise, small businesses are looking for smarter ways to provide quality coverage without overextending their budgets. One solution gaining serious traction is the level-funded health plan—a hybrid model that combines the predictability of fully insured plans with the cost-saving potential of self-funded options.
What Is a Level-Funded Plan
A level-funded plan operates on a simple concept: your insurance carrier estimates your total annual costs (claims, admin fees, and stop-loss coverage) based on your group’s demographics and medical claims data. This total is divided into equal(level) monthly payments—hence the name “level-funded”.
At the end of the year, if your actual claims are lower than projected and you end the year in a surplus, your business may receive a refund. If claims are higher than what you paid into the program, stop-loss insurance kicks in to cover the difference—protecting you from unexpected costs.
Why It’s Attractive for Small Employers
Level-funded plans are appealing to all small businesses, especially small businesses with a healthy or younger workforce. They offer a range of advantages such as:
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Cost savings: Businesses can save up to 30% annually compared to traditional fully insured plans.
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Year-end refunds: Low claim years can result in partial refunds, allowing companies to recoup some of their premiums.
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Predictability: Fixed monthly payments make budgeting easier
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Plan flexibility: Customize benefits to fit your team needs
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Claims transparency: Access to detailed claims data helps inform smarter decision-making.
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Regulatory relief: These plans are often exempt from certain Affordable Care Act (ACA) requirements, reducing administrative burden and costs.
In states like New Jersey, safeguards exist that allow small employers (less than 51 employees) to re-enter the fully insured market if a level-funded plan doesn’t perform well, providing an additional layer of security.
What to Consider Before Making the Switch
Despite the advantages, level-funded plans aren’t a perfect fit for every business. They do come with added compliance responsibilities and require more active management. They’re not a one-size-fits-all solution. Businesses need to carefully evaluate their risk tolerance, workforce health profile, and administrative capacity. Working with an experienced broker is key to choosing the right fit. They can help you evaluate plan options, navigate compliance requirements, and manage claims effectively throughout the year.
Final Thoughts
For small businesses seeking a smarter balance of cost control, coverage quality, and flexibility, level-funded health plans are worth serious consideration. With the potential for substantial savings, greater transparency, and financial protection, they offer a compelling alternative in today’s evolving and often unpredictable healthcare landscape.
Image by Total Shape on Pexels.
About the Author:
Charles Tavormina is an Employee Benefits Associate at Rue Insurance, specializing in compliance, talent retention, and the efficient resolution of benefits-related issues. He focuses on ensuring that organizations remain in full compliance with key regulations, including the ACA and ERISA, while also developing strategic benefit solutions that attract and retain top talent. Charles is recognized for optimizing processes and accelerating resolutions to support both organizational objectives and employee satisfaction. He holds licenses in Health & Accident and Life insurance in New Jersey, Pennsylvania, New York, South Carolina, and Oklahoma.
