What is a fully insured health plan?
In a fully insured plan, the employer pays a fixed premium to an insurance carrier, and the carrier takes on the risk of paying employee claims. If claims come in higher than expected, the carrier absorbs the loss. If claims come in lower, the carrier keeps the difference. Premiums are typically set annually and tend to rise each renewal based on the carrier's overall claims experience and market trends.
What is a level-funded health plan?
A level-funded plan is a hybrid between fully insured and self-funded. The employer pays a fixed monthly amount, similar to a premium, but that amount is split into two pieces: a claims fund (money set aside to pay actual employee claims) and fixed costs (administration and stop-loss insurance, which protects the employer if claims are unusually high). If claims come in under budget for the year, the employer may get some of that money back. If claims run high, stop-loss coverage limits the employer's exposure.
Are level-funded and fully insured the only funding options?
No, these are two common options, but not the only two. Other funding arrangements exist and may be worth considering depending on your situation, including:
- Fully self-funded plans, where the employer takes on claims risk directly (usually with stop-loss coverage), without the "level" fixed monthly structure a level-funded plan provides. This is more common among larger employers with enough claims history to predict risk reliably.
- Captive arrangements, where a group of employers pools risk together, often through a group captive, to access some of the benefits of self-funding with shared risk and shared stop-loss purchasing power.
- CHOICE Arrangements (formerly ICHRA), which aren't a funding mechanism for a group plan at all, but an alternative structure where the employer contributes a fixed amount toward employees' individual market coverage instead of funding a group plan.
Which option is realistic for a given employer depends heavily on group size, claims history, risk tolerance, and cash flow, there isn't a single "better" option across the board, and what fits a 50-person company often doesn't fit a 500-person company.
What's the core difference between level-funded and fully insured?
The main difference is who carries the risk and who benefits when claims are lower than expected.
- Fully insured: The carrier carries the risk. The employer's cost is predictable but they never see savings from a good claims year.
- Level-funded: The employer carries more of the risk (with stop-loss protection limiting the downside), but they also have a chance to get money back if their group is healthy.
Why are more employers considering level-funded plans?
Level-funded plans have become more popular with small and mid-sized employers for a few consistent reasons:
- Potential for savings. A healthy group can get a refund at the end of the plan year, something that doesn't happen with fully insured plans.
- More transparency. Employers get visibility into actual claims data, which fully insured plans typically don't provide. Some brokers now offer this through real-time dashboards rather than a once-a-year report, which makes it easier to catch cost trends before renewal, not after.
- More plan design flexibility. Level-funded arrangements often allow more customization of benefits than a standard fully insured product.
What are the risks or downsides of level-funded plans?
- More variability year to year, since actual claims experience affects renewal, unlike a fully insured plan where the premium is fixed regardless of the group's individual claims.
- Requires more employer engagement, since you're seeing (and somewhat managing) claims data rather than handing all of that off to a carrier.
- Works best for groups with relatively predictable or favorable health risk. A group with a lot of high-cost claims may not see the same upside.
Which one is right for your business?
There's no universal answer, and level-funded versus fully insured isn't even necessarily the full menu of options worth evaluating, self-funding or a captive arrangement may fit better depending on your group's size and risk profile. The right choice depends on your group's size, risk tolerance, claims history, and how much involvement your HR team wants in plan management. Generally, as a starting point between just these two:
- Fully insured tends to fit employers who want the most predictable, hands-off option, especially smaller groups with less claims history to lean on.
- Level-funded tends to fit employers with a relatively healthy group, who are comfortable with some year-to-year variability in exchange for potential savings and more data visibility.
Whichever direction you lean, the decision holds up best when it's revisited at every renewal rather than locked in indefinitely, group health, risk tolerance, and cash flow needs all shift over time.
The bottom line
Both funding strategies can deliver solid coverage, the right choice comes down to your group's specific risk profile and how much predictability versus potential savings matters to your business. This is also a decision that benefits from real data modeling rather than a gut call, brokers like Bennie build out claims dashboards (Bennie Insights) specifically so employers can see this trade-off clearly before committing to a funding strategy at renewal.
About Bennie
Bennie is a modern employee benefits firm dedicated to transforming how employers design, manage, and deliver benefits. By combining world-class brokerage services with user-friendly technology, Bennie helps organizations lower costs and streamline administration while giving employees a centralized platform to navigate their healthcare. Headquartered in New York City, Bennie is licensed in all 50 states.
