Ask the Broker #2: Should We Move From Fully-Insured to Level-Funded?

When it comes to group health insurance funding models, one question we hear from employers more often than ever is:

“Should we stick with our fully-insured plan or switch to a level-funded arrangement?”

The answer isn’t the same for every company — but understanding the mechanics, pros, cons, and timing of each option will help you make an informed decision. let’s find out how level-funded health plans work, how they differ from fully-insured plans, and what costs or challenges you might have to face when using any of the two for your employees.

Fully-Insured vs. Level-Funded: The Basics

Fully-Insured

With a fully-insured plan, you pay a fixed monthly premium to an insurance carrier. In exchange, the carrier assumes all the risk for paying medical claims.

• Pros: Simple to manage, predictable costs, minimal compliance complexity.

• Cons: Little transparency into claims data, potential overpayment if your group is healthy, premiums can increase sharply at renewal.

Level-Funded

A level-funded plan blends the predictability of a fixed monthly payment with the potential cost savings of self-funding. Your payment covers:

1. Claims fund – pays actual employee medical claims.

2. Stop-loss insurance – protects you from catastrophic claims.

3. Administrative fees – for plan management.

If claims are lower than expected, you may receive a refund at the end of the year. If they’re higher, stop-loss coverage kicks in.

Why Employers Are Considering the Switch

1. Cost Savings Potential – Healthy workforces may see refunds or lower long-term costs.

2. Claims Transparency – Employers get detailed reports on what’s driving healthcare spend.

3. Plan Design Flexibility – Ability to tailor networks, cost-sharing, and wellness incentives.

4. Market Leverage – Carriers are increasingly offering competitive level-funded options for small and mid-sized employers.

Risks & Considerations Before Switching

• Claims Volatility – While stop-loss coverage caps exposure, higher-than-expected claims can still impact renewals.

• Employee Demographics – Older or higher-risk populations may not benefit from a level-funded model.

• Administrative Complexity – Requires closer monitoring of claims and plan performance.

• State Regulations – Some states have restrictions or unique rules for level-funded plans.

Key Questions to Ask Before Moving

1. What’s our claims history over the past 3 years?

2. How healthy is our current employee population?

3. Are we prepared to use claims data to make plan adjustments?

4. What’s the stop-loss threshold and premium in the proposed plan?

5. Are refunds guaranteed in writing, and how are they calculated?

Case Example: Mid-Sized Tech Firm

A 75-employee software company moved from fully-insured to level-funded in 2023.

• Result: Annual savings of $48,000 and a $22,000 year-end refund.

• Why it worked: Young, healthy workforce, low chronic disease prevalence, and an engaged HR team willing to promote preventive care.

Contrast that with a manufacturing client of similar size that saw higher-than-expected claims and no refund — but still valued the transparency to adjust wellness initiatives.

The Broker’s Recommendation: What We Think

For many employers with 25–250 employees, level-funded plans can be a smart way to control costs without fully self-funding.
However, the decision should follow a claims analysis and risk assessment — not just a rate comparison.

At Taylor Benefits, we run side-by-side projections showing:

• Expected monthly costs under both models

• Potential refund scenarios

• Stop-loss protection levels

• Compliance considerations for your state

Final Word

Moving from fully-insured to level-funded can be a strategic upgrade — but only if it’s backed by data and operational readiness. Before you sign, ensure your broker runs the numbers, explains the risks, and builds a plan for monitoring performance.