Switching from a fully insured health plan to a level-funded arrangement changes an employer’s healthcare costs in three fundamental ways. You trade a fixed, guaranteed premium for a leveled monthly payment that reflects your own group’s expected claims plus stop-loss insurance. You stop paying the built-in costs that insurers bundle into a fully insured rate, including state premium taxes and the insurer’s profit and risk margin. And you gain the ability to keep surplus dollars when your claims run below projections, though you take on more financial exposure if claims spike.
A level-funded plan sits between a fully insured policy and a pure self-funded plan. The employer pays the same amount each month-the level payment-but that payment funds the group’s actual medical claims, an administrative fee, and stop-loss coverage that caps how much the employer will owe if claims exceed a certain threshold. At year end, if claims are lower than expected, the stop-loss carrier may refund the unused claims fund or credit it toward the next year. If claims are higher but within the stop-loss protection, the employer pays the extra up to the attachment point; beyond that, the stop-loss insurer covers the rest.
Where the cost savings come from
The monthly level payment in a level-funded plan comes in lower than a comparable fully insured premium because several expense layers disappear. State premium taxes, which add 2% to 3.5% to a fully insured bill depending on the state, do not apply. The ACA health insurance providers fee (when in effect) is not charged on self-funded or level-funded plans. Insurers also build a risk charge and profit margin into fully insured rates; those costs shrink in a level-funded model because the employer retains more of the risk.
Administrative costs in a level-funded plan are more transparent. You can see a separate fixed per-employee-per-month fee for claims processing, stop-loss, and other services. A fully insured plan hides those costs inside a single premium. That transparency helps employers compare vendors and negotiate more precisely.
The largest potential savings come from claims performance. In a fully insured plan, the insurer keeps any surplus when claims are low. In a level-funded plan, that surplus belongs to the employer and is typically returned as a premium credit or check. A group with relatively stable, healthy claims experience can see net annual costs 5% to 15% below what a fully insured renewal would have cost, even after paying stop-loss premiums and admin fees.
Where the risk shifts
Lower costs come with a trade-off. The employer accepts more direct responsibility for claims volatility. The stop-loss policy sets both a specific deductible (e.g., $25,000 per claimant) and an aggregate attachment point that caps the employer’s total liability for the year. But up to those limits, the employer’s claims fund must cover actual costs. A single high-cost claimant early in a plan year can cause a cash flow crunch for a smaller group.
Employers also need enough claims data to get competitive stop-loss quotes. Very small groups (under 20 employees) often see narrower savings because fixed administrative costs and stop-loss premiums eat up a larger share of the level payment. And if a group’s health deteriorates over several years, stop-loss renewal rates can rise enough to erase earlier savings.
Adding a health-to-wealth system to the equation
A level-funded plan rewards employers when employees use less high-cost medical care and more preventive, low-cost care. That’s where a supplemental benefit system like WellthCare fits. WellthCare works alongside the existing health plan and gets used first, providing $0-co-pay preventive and primary care, telehealth, and prescription services. Employees earn reward dollars for completing verified preventive actions and automatically build retirement savings. When more employees get regular scans, screenings, and early treatment, many of the claims that would otherwise hit the level-funded plan are avoided or caught before they become expensive. That shifts the claims curve downward and makes it more likely the employer retains a year-end surplus.
Because WellthCare operates inside established federal frameworks (IRC sections 125, 105, and 106, ERISA, HIPAA, and ACA rules) and is supported by formal ERISA and tax opinions, it layers onto any level-funded plan without changing the plan’s structure. And it costs the employer no new out-of-pocket dollars-employee contributions run through a Section 125 cafeteria plan, and the program’s tax efficiencies offset the cost. For employers already moving toward self-funding, adding WellthCare often turns a cost-shifting strategy into a cost-elimination one.
You don’t need to guess whether it will work. After six to twelve months of real-world use, the WellthCare Readiness Index shows employers, with their own data, exactly when and how much they would save by expanding. The decision moves from assumptions to math.
Is a level-funded plan right for your group?
Level-funding works best for employers with 25 to 500 employees who have relatively stable claims histories and want more control over plan design and costs. It is less suited for groups with extremely high claims volatility or for those unwilling to manage the administrative side of a self-funded arrangement, though the stop-loss carrier handles much of that. The key is to run a stop-loss quote and compare it to a fully insured renewal side by side, factoring in the potential surplus and the tax savings.
If you already use a level-funded plan, the next step is to look at what drives your claims and see if a health-to-wealth layer could reduce those claims before they land. If you are considering the switch, now is the time to build prevention and early intervention into the design from day one. That combination produces the lowest net cost per covered employee over time.
See what a WellthCare Plan would look like for your team.