1.2 Level Funding: The Smart Middle Ground for 2025 Health Plans

For small and mid-sized businesses navigating rising health insurance premiums, level-funded health plans offer a compelling alternative between fully insured and self-insured models.

We recently worked with a 15-employee group on a fully insured plan and helped them save over $52,000 annually by switching to a level-funded model—all while maintaining robust employee benefits.

🏥 What Is Level Funding?

Level funding is a hybrid approach:

• Like fully insured plans, you pay a predictable monthly premium.
• Unlike fully insured, you gain full transparency into where your money goes, broken down into:
• Stop-loss premiums
• Administration, sales & general expenses
• Claims account
  

The kicker: if money remains in the claims account at year-end, it’s refunded to your company—something fully insured plans never offer. And if claims exceed expectations, stop-loss insurance caps your financial exposure, protecting you like a self-insured plan. The only real risk? A higher renewal next year—common to all plan types.

🔍 Health Plan Funding Models at a Glance

✅ Fully Insured Plans

• How it works: Fixed premiums paid to the carrier; they assume all risk.
• Pros:
• Predictable monthly costs
• Minimal risk to employer
• Carrier handles compliance & claims
• Cons:
• No refunds for low claims
• Limited flexibility
• Minimal claims transparency
  

🔍 Self-Insured Plans

• How it works: Employer pays claims directly, often with a TPA managing administration.
  
• Pros:
  
• Potential for significant savings if claims are low
  
• Full control and customization
  
• Tailored benefits for workforce needs
  
• Cons:
  
• High risk from unexpected claims
  
• Requires strong cash flow
  
• More administrative responsibility
  

⚖️ Level-Funded Plans

• How it works: Fixed monthly premiums cover expected claims, stop-loss, and administration, with refund potential if claims run low.
• Pros:
• Predictable costs with potential refunds
• Claims transparency and plan customization
• Stop-loss protects against large claims
• Cons:
• Underwriting required (often via confidential employee health questionnaires)
• Slightly more complex than fully insured plans
• Renewal risk (comparable to other models)
  

📈 2025 Trends to Watch

• Level-funded adoption is rising fast: 42% of small businesses now offer these plans (up from 13% in 2020).
• Large employers remain predominantly self-insured: covering 83% of workers.
• Pharmacy spend drives costs: Rx accounts for 20–30% of total healthcare spend, making pharmacy optimization a top priority.
  

🧠 Why TPAs Are Gaining Ground

Third-Party Administrators (TPAs) are no longer just “back-office” processors. Today’s TPAs provide:

• Custom plan design tailored to workforce needs
• Real-time claims transparency and analytics
• Stop-loss integration for risk management
• Member-focused support that rivals traditional carriers
  

🔍 TPA Leaders to Watch

• Angle Health: Tech-driven with AI, telehealth, and modern UX—ideal for startups and growth-stage employers
  
• Luminare Health (Trustmark): Deep experience with custom self-funded plans; strong fit for mid-to-large employers
  
• Allstate / Nationwide: Leverage legacy insurers’ financial strength and broad networks to expand level-funded solutions
  

🧭 Your Next Step

As an independent PEO and health insurance broker, I shop across fully insured, level-funded, and self-insured plans, as well as TPAs and PEOs, to find the best fit for your business.

💬 Whether you’re a 10-person startup or a 500+ employee organization, I’ll run a free side-by-side analysis to show you where the savings and opportunities are.

📩 Contact: suzanna@peofortheceo.com

Stay Tuned

In the next article of our series, we’ll explore GAP & HRA Strategies: how small businesses can reduce employee out-of-pocket costs while lowering total healthcare spend.