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Level-Funded Health Plans help contain costs for employers

4 ways level-funded health plans help contain costs for employers


May 20, 2022



Level-funded plans are designed to offer employers predictability with the potential of upfront savings and a surplus refund


Level-funded plans continue to become a more viable option for employers to contain costs in the health insurance marketplace. Forty-two percent of small firms in 2021 reported that they have a level-funded plan, compared to just 7% two years ago, according to the Kaiser Family Foundation Employer Health Benefits Survey (1).

What’s driven an increased adoption of these plans? As health costs have continued to rise, health insurers have designed level-funded plans to offer the potential savings of self-funded plans, but with reduced risk. They also offer the predictability of fully insured plans, but at a potentially lower cost due to an opportunity for lower premiums upfront and a surplus refund if medical claims are lower than expected.

Employers with a level-funded model are often paying less than they would have paid for a fully insured plan. Also, the prices of level-funded plans are based on risk profiles so that healthier groups do not pay as much as less healthier groups.


“Level-funded plans offer the consistency, flexibility and transparency that many fully insured, small group plans can’t provide. They’re designed to compete with fully insured plans.”



Understanding level-funded plans

While there’s been increased adoption, understanding the value of level-funded plans still requires some education in the healthcare marketplace. At their core, level-funded plans are generally self-funded plans that offer three distinct elements, with certain plan components varying among carriers:

  • stop-loss insurance to mitigate risk
  • opportunity for a surplus refund (2)
  • a third-party claims administration agreement



Level-funded plans also typically include monthly reports with data that employers can use to track health care usage and wellness programs that may increase member engagement and reduce costs. These monthly accessible reports provide valuable claims data and current participant plan engagement that allows level-funded plans to more agile and able to react quicker to changes and the needs of the healthcare marketplace. In addition, as a type of self-funded health plan, our plans are built to provide the pricing stability employers want and need, and provide them an opportunity to capture premium surplus at the end of the contract year.



To take a closer look at how level-funded health plans help contain costs here’s how they compare to self-funded and fully insured plans


1. Level-funded plans offer predictability and mitigate the risks of self-funded plans

Similar to a self-funded plan, level-funded allows employers to assume some of the financial risk of providing health services to employees by directly paying for employee medical claims.

How do these plans mitigate this risk? Employers with level-funded plans pay a fixed monthly fee, which covers the maximum claims liability, administrative fees and stop-loss insurance which protects against large claims and high member utilization.

In a self-funded model, the employer pays more if claims are higher than anticipated and gets money back if claims are lower at the end of th plan year. Level-funded plans, however, cover the cost of individual or aggregate claims that exceed the plan’s maximum, while offering the health plan and its sponsoring employer an opportunity to receive money back if lower-than-expected claims produce a surplus.

Level-funded plans are designed to mitigate risk associated with the self-funded plan model by providing no risk of additional liability outside of the level premiums established at the beginning of the plan year and paid monthly.


2. The health plan may receive a surplus refund with level-funded plans

For a fully insured  plan, the insurance company assumes the financial risk for providing health services to the employer group. For a fixed monthly premium paid by the employer, the insurer pays health care claims and covers administrative costs, sales commissions and taxes. At the end of the plan year, if the actual health care claims are higher than expected, the insurer pays them and if they’re lower, the insurer keeps the difference.

In contrast, an employer with a level-funded plan is insured against higher-than-expected claims while potentially receiving a surplus refund resulting from lower-than-expected claims.

For employers, there’s an incentive to help keep their employee populations healthier to drive for a greater surplus refund. With wellness programs and virtual care included with many level-funded plans, employees are encouraged to develop healthier habits to make this happen.


3. Level-funded plans offer greater insights to help contain costs

Unlike with most fully insured plans, employers with level-funded can receive detailed monthly data reports to help them better understand employee utilization of health services and manage their benefits.

The amount of reporting is determined by the employer, whether it’s receiving only high-level reports or taking more detailed looks at segments of the employee population. Employers don’t have to wait until the next renewal period at the end of the plan year before they can understand how member behavior may be potentially driving up healthcare costs.

These insights may enable employers to alert their employees that:

  • Low-cost generic drugs can often be substituted for brand name drugs and result in lower out-of-pocket costs for the member while providing the same level of healthcare needed-it’s important to note that a licensed healthcare provider should be consulted before changing any medications.
  • Going to urgent care may be more appropriate, less time-consuming and less costly than going to the emergency room.
  • Seeing their primary care provider or general family doctor virtually rather than in-person can again save both time and money.


The detailed data reports provided by level-funded plans provide a huge advantage, especially for small employers, by giving them insights into their virtual care usage, ER use, pharmacy utilization and network strategy. Being enabled to make informed decisions about healthcare as needed by tracking these things over time helps drive an improved and better quality member experience.


4. Member experience is key within the level-funded model

Many carriers level-funded models include wellness programs and 24/7 virtual care options, which help employees and their families play a more active role in their health care and save on out-of-pocket costs.

Employees are often offered the chance to participate in fitness tracking and health programs designed to reward the members with credits for dollars for completing certain daily fitness goals and/or complete milestone health check-ups.  In some programs, these credits/dollars can be used directly to pay out-of-pocket expenses or health savings account (HSA) dollars. Activities that qualify usually include walking, swimming, cycling elliptical. To offer employees more convenience,24/7 virtual care is often available for a variety of conditions, including general medical care, back and neck care, and behavioral health counseling.

The member experience including virtual, health engagement and plan design options is what distinguishes most level-funded plans. They help to increase employee satisfaction and engagement and for employers, its the opportunity for lower costs and the chance to achieve sharing in the potential surplus refund.


For more clarity and assistance in exploring the advantages of moving your healthcare plan to a level-funded model, contact Mike Young at 714.716.4060, mike@my-EBP.com or provide info here .


(1) 2021 Employer Health Benefits Survey, Kaiser Family Foundation, 2021.
(2) Please consult a licensed tax and/or legal advisor to determine if by receiving this surplus refund, there are any restrictions or obligations. Surplus refund available only where allowed by state law.