Level-funded vs fully-insured health plans

If you have only ever been shown fully-insured plans, you have only seen half the market. For a small business with a reasonably healthy team, level-funded is frequently where the money is — and it is the single most common thing we find that a previous broker never quoted.

How fully-insured works

You pay a fixed premium. The carrier takes all the risk. If your employees have a catastrophic year, that is the carrier's problem. If they barely use the plan at all, the carrier keeps the difference.

Good for: groups that want zero variability, older teams, businesses with known ongoing claims, and anyone who values simplicity over optimisation.

How level-funded works

You pay a level monthly amount made up of three parts: an expected-claims fund, an administration fee, and stop-loss insurance that caps your exposure. At the end of the plan year, if actual claims came in under the funded amount, you get a share of the surplus back.

Good for: groups of roughly 5 to 50 with a younger or healthier profile, employers who want visibility into what is driving cost, and businesses willing to trade a little complexity for real savings.

Side by side

	Fully-insured	Level-funded
Monthly cost	Fixed	Fixed
Money back if claims are low	No	Yes — a share of surplus
Medical underwriting	No (guaranteed issue)	Yes — health questionnaire
Claims reporting	Minimal	Detailed
Downside risk	None	Capped by stop-loss
Best group size	Any	Roughly 5–50
State premium tax / ACA fees	Applies	Often reduced

The honest catch

Level-funded is not free money, and it is not right for everyone.

• You have to pass underwriting. The carrier asks health questions. A group with a significant ongoing claim — an employee in active cancer treatment, for example — may be declined or rated up. Fully-insured cannot do that to you.
• Renewals can move harder. A bad claims year does not bankrupt you thanks to stop-loss, but it can produce a steeper renewal than a fully-insured plan would.
• Surplus refunds are not guaranteed. They are a possible outcome, not a promised one. Any broker presenting the refund as a certainty is overselling.
• It is more to explain. Employees do not care — their experience is identical — but you will need to understand it.

So which should you pick?

The correct process is to quote both and compare the actual numbers for your actual census. Anyone who tells you the answer before seeing your group is selling, not advising.

As rough guidance: if your team's average age is under about 40, you have five or more enrolling employees, and you have no known large ongoing claims, level-funded deserves a serious look. If your team skews older, is very small, or has known claims, fully-insured is usually the sounder choice.

We run both on every quote. It costs you nothing and it is the only way to know.