PODCAST

MAP Level Funding

Independent Financial Education Podcast.

Episode 02

25th OCTOBER

Drew Nelson

Podcast Guest

MAPFL PODCAST

Fully Insured vs Self-Funded vs Level Funded Group Health Plans

Choosing the right group health insurance plan can be one of the most important decisions an employer makes. In this MAPFL Podcast episode, Drew Nelson explains how level funded health insurance works, how it compares to fully insured and self-funded plans, and why employers should understand claims transparency, stop-loss protection, possible refunds, and plan design before making a decision.

Quick Answer (60 seconds)

There are three common pathways for group health coverage: fully insured, self-funded, and level funded. Fully insured plans charge a fixed premium and the insurer keeps unused premium as profit, with limited visibility into where dollars go. Self-funded plans have the employer paying claims as they happen and using stop-loss protection for large claims. Level funded plans blend the two: the employer pays a predictable monthly amount, gets transparency into how dollars are allocated (admin vs claims), and may receive a year-end refund if claims run lower than expected, while the employer’s worst-case cost is typically capped at the monthly level premium.

Why Group Health Insurance Feels So Confusing
The Three Types of Group Health Plans Explained
Fully Insured Plans and What the Employer Is Really Buying
Self-Funding and Stop-Loss in Plain English
How Level Funding Works and Why It Can Refund Unused Claim Dollars
Who Is a Good Fit for Level Funding
Provider Networks and ACA Essential Coverage
Downsides, Shopping Strategy, and Due Diligence
Using Premium Savings to Strengthen Benefits (Including HSA Strategy)
FAQs
Key Takeaways
Next Steps / CTA

Why Group Health Insurance Feels So Confusing

Employers are trying to balance two pressures at the same time: protecting the company’s finances and offering benefits employees actually value. The confusion ramps up fast once you add real-world group plan rules like employer contribution expectations and participation requirements, plus decisions about whether spouse and dependent coverage must be offered. Employees often do not fully understand how health insurance works, which adds emotional pressure for the employer to “get it right” the first time.

What Is Level Funded Health Insurance?

Level funded health insurance is a group health plan structure that combines features of fully insured and self-funded plans. Employers pay a predictable monthly amount, while the plan uses self-funding mechanics behind the scenes. This structure can provide more transparency into claims activity and may create opportunities for savings when claims are lower than expected.

How Level Funding Compares to Fully Insured Plans

With a fully insured plan, the employer pays a fixed premium to the insurance carrier, and the carrier takes on the risk of paying claims. With level funding, the employer still pays a predictable monthly amount, but the plan may provide more visibility into how dollars are used for administration, claims, and stop-loss protection. In some cases, unused claim fund dollars may be returned at the end of the plan year.

How Level Funding Compares to Self-Funded Plans

Self-funded plans usually give employers more control and transparency, but they can also create more financial variability. Level funded plans are designed to offer some of the transparency of self-funding while keeping monthly payments more predictable. Stop-loss coverage is used to help limit catastrophic claims exposure.

What Is Stop-Loss Coverage?

Stop-loss coverage is protection that helps limit an employer’s financial exposure in a self-funded or level funded health plan. Once claims exceed a defined threshold, the stop-loss carrier helps cover eligible claims above that amount. This is an important part of managing risk in level funded group health plans.

Who Is a Good Candidate for Level Funding?

Level funded health insurance may be a good fit for many small and mid-sized employers, especially groups that want predictable monthly costs, more transparency, and the possibility of savings when claims are lower than expected. However, each group should be reviewed carefully because pricing and suitability depend on census information, employee health risk, medications, provider networks, and plan design.

The Three Types of Group Health Plans Explained

Drew describes three main pathways businesses typically see today:

Fully insured: a traditional premium-based plan where the insurer takes the risk from day one. Post-ACA, pricing rules changed significantly, including restrictions on rating based on health conditions.
Self-funded: the employer pays claims as they occur, while buying stop-loss coverage that protects the employer after claims exceed a defined threshold.
Level funded: built to feel like fully insured (a consistent monthly payment), but designed with self-funding mechanics behind the scenes, including clearer accounting and the potential for a year-end refund tied to claim performance.

Fully Insured Plans and What the Employer Is Really Buying

In a fully insured plan, the employer pays a premium that transfers the claim risk to the carrier. The carrier’s business model assumes many groups will not use all the dollars they pay in, and the carrier generally retains unused premium as profit. While fully insured plans can include mechanisms like minimum loss ratio (MLR) rules at a broader level, the employer typically does not get the same ongoing, group-specific visibility into how premium dollars are being used throughout the year.

Self-Funding and Stop-Loss in Plain English

With self-funding, the employer is essentially paying employee claims using the dollars collected for the plan. To keep the employer from being exposed to catastrophic costs, the employer buys stop-loss protection. Once claims exceed an agreed threshold, the stop-loss carrier steps in. This approach is common among larger employers, but it can feel operationally complex for smaller businesses that do not have bandwidth to manage the moving parts.

How Level Funding Works and Why It Can Refund Unused Claim Dollars

Level funded plans were designed to give smaller employers a “pay a monthly bill” experience while still using self-funding mechanics behind the scenes. The plan is often described as more transparent: the employer can see how monthly dollars are allocated, including administration and claims.

If claims run lower than expected across the plan year, the employer may receive a refund of some or all unused claim fund dollars at the end of the year. Drew emphasizes that the refund is not the primary “promise” because it is not guaranteed, but the predictable monthly cost and potential upfront premium savings versus fully insured pricing are major reasons employers consider it.

Who Is a Good Fit for Level Funding

Fit is driven by the employee population risk profile. Drew notes that many employers will benefit when the group can be priced based on the risk of its own census rather than being pooled broadly. He also notes there can be groups that are not a good fit, especially when chronic conditions or high-cost medications are prevalent in the population.

The practical takeaway from the conversation is to run the qualification process (including health questionnaires) so the employer learns which pool they best belong in: level funded or fully insured.

Provider Networks and ACA Essential Coverage

A common concern is whether level funded plans limit networks or reduce coverage. Drew explains that major carriers can offer level funded solutions, and network access often depends on the specific carrier and geography. In many metropolitan areas, networks can be “equivalently stacked,” while differences can matter more outside city limits.

He also states that level funded plans still cover ACA-required provisions, including preventive care and other essential benefits. From the employee perspective, level funded often functions like a normal group plan; the reporting and visibility are primarily at the employer level and in aggregate.

Downsides, Shopping Strategy, and Due Diligence

The main “downside” discussed is that some groups may not qualify for a favorable level funded offer after underwriting review. If that happens, the employer can remain in or return to the fully insured market. Drew also notes that even if a group has a rough year and renewal pricing changes, many small groups can still fall back on ACA-compliant fully insured options that do not consider prior claims history the same way.

He encourages due diligence because level funding has existed for decades with different iterations, and protections for employers have improved over time. This is where an experienced agent or broker can help review contract details, confirm coverage parity, and spot meaningful tradeoffs.

Using Premium Savings to Strengthen Benefits (Including HSA Strategy)

A practical example discussed is using monthly premium savings (when level funding comes in significantly below fully insured pricing) to increase employee value, such as contributing to a Health Savings Account (HSA). The idea is that dollars not spent on premium can be redirected to employee-controlled funds that may be used for qualified expenses, and if unused, can accumulate for future years.

This can shift the conversation from “insurance is just a painful expense” to “we are reallocating dollars in a way employees can actually feel.”

Talk to MAPFL About Level Funded Health Insurance

If your business is reviewing group health insurance options, MAPFL can help you compare fully insured, self-funded, and level funded plans. Our team can help you understand plan design, provider networks, stop-loss protection, claims transparency, and whether level funding may be a good fit for your group.

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Frequently Asked Questions About Level Funded Health Insurance

What are the three main types of group health insurance plans?

The episode describes fully insured, self-funded, and level funded plans. Fully insured is premium-based risk transfer, self-funded involves the employer paying claims with stop-loss protection, and level funded blends predictable monthly payments with self-funding mechanics behind the scenes.

Why do employers feel so much pressure choosing a group plan?

Employers are balancing the company budget with the desire to offer a strong benefit for employees. If they choose a poor option, it can impact costs, morale, and retention for an entire plan year.

What is stop-loss coverage in a self-funded plan?

Stop-loss is the protection the employer buys so that once claims exceed a defined threshold, the stop-loss carrier steps in. This limits catastrophic exposure while the employer pays claims up to that threshold.

What makes level funded plans different from fully insured plans?

Level funded plans show more transparency about where monthly dollars go, such as administration and claims. They can also refund unused claim fund dollars at year-end if claims run lower than expected, while keeping monthly payments predictable.

Is a refund guaranteed with level funding?

No. The episode notes that refunds are not guaranteed because unexpected claims can happen, including shock events like accidents or unforeseen health needs. The more reliable benefit is often the upfront premium savings versus fully insured pricing.

What is the worst-case financial scenario for an employer on a level funded plan?

In the discussion, the worst-case is generally described as the employer paying the set monthly level premium throughout the year. The stop-loss structure is intended to prevent additional midyear financial exposure beyond that predictable amount.

Who tends to be a good candidate for level funding?

A large share of employers can be a fit, especially when the group can be priced on its own census risk rather than being pooled broadly. Groups with heavier chronic conditions or high-cost medications may be less likely to see pricing advantage, depending on underwriting results.

Do level funded plans change the provider network compared to fully insured plans?

Not necessarily. Network access depends on the carrier and the area, and in many metro regions networks can be similarly broad across major carriers. Differences can matter more outside city limits, so the network still needs careful review.

Do level funded plans still cover ACA-required benefits like preventive care?

Yes, the episode states that level funded plans still cover ACA-required provisions, including preventive care and other essential benefits. The difference is more about funding mechanics and transparency than stripping coverage.

Why is working with an agent or broker emphasized for level funding?

Because level funding has many variants and contract details matter. An experienced agent or broker can help evaluate underwriting, compare networks and coverage, and confirm whether the plan matches what the employer expects.

Key Takeaways

Employers generally face three paths: fully insured, self-funded with stop-loss, and level funded with predictable monthly costs.
Level funding is designed to feel simple operationally while offering more transparency and possible year-end refunds tied to claim performance.
The refund is not guaranteed, but upfront premium savings versus fully insured pricing can be meaningful when the group underwrites well.
Network access is still a plan-by-plan decision; geography matters, especially outside metro areas.
Due diligence matters: underwriting, contract terms, and coverage details should be reviewed with a knowledgeable broker.

Next Steps / CTA

If you are evaluating group coverage and want to understand whether level funding could reduce costs without sacrificing access or core coverage, MAPFL can help you compare options and ask the right questions before renewal.

Primary: Book a Free Consultation

Secondary: Call/Text: +1-602-526-3236

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