Which funding type is the right fit for your organization?
Explore the differences between a fully insured, self-funded and level funded plan — and which might be best for your organization.
You're facing an important decision that impacts both your business finances and your team's well-being: selecting the appropriate health insurance funding approach. With average annual premiums reaching $26,993 for family coverage in 2025 — up 6% year over year1 — understanding different funding options has never been more important.
There are several funding options to choose from when considering employer-sponsored group health insurance, each with its own set of advantages. Here's a side-by-side comparison to help decide which might be right for your business:
| Fully insured | Level funded | Self funded | |
| Cost to employer | Fixed monthly costs | Fixed monthly costs | Based on utilization and claims costs |
| Financial risk | Low | Low | Higher |
| Savings potential | Not applicable |
Potential surplus share if claims are lower than anticipated2 | Dependent on utilization and claims costs |
| Ability to customize plan | Little plan customization available | Some plan customization available | Very customizable |
| May be best for employers who: | Want predictable costs and minimal administrative burden |
Want cost predictability with potential savings and moderate involvement in plan management | Have strong cash flow, higher risk tolerance and desire for customization |
Fully insured plans
If predictability matters most, fully insured plans may be the right fit. Here's how they work:
- Employer pays a fixed monthly premium to an insurance carrier
- The carrier then assumes all the risk for employee health claims, which offers protection when unexpected health costs arise
The fully insured model offers predictability and simplicity, making it ideal for risk-averse organizations that prefer a hands-off approach, where the carrier assumes the risk. While fully insured plans are typically less customizable than their self-funded counterparts, at UnitedHealthcare, there are still customizations that employers can make.
A fully insured plan also works well for smaller businesses that may not have the internal resources to manage health benefits, as the insurance carrier handles all administrative tasks and compliance requirements.
Level funded plans
Level funded plans are gaining momentum among employers looking for a middle path. In 2025, 37% of small firms (defined as 3–199 employees) reported having a level funded plan, compared to just 7% in 2019, according to KFF.3 Here's why: These plans represent a hybrid model where the risk is shared between the plan sponsor and the carrier. For instance:
- Plan sponsor would make fixed monthly payments, offering similar predictability to a fully insured plan
- If claims come in lower than expected at the end of the plan year, the plan sponsor may receive a potential surplus share, mitigating some of the risk of overpaying2
Notable is the fact that businesses with 2–50 employees who made the switch from a traditional, ACA-compliant fully insured plan to a UnitedHealthcare Level Funded plan saw an upfront savings of 19% on average.4
For many plan sponsors, this option provides a balance of predictability and potential cost savings, with less risk than a self-funded plan but more involvement than a fully insured plan. With increased national health spending projected, predictable funding approaches may help employers manage ongoing cost pressure but could leave them missing out on savings opportunities.
With a UnitedHealthcare Level Funded plan, plan sponsors can also get access to monthly insights and reporting, which can help identify opportunities to improve health outcomes and utilization based on how claims are tracking, and provide visibility into their potential likelihood of receiving a surplus share at year-end. Employers also have more choice, more control and more ways to personalize benefits for their workforce with a UnitedHealthcare Level Funded plan, including adjustable deductibles, copays, coinsurance, visit limits and infertility and obesity treatments, among others.
Self-funded plans
Self-funded plans offer greater control and flexibility, but they require careful consideration of risk tolerance. Here's what to know:
- Plan sponsor assumes the financial risk of paying for plan participant health claims directly
- While this arrangement may lead to cost savings if plan participants have fewer health claims, it may be a riskier arrangement if high-cost or unexpected claims come in
Self-funding isn't limited to large employers. Today, 67% of covered workers are enrolled in self-funded plans — including 27% at small firms and 80% at large firms.1
These plans, which are typically more popular with larger organizations, may require a more hands-on approach and greater management resources. With a self-funded health plan, plan sponsors also have more flexibility in designing benefits to meet the specific needs of their workforce, which may help contribute to better outcomes. Yet, small businesses may need to be prepared for potential high-cost claims — and have a strategy in place for managing these risks, such as purchasing stop loss insurance, which can protect employers when catastrophic claims come in.
3 questions to help choose the right funding type
- How much financial risk are you comfortable in assuming?
Self-funded plans offer the most flexibility but expose employers to claims volatility. Fully insured plans eliminate that risk entirely. Level funded plans split the difference. - What's your cash flow situation?
Self-funded plans require reserves to cover high-cost claims. Fully insured and level funded plans offer more predictable monthly payments. - How involved do you want to be in benefits administration?
Self-funded plans require more hands-on management. Fully insured plans are largely turnkey. Level funded plans fall in between.
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