Level funded plans may offer savings, flexibility and security

What is level funding and how can it offer the best of both worlds between self-funded and fully insured health plans? Learn more.

Level funded plans have grown in popularity among employers looking for the flexibility of a self-funded plan and the security of a fully insured plan. Thirty-eight percent of small companies, with anywhere from 3 to 199 employees, that offered health benefits had a level funded plan in 2022.1

So, what is level funding? A level funded plan is a health plan structure in which the plan sponsor makes an agreed-upon, fixed payment to either an insurer or a third-party administrator (TPA) that funds plan participant claims, administrative costs and any premiums for stop loss coverage. When plan participant claims are lower than expected, the health plan may get a surplus refund at the end of the plan year.2

Learn why level funding can offer the best of both worlds:

Offers the flexibility and savings potential of a self-funded plan

One of the biggest perks of a self-funded health plan is the ability to customize it to fit the unique health needs of a plan sponsor’s workforce — and to make adjustments throughout the year based off detailed claims reports that are sent to them.

Plan sponsors that choose level funding also get that monthly report, which provides direction about how to encourage their employees to make more informed health decisions that may influence their outcomes and costs. For instance, employees may learn that:

  • Substituting a brand name medication with a generic alternative may save money
  • Going to urgent care may be more appropriate and less costly than going to the emergency room
  • Seeing their primary care provider virtually rather than in-person may save them time and money

"For employers, there’s an incentive to help keep their employee populations healthier to drive for a greater surplus refund," says Mary Zarn, chief executive officer for UnitedHealthcare Level Funding. "With wellness programs and virtual care included with our level-funded plans, we can help make this happen."

The potential for cost savings is the other big perk of a self-funded plan that a level funded plan shares. When plan participant claims are lower than expected, a self-funded employer keeps that savings. With a level funded plan, the plan shares the savings with a potential surplus refund at the end of the year.

UnitedHealthcare prices level funded plans based on risk profile so that healthier groups don’t pay as much as less healthier groups. As a result, plan sponsors may pay 17% less under a UnitedHealthcare Level Funded plan compared to a fully insured plan.3

Offers the security of a fully insured plan

The main advantage of a fully insured plan is stability and security.

Many smaller employers choose fully insured plans because their costs can remain steady month-over-month since the employer pays a fixed premium each month to the carrier and the carrier takes on the risk and financial responsibility of paying for employee claims.

Level funded plans are structured a little differently, but still offer a similar measure of stability.

While level funded plans allow plan sponsors to assume the financial risk of providing health services to plan participants by directly paying for their medical and pharmacy claims, they also cover the cost of individual or aggregate claims that exceed the plan’s maximum — which essentially means they’re not on the hook if a catastrophic claim comes in.

“Level funded plans mitigate risk associated with the self-funded model,” says John Koewler, regional vice president of small business for the west region at UnitedHealthcare Employer & Individual. “There is no risk of additional liability outside of what is being funded.”

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