Level Funded vs Self-Funded vs Fully Insured – What’s the Difference?

You must have heard about Level Funded, Self-Funded and Fully Insured plans, but do you know the difference among these? The United States has different insurance options when it comes to providing healthcare coverage to their employees. 3 of the most common types of plans are Level Funded, Self-Funded, and Fully Insured plans. According to recent statistics, Level Funded and Self-Funded plans have been gaining popularity among small and medium-sized businesses.

In fact, Level Funded corporate health plans have increased by 33% in the past year, while Self-Funded plans have increased by 22%. On the other hand, Fully Insured plans have remained relatively stagnant with only a 1% increase in the same time frame. These trends suggest that employers are becoming more interested in taking control of their healthcare costs by opting for Level Funded and Self-Funded plans.

We’ve got you covered with this comprehensive guide that breaks down everything you need to know. From definitions to cost, flexibility, and risk comparisons, we’ll help you navigate through the jargon and make sense of what’s important. By the end of this blog, you’ll have a clear understanding of which plan works best for you and your employees. So, buckle up and let’s get started!

Understanding the Basics

You may have heard the terms Level Funded, Self-Funded, and Fully Insured when discussing health insurance options for businesses. But what do they really mean?

What is a level funded plan?

Level Funded plans are a hybrid of traditional insurance and self-insurance, where the employer pays a monthly premium to a third-party administrator, who then takes responsibility for claims and administration. This type of plan allows for more transparency in pricing and lower costs, but also comes with higher risks, since the employer is more responsible for claims than in a Fully Insured plan.

How do level funded plans work?

Level funded plans are a way for small and mid-sized businesses to provide affordable health insurance coverage to their employees plans while potentially saving on costs. In a level funded plan, the employer pays a set amount each month to an insurance carrier. This money goes towards funding employee claims. However, if claims are higher than expected, the employer may be responsible for paying the difference.

These types of plans are appealing to smaller businesses because they offer a higher degree of cost certainty compared to fully insured plans. This is because level funded plans are often customizable, allowing employers to select the coverage options that work best for their employees.

What is a level funded plan? Difference between level funded vs self funded

Additionally, employers have access to claims data, which can help them identify areas where their employees may benefit from additional support or education when it comes to their health.

Level-funded insurance plans work with stop-loss insurance to minimize the risk of large claims. Stop-loss insurance is a type of coverage that kicks in once the employer has reached a certain limit in claims. For instance, if the employer has a stop-loss limit of $50,000 and a claimant exceeds this amount, the stop-loss insurance will cover any additional expenses over the limit.

This level of coverage allows smaller and mid-sized companies the flexibility to self-insure while mitigating the risk of incurring large claims. In order for a level-funded plan to be effective, a stop-loss insurance policy must be in place to protect both the employer and the employees.

What are the advantages of level funded health plans?

Level funded plans offer the benefits of self-funding, such as reduced costs and flexibility, without the risk of unexpected claims. At the end of the year, any unused funds are typically refunded to the employer, which can be a significant savings. Additionally, employers have more control over their plans and can customize them to fit the needs of their employees.

What are the cons of a level funded health plan?

One major downside to level funded plans is the possibility of having to pay back funds if claims exceed expectations. This can be a significant financial strain on small businesses that may not have the resources to cover unexpected costs. Additionally, level funded plans may require more administrative effort and come with fewer legal protections than fully insured plans.

What is a self-funded plan?

Self-Funded plans, on the other hand, give employers more control over their healthcare expenses by allowing them to pay for claims as they come in. This can result in lower costs, but can also come with higher risks, since the employer is responsible for all claims. As a result, this type of plan is typically only recommended for larger businesses with a healthier employee population.

How do self-funded insurance plans work?

Self-funded insurance plans, also known as self-insured plans, are health insurance plans in which the employer assumes the financial risk for providing healthcare benefits to employees. Unlike traditional insurance plans where the employer pays premiums to an insurance carrier, self-funded plans see the employer assume the responsibility to pay for all healthcare claims.

Essentially, the employer acts as its own insurance company, taking on risk but also giving itself more control over plan design, benefits, and costs. In a self-funded plan, the employer sets aside a “reserve” fund to finance claims and then contracts with a third-party administrator (TPA) to process claims and manage the plan. The TPA can help the employer with various tasks, such as provider network management, claims processing, and compliance with government regulations.

Level Funded vs Self-Funded vs Fully Insured - What's the Difference?

What are the advantages of Self-Funded plans?

Self-funded plans offer the most flexibility and control over healthcare costs. Employers can tailor their plans to fit the needs of their employees and may save money by avoiding the premiums charged by insurance companies. Plus, self-funded plans are exempt from many state insurance laws, providing even more flexibility in plan design.

What are the disadvantages of self-funded health plans?

Self-funded plans also come with significant risk. Employers are responsible for paying all claims and may need to dip into their reserves if unexpected costs arise. This can become a major financial burden, particularly for small businesses. Additionally, self-funded plans require more administrative effort than fully insured plans and may be subject to more stringent legal regulations.

What is a fully insured plan?

Fully Insured plans are what we typically think of as traditional health insurance – the employer pays a premium to an insurance company, who then takes responsibility for claims and administration. This type of plan offers the most stability and predictability in cost, but also comes with less flexibility and control over the plan. Understanding the basic differences between these plan types is crucial for making informed decisions about insurance options for your business.

How fully insured plans work?

Fully insured plans are a type of corporate health insurance where the insurance company takes on the risk of paying for all covered medical expenses. In return for a monthly premium, the insurance provider covers the costs associated with a range of health services, including hospital stays, physician visits, and prescription medications.

The insurance provider bears the financial burden of all claims and services paid for under the policy, meaning that employers and their employees are protected from any unanticipated healthcare costs. Employers offering fully insured plans to their workers will pay a monthly premium to the insurance company to ensure that adequate insurance coverage is provided. To ensure ongoing coverage, premiums must be paid on time, and the employer must adhere to underwriting and anti-selection rules set out by the insurance provider.

What are the main advantages of fully insured?

Fully insured plans offer the most predictability and stability in healthcare costs. With fully insured plans, employers pay a predetermined premium to an insurance company, which assumes all risk for claims. This means that employers do not have to worry about unexpected costs and can focus on other business priorities.

What are the cons of being fully insured?

The premium costs for fully insured plans can be significantly higher than self-funded or level funded plans. Additionally, fully insured plans are subject to more legal regulations than self-funded or level funded plans, which may limit their flexibility in plan design. Employers have less control over their plans and must accept the plan designs offered by the insurance company.

What is the difference between Level Funded and Self-Funded?

The age-old debate of level funded vs self-funded. It’s like the Pepsi vs Coke of the insurance world. Let’s break it down, starting with cost comparison. Level funded plans usually have fixed monthly costs, making it easier to budget for. Self-funded plans, on the other hand, have variable costs that can fluctuate based on claims. It’s like playing Russian Roulette with your budget.

Next, flexibility comparison. Level funded plans offer more flexibility in plan design and administration. Self-funded plans may have more restrictions and require a dedicated team to manage them.

And last but not least, risk management. With level funded plans, the insurance company assumes the risk for high-cost claims. With self-funded plans, the employer assumes the risk. Talk about high stakes.
In conclusion it really comes down to a matter of preference and risk tolerance. Do you want predictable costs and more freedom in plan design? Or are you willing to take on the risk for potentially lower costs? It’s up to you to decide, but hopefully, we’ve shed some light on the differences between the two.

What is the difference between self-funded and fully insured?

Now let’s dive into the comparison between Self-Funded and Fully Insured plans. Cost-wise, self-funded plans can be more economical as the employer can save on administrative costs and taxes. Additionally, the employer has the option to re-invest any unused premiums rather than losing them.

Fully insured plans, on the other hand, have stable premiums, but they also come with a “risk charge” that covers the insurance company against unexpected claims. When it comes to flexibility, self-funded plans are more customizable compared to fully insured plans. Self-funded plans allow the employer to tailor the benefits and costs to meet their needs, whereas fully insured plans are usually pre-packaged with little room for customization.

Regarding risk management, self-funded plans are more exposed to risk than fully insured plans, but they can also have better control over managing the risk. Fully insured plans, on the other hand, have less risk exposure but also have less control over the overall plan.
In conclusion, the decision between self-funded and fully insured plans ultimately boils down to the employer’s risk tolerance, financial situation, and the need for customization. It’s essential to consider all factors, weigh the pros and cons, and choose the plan that works best for your particular situation.

What is the difference between fully insured and level funded?

Are you tired of the constant back-and-forth between level funded and fully insured plans? So, let us get through this once and for all. Starting with the cost associated. Level funded plans tend to have a higher monthly premium but come with the potential for lower yearly costs.

On the other hand, fully insured plans have a lower monthly premium, but the annual costs tend to be higher due to the fixed premium. Now, let’s talk about flexibility. Level funded plans allow for more customization, but with that comes more responsibility. Fully insured plans offer less customization, but with fewer responsibilities from the employer.

Lastly, risk management. In a level funded plan, the employer takes on most of the risk but with potentially greater rewards. In a fully insured plan, the insurance carrier takes on more of the risk, but with smaller rewards. So, which plan is right for you? It ultimately depends on your company’s needs and priorities. But with this information, hopefully, you can make a more informed decision.

Why self-funded and level-funded plans are gaining popularity?

Self-funded and level-funded plans are becoming more popular in today’s insurance market as they offer numerous benefits to both employers and employees. One of the main reasons for their increased prevalence is the customization and flexibility they provide. Employers can tailor their plans to meet the specific needs of their employees, which can lead to cost savings and increased satisfaction.
Additionally, these plans can offer greater transparency and control over healthcare costs as employers have a better understanding of where their money is being spent. Furthermore, as the job market becomes more competitive, offering unique and attractive benefits like self-funded and level-funded plans can help employers retain and attract top talent. It is clear that these types of plans are a great option for employers looking to provide high-quality healthcare benefits while controlling costs.

Self-Funded vs Fully Insured and Level Funded vs Fully Insured

How are level-funding health plans different?

Level-funding health plans differ from traditional insurance plans in several ways. Firstly, they allow employers to pay a set amount each month that covers both the expected claims of their employees and the administrative costs of the plan. This means that the employer takes on more of the risk for the plan, but also has the potential to save money if claims are lower than expected.

Secondly, level-funding plans often come with more transparency in pricing and services offered, as well as more control over how the plan is structured. Lastly, level-funding plans are often more flexible and customizable, allowing employers to tailor the plan to fit the unique health care needs of their employees.

While level-funding plans may not be the best fit for every employer, they are certainly worth considering as a viable alternative to traditional health insurance plans.


Choose the right plan that fits your budget and coverage needs. Level funded, self-funded, and fully insured plans have their pros and cons. Ultimately, it’s about what works best for your company.

When it comes to selecting the right health insurance plan for your business, it’s important to understand the different options available. Three popular options are level-funded, self-funded, and fully insured plans. Each option comes with its pros and cons, so it is important to take the time to research and analyze which plan suits your budget and coverage needs.

If your company is looking for a predictable monthly cost, fully insured plans may be the way to go. For those who would like a bit more control over their health care costs, a self-funded plan may be the way to go. While level-funded plans provide a middle ground between both options. At the end of the day, the size and type of your organization, along with employee demographics and risk tolerances are all important considerations when choosing a plan that works best for your company. If you are also planning to take coverage for your employees and looking for a business insurance consultant in Plano, DFW, TX or nearby areas then Brilliant insurance is your one stop shop. Contact our certified consultants for a free quote!

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