Level-funded health plans

General information, not legal or benefits advice. Funding arrangements involve federal law (ERISA) and state insurance law, and the answer for any employer depends on its own claims, contract and state. Consult a licensed benefits advisor and ERISA counsel before deciding.

What a level-funded plan is

The KFF 2025 Employer Health Benefits Survey (KFF, 2025; retrieved 14 October 2026) describes level-funded arrangements as “nominally self-funded options that package together a self-funded plan with extensive stoploss coverage.” In its definitions, the employer makes a set payment each month to an insurer or administrator, which funds claims, administrative costs and stop-loss premiums, and surplus claims funds may be refunded. Because they are sold as self-funded, KFF notes, they generally avoid state insured-plan requirements, and for employers with fewer than 50 employees they also avoid ACA small-firm rating and benefit standards.

For how self-funding works in general, including claims visibility and cash-flow variability, see self-funded or fully insured. This page covers only what is specific to the level-funded package.

How it differs from fully insured and fully self-funded

The definitions in the KFF survey separate three things. In a fully insured plan, a health plan assumes financial responsibility for enrollees’ claims. In a self-funded plan, the employer assumes direct financial responsibility for the costs of enrollees’ medical claims, usually with a third-party administrator or insurer, and may buy stop-loss coverage. A level-funded plan is the packaged version of the second, with a fixed monthly payment. The comparison table below sets out the differences as the sources describe them; anything the sources do not address is marked as such.

Stop-loss in plain terms

KFF defines stop-loss coverage as limiting what the plan sponsor must pay in claims, either per person or in total for the plan year, and defines the attachment point as the amount at which stop-loss coverage begins to pay. The per-person limit and the whole-plan limit are what advisors usually call specific and aggregate stop-loss; the sources we read use the “per person or in total” wording. The NAIC Stop Loss Insurance Model Act (NAIC model #92, July 2002 reprint; retrieved 14 October 2026) defines “attachment point” as the claims amount incurred by an insured group beyond which the insurer incurs a liability for payment, and sets out model limits on how low an insurer may set an annual per-individual and annual aggregate attachment point. Model laws are templates; they bind only where a state has adopted them.

On the legal side, DOL EBSA Technical Release 2014-01 (U.S. Department of Labor, 6 November 2014; retrieved 14 October 2026) states that private-sector employment-based group health plans that self-insure are not subject to State health insurance laws, and that stop-loss insurance generally is not treated as health insurance under State law. It also states the Department’s view that a state law barring insurers from issuing stop-loss contracts with attachment points below specified levels would not be preempted by ERISA, and notes that about ten states had adopted that approach, modelled on the NAIC law. We did not check what has changed since 2014, so which attachment-point rules apply in your state is a question for counsel or your state insurance department.

Who it tends to fit at 50 to 250 employees

The KFF 2025 survey reports 27% of covered workers at firms with 10 to 199 workers were in self-funded plans, against 80% at firms with 200 or more workers. It reports 37% of covered workers at firms with 10 to 199 workers in a level-funded plan, and that 37% of firms in that size band offer one, with KFF describing the firm share as the same as the prior year and the share of covered workers as similar. It also reports 51% of covered workers at those firms in either a level-funded or self-insured plan, which KFF describes as similar to the 47% reported the year before. All of these are shares of covered workers unless stated; the firm-size bands are the survey’s, not 50 to 250. The survey data does not tell us which employers a level-funded plan suits, so that judgement rests on the employer’s own claims history, cash tolerance and contract terms, which a licensed advisor can review.

Risks to understand

Three risks recur in how the sources describe these arrangements, and a fourth is a question we could not source. First, the sponsor retains claims risk up to the attachment points; stop-loss limits what the plan sponsor must pay, which is not the same as removing it. Second, how claims that were incurred but not yet paid are treated at the end of or after a contract term depends on contract wording, which the sources we read do not specify. Third, a renewal is a new contract: whether and how a high claimant is treated at renewal is a contract question for your advisor, and we did not find a primary source describing the practice. Fourth, KFF warns that respondents may be unsure whether their plan is self-funded or insured because level-funded plans resemble premiums and administrators use different labels, which is a reminder to confirm in writing what you actually hold.

Data and transparency are a further point to put in the contract. Whether claims data is shared, in what form and how often, is not addressed by any primary source we read. Ask for the answer in writing and treat the absence of one as information.

Where this sits: the federal employer shared responsibility rules that apply once a company averages 50 full-time employees, counting full-time equivalents, are laid out in the ACA employer mandate guide.

Where this sits: continuation coverage for departing employees and their families on a group health plan, including how the federal statute treats self-insured plans, is laid out in the COBRA employer guide.

Where this sits: whichever way a plan is funded, ERISA documents and reporting still attach to it. The summary plan description, the summary of benefits and coverage, and the conditions under which a small unfunded or insured welfare plan is exempt from filing Form 5500 are in the ERISA and Form 5500 guide.

Where this sits: the pre-tax plumbing around group health coverage, meaning the Section 125 cafeteria plan, HSAs and health FSAs, is covered in the Section 125, HSA and FSA guide.

What we could not confirm

We could not load the DOL EBSA self-insured plans FAQ page we tried (HTTP 404), and we did not open the statute text of ERISA section 514. The DOL ERISA topic page (retrieved 14 October 2026) describes ERISA as setting minimum standards for most voluntarily established retirement and health plans in private industry and says ERISA generally does not cover group health plans of governmental entities, but does not mention self-insured plans or preemption. We found no primary source for typical attachment-point dollar levels, typical claims run-out terms, claims-data sharing, or average cost differences, so this page makes no statement on them and no savings claim. How run-in, run-out and renewal re-underwriting work in stop-loss contracts is described, from the NAIC white paper, on our stop-loss explainer. We did not read the individual state stop-loss laws or any CMS guidance specific to stop-loss, and KFF’s survey sections beyond plan funding were not used. The NAIC model is a 2002 reprint of a 1995 act as amended in 1999, and a state may differ from it.