If you're a small business owner, you've probably noticed that your group health insurance for employers keeps getting more expensive every year. The 2026 renewals are already showing premium increases that'll make your accountant cringe. But here's something most business owners don't know: you're not stuck choosing between sky-high premiums and dropping coverage altogether.
Level funding is the middle ground that's been saving small businesses thousands of dollars: and it's time more employers knew about it.
What Exactly Is Level Funding?
Think of level funding as the "Goldilocks" of health insurance. It's not fully insured (where you pay fixed premiums and the insurance company takes all the risk), and it's not completely self-funded (where you pay all claims directly). It's right in the middle, combining the predictability of traditional insurance with the cost-saving potential of self-funding.
Here's how it works: You pay a fixed monthly amount throughout the year: just like you would with traditional group health insurance. But instead of that money disappearing into an insurance company's pocket, it gets divided into three buckets.
The first bucket covers your employees' actual medical claims. The second pays for administrative costs (claims processing, network access, customer service: the stuff that keeps the plan running smoothly). The third bucket funds stop-loss insurance, which is your safety net if claims unexpectedly spike.
The Game-Changer: You Can Actually Get Money Back
This is where level funding gets interesting. With traditional fully insured plans, you pay your premium whether your employees use $10,000 in healthcare or $100,000. That money's gone, regardless of your actual claims experience.
Level funding flips that script entirely. At the end of the plan year, if your employees' claims came in lower than projected, you get a refund. We're not talking about a token gesture here: we've seen employers get back anywhere from a few thousand to tens of thousands of dollars.
That's money that can go toward employee bonuses, next year's premiums, or wherever your business needs it most. When was the last time your traditional insurance carrier cut you a check because you had a healthy year?
Why Level Funding Beats Rising Premiums
Traditional affordable group health insurance premiums are based on community rating: essentially, you're paying based on what everyone in your area is claiming, not what your specific employees are using. If you've got a relatively healthy workforce, you're subsidizing other companies' higher claims.
Level funding uses underwriting to assess your group specifically. An underwriter looks at your company's claims history, your employees' age and health status, and other factors to determine what you'll likely spend on healthcare this year. You pay that estimated amount (plus admin fees and stop-loss premiums), divided into 12 equal monthly payments.
For businesses with low-to-moderate healthcare usage, this personalized approach almost always beats community-rated premiums. You're paying for your risk, not everyone else's.
The Safety Net That Makes It Work
I know what you're thinking: "This sounds like self-funding, and I've heard horror stories about businesses getting crushed by unexpected medical claims." That's where stop-loss insurance comes in, and it's absolutely critical to how level funding works.
Stop-loss insurance kicks in when an individual employee's claims exceed a certain threshold (called the specific deductible) or when your total claims hit an aggregate limit. These thresholds typically range from $10,000 to $100,000 per person, depending on your group size and risk tolerance.
Let's say you have an employee who gets diagnosed with cancer and racks up $500,000 in claims. With stop-loss coverage set at $50,000, you'd pay the first $50,000, and the stop-loss carrier covers everything above that. Your financial exposure is capped, protecting your business from catastrophic claims that could otherwise sink a small company.
This is why level funding works for small businesses when pure self-funding often doesn't: you get the cost savings without the unlimited financial risk.
Who Should Consider Level Funding?
Level funding isn't right for every business, but it's ideal for certain situations. The sweet spot is typically companies with 2 to 200 employees. You need to be large enough that the underwriting makes sense, but small enough that traditional group health plans requirements are pricing you out of the market.
Your employees' health status matters too. If your workforce is relatively young and healthy with low-to-moderate healthcare usage, level funding can deliver serious savings. We're talking businesses where most employees are seeing doctors for preventive care and minor issues, not managing multiple chronic conditions.
You also need to be comfortable with a bit more complexity than traditional insurance. There's more reporting, more involvement in understanding your claims data, and you'll need to work with a broker who actually knows what they're doing (that's where we come in).
When to Stick With Traditional Coverage
Level funding isn't ideal if you've got high medical utilization across your workforce. If multiple employees are managing serious chronic conditions or you've had consistently high claims, a fully insured plan might actually be cheaper: you're spreading that risk across a larger pool.
Similarly, if you want absolute zero financial risk and don't care about potential refunds, traditional coverage gives you that certainty. You know exactly what you'll pay, period. There's value in that predictability for some businesses.
And if you don't have the bandwidth for additional administrative oversight: even with a broker handling most of it: level funding might add complexity you don't need right now.
The Transparency Advantage
Here's something that doesn't get talked about enough: level funding gives you visibility into your healthcare spending that traditional plans hide. You'll get detailed claims reports showing exactly where your healthcare dollars are going.
Seeing that 60% of your claims are for diabetes management? You might implement a wellness program focused on prevention. Notice high emergency room usage for issues that could be handled at urgent care? Time for some employee education about cost-effective care options.
This transparency isn't just interesting data: it's actionable intelligence that can help you design better group health benefits for small business moving forward. You're not flying blind anymore.
What About Compliance?
Level funding plans are technically self-funded, which means they're governed by ERISA (Employee Retirement Income Security Act) rather than state insurance regulations. This has both advantages and requirements.
On the plus side, you're exempt from many state-mandated benefits, which can reduce costs. You also avoid state premium taxes. The downside? You need to file Form 5500 annually, provide Summary Plan Descriptions to employees, and meet other ERISA compliance requirements.
Don't let that scare you off: a competent broker (again, that's us) handles most of this, and the compliance burden is manageable for the savings you'll see.
Making the Switch
Transitioning from traditional insurance to level funding isn't complicated, but timing matters. Most employers switch during their annual renewal period, giving everyone time to understand how the new arrangement works.
Your broker should present multiple level-funded options with different stop-loss thresholds and network configurations. We typically show clients three to five proposals so they can see the trade-offs between lower monthly costs and higher risk retention.
Employee communication is crucial. Your team needs to understand that their benefits aren't changing: they're still getting comprehensive coverage through the same or similar networks. What's changing is how you're funding those benefits behind the scenes.
The Bottom Line on Level Funding
Rising health insurance premiums are putting serious pressure on small businesses. Level funding offers a legitimate path to lower costs without sacrificing coverage quality or taking on unlimited financial risk.
It's not right for every company, but for businesses with the right employee demographics and risk tolerance, it's one of the smartest moves you can make to control your group health insurance costs in 2026 and beyond.
The key is working with someone who can properly evaluate whether level funding makes sense for your specific situation, handle the underwriting process, explain your options clearly, and manage the ongoing administration.
Ready to See If Level Funding Could Work for You?
We've helped dozens of small businesses transition to level-funded plans and seen real savings: not marketing fluff, but actual dollars back in business owners' pockets at year-end. We'll analyze your current coverage, compare it against level-funded alternatives, and show you exactly what you'd pay and save.
No pressure, no obligation: just straight talk about whether this approach fits your business.
Visit us at totalbenefits.net or give us a call at (856) 424-9900 to schedule a consultation. Let's figure out if level funding can help you beat rising premiums in 2026.
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