Let's be real: traditional group health insurance for employers feels like you're throwing money into a black hole every year. Premiums keep climbing (hello, 2026 rate increases), you have zero visibility into where your dollars are actually going, and you're basically betting that your insurance carrier knows your business better than you do.
Spoiler alert: they don't.
If you're tired of watching your health insurance costs spiral while getting nothing but vague explanations from your carrier, it's time to look at level funding. It's the insurance model that gives small business owners what they've been begging for: transparency, control, and the possibility of actually getting money back at the end of the year.
What Is Level Funding, Anyway?
Level funding is the hybrid approach that sits right between fully insured and self-funded plans. Think of it as the "best of both worlds" option that's finally accessible to small and mid-sized businesses.
Here's how it works: Instead of paying a fixed annual premium that increases every year regardless of whether your employees actually use their benefits, you pay a fixed monthly fee that covers three specific components:
- Claims costs up to a specific threshold (typically between $10,000 and $100,000 per employee annually)
- Administrative fees for processing claims and managing the plan
- Stop-loss insurance that kicks in if claims exceed your threshold, protecting you from catastrophic costs
The game-changer? You only pay for the healthcare benefits your employees actually use. If your monthly payments exceed the actual claims incurred during the plan year, you get a refund. Yes, an actual check back from your insurance carrier. When's the last time that happened with your current plan?
Why Traditional Plans Keep You in the Dark
With traditional fully insured plans, you're paying community-rated premiums based on what the insurance carrier thinks will happen across all their clients in your area. Your specific workforce health profile? Doesn't matter. Whether your employees are marathon runners or couch potatoes? Irrelevant. You're lumped in with everyone else.
Even worse, you have zero access to your own claims data. The carrier owns that information, which means you can't identify trends, spot cost-saving opportunities, or make informed decisions about your group health benefits for small business.
It's like paying for a car without ever seeing under the hood. Sure, it might run fine, but you're just hoping for the best and crossing your fingers every renewal season.
The Transparency Advantage
Level funding flips this model on its head. You get detailed access to your claims information (anonymized to protect employee privacy, of course), which opens up a whole new world of strategic planning.
Want to see if a wellness program would actually move the needle on costs? You've got the data. Wondering if offering telehealth services could reduce expensive ER visits? The numbers are right there. Considering adding a Direct Primary Care option to reduce specialist referrals? You can run the analysis yourself.
This isn't just about saving money today: it's about building a smarter, more sustainable benefits strategy for the long haul.
The Financial Breakdown: Where Your Money Actually Goes
Let's talk real numbers. Say you have 25 employees and you're currently paying $15,000 per month for traditional affordable group health insurance. That's $180,000 annually, and you're locked in regardless of whether your team files $50,000 in claims or $150,000.
With a level-funded plan, you might pay that same $15,000 per month, but it's allocated specifically:
- $10,000 toward actual employee claims
- $2,500 for stop-loss insurance coverage
- $2,500 for administrative services and support
At the end of the year, if your employees only filed $100,000 in claims (instead of the projected $120,000), you'd get approximately $20,000 back. That's money you can reinvest in your business, put toward employee bonuses, or roll into next year's benefits budget.
Even if you don't get a refund, you're not overpaying. You're paying for exactly what was used, plus the protection against catastrophic claims. That's a fundamentally different: and fairer: model.
Who Should Consider Level Funding?
Level funding isn't for everyone, but it's ideal for specific types of employers:
Small to mid-sized businesses (typically 10-100 employees) who find fully insured premiums increasingly unaffordable but aren't large enough for traditional self-funding.
Startups and growing companies that need quality benefits to attract talent without the unpredictable costs of traditional plans.
Businesses with relatively healthy workforces who aren't dealing with significant ongoing chronic conditions (though don't let a few health issues scare you off: that's what stop-loss coverage is for).
Employers who want more control over plan design, network options, and benefit structures than traditional carriers allow.
Companies committed to employee wellness who want to see the actual ROI of their wellness initiatives rather than just hoping they're making a difference.
The Stop-Loss Safety Net
The biggest concern we hear about level funding is: "What if we have a terrible year with lots of claims?" This is where stop-loss insurance earns its keep.
Your stop-loss coverage has two components: specific stop-loss (which covers individual employee claims above a certain threshold, like $50,000) and aggregate stop-loss (which caps your total claims exposure for the entire group).
This means you're never on the hook for unlimited costs. If an employee has a major health event: cancer treatment, premature birth, major surgery: your specific stop-loss kicks in once claims hit your threshold. Your financial exposure is capped, just like with traditional insurance, but you're still saving money on all the routine claims that don't hit that threshold.
Customization That Actually Matters
Unlike traditional plans where you're choosing from a handful of pre-packaged options, level funding gives you genuine flexibility. You can customize:
- Network options (broad networks for comprehensive access or narrow networks for cost savings)
- Deductibles and co-pays tailored to your workforce's preferences
- Additional services like mental health support, fertility benefits, or diabetes management programs
- Wellness initiatives that actually align with your employees' needs
- Telemedicine options to reduce costs and improve access
This isn't just checking boxes on a benefits form. It's building a health plan that actually fits your business and your people.
What to Watch Out For
Level funding isn't a magic bullet, and it's important to go in with eyes wide open. Here are the potential downsides:
Financial risk in high-claim years: While stop-loss protects you from catastrophic costs, a year with higher-than-expected claims means you won't get a refund. In some cases, depending on your contract structure, you might owe additional funds.
Regulatory complexity: Level-funded plans are considered self-funded, which means you're subject to ERISA regulations and additional compliance requirements. You'll need support navigating these waters.
Smaller risk pool: Unlike fully insured plans that spread risk across thousands of employers, your pool is just your employees. This can be a disadvantage if you have a particularly unhealthy year.
Administrative responsibilities: You'll have more involvement in plan management compared to a traditional hands-off approach. (Though working with an experienced broker like Total Benefit Solutions significantly reduces this burden.)
Why You Need an Expert on Your Side
Here's where we come in. As an independent broker, we're not tied to any single carrier or pushing one specific solution. We can shop the entire market, compare multiple level-funded options, and find the plan structure that actually makes sense for your specific situation.
We handle the complicated stuff: compliance, carrier negotiations, stop-loss coverage analysis, plan document preparation: while you focus on running your business. We also provide ongoing support throughout the year, helping you interpret claims data, identify cost-saving opportunities, and make strategic adjustments.
Plus, we have relationships with carriers who specialize in level funding for businesses your size. That means better rates, more flexible underwriting, and stronger stop-loss protection than you'd find on your own.
Making the Switch
Transitioning to a level-funded plan typically happens during your renewal period, though mid-year changes are sometimes possible depending on your current contract. The process involves:
- Health assessment of your workforce (usually through a simple questionnaire, not invasive medical exams)
- Comparative quoting across multiple carriers to find the best structure and rates
- Plan design that balances cost savings with employee needs
- Implementation support including employee communication and enrollment assistance
- Ongoing management with monthly claims reporting and strategic review
Most businesses we work with see immediate benefits in terms of transparency and control, with cost savings materializing over the first 12-24 months as they optimize their plan based on actual data.
The Bottom Line
If you're frustrated with rising premiums, zero visibility into where your money goes, and the feeling that you're just getting fleeced by insurance carriers every year, level funding deserves a serious look.
It's not right for every business, but for small and mid-sized employers with relatively healthy workforces who want more control and transparency, it's often the smarter choice. The potential for year-end refunds is nice, but the real value is in building a sustainable, data-driven approach to group health insurance for employers that actually serves your business goals.
Ready to explore whether level funding makes sense for your business? We can run a no-obligation analysis comparing your current plan to level-funded options and show you exactly what the numbers look like for your specific situation.
Contact Total Benefit Solutions at https://totalbenefits.net/contact/contact-info or call us directly. Let's have a real conversation about your health insurance strategy: no sales pitch, just straight answers about what will actually work for your business.
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