Here's something most small business owners don't know: there's a type of group health insurance for employers that can actually write you a check at the end of the year. Not a bill. A refund.
Sounds too good to be true, right? But it's not some gimmick or marketing trick. It's called level funding, and it's one of the smartest moves a small to mid-sized business can make when traditional health insurance premiums keep climbing year after year.
Let me explain how this works, and whether your business should be taking advantage of it.
What Is Level Funding (And Why Don't More People Know About It)?
Level funding sits right in the sweet spot between fully insured plans (where you pay fixed premiums to an insurance carrier) and self-funded plans (where you take on all the risk yourself). Think of it as self-funding with training wheels.
Here's the basic setup: Instead of paying a traditional premium to an insurance company, you pay a fixed monthly amount into three separate buckets:
- Claims fund – Money set aside to pay your employees' actual medical claims
- Stop-loss insurance – Protection against unexpectedly high claims (this is your safety net)
- Administrative fees – The cost of running the plan, processing claims, and managing everything
The game-changer? At the end of the plan year, if your employees' claims came in lower than what you contributed to that claims fund, you get the difference back. That's real money returning to your business.
How the Refund Actually Works
Let's say you're a business with 30 employees. Your level-funded plan has you contributing $20,000 per month to your claims fund, that's $240,000 for the year.
Throughout the year, your employees visit doctors, fill prescriptions, and use their health benefits. The claims get paid out of that fund you've been building. By December, let's say your actual claims totaled $195,000.
You've got $45,000 sitting in that fund unused. With traditional group health insurance for employers, the insurance company would pocket that difference as profit. With level funding, that $45,000 comes back to you. You can take it as a cash refund or (more commonly) apply it as a credit toward next year's contributions.
That's the "secret" everyone's talking about, except it's not really a secret. It's just that most brokers push fully insured plans because they're easier to sell and explain.
Who Should Consider Level Funding?
Level funding isn't right for every business, but it's ideal for specific situations. We typically see the best results with companies that have:
20 to 150 employees – You're big enough to spread risk but small enough that traditional insurance carriers are charging you premium prices. This is the goldilocks zone for level funding.
A relatively healthy workforce – If your team tends to have lower-than-average claims, you're in a great position to see those refunds. One year of good claims experience can offset a significant portion of your health insurance costs.
Stable cash flow – While your monthly contributions are fixed and predictable (hence "level" funding), you need to be comfortable with the idea that you're essentially funding your own claims. The stop-loss insurance protects you from catastrophic scenarios, but you should still have financial stability.
Frustration with rising premiums – If you're tired of getting hit with 10-15% premium increases every year regardless of your actual claims experience, level funding gives you more control and transparency.
The Real Benefits Beyond the Refund
Yes, the potential year-end refund is attractive. But there are other advantages to level-funded group health benefits for small business that often matter even more:
Full transparency into your claims data – You'll see exactly where your healthcare dollars are going. Which conditions are driving costs? Are certain medications eating up your budget? This information is gold when it comes to designing wellness programs or making smart benefits decisions.
More predictable monthly costs – Unlike traditional insurance where you might face sticker shock at renewal time, level funding keeps your monthly contributions stable throughout the year. You know what you're paying in January and what you'll pay in December.
Protection from catastrophic claims – The stop-loss insurance means you're never on the hook for unlimited expenses. If an employee has a serious illness or injury that generates $500,000 in claims, your stop-loss coverage kicks in. You're protected from the downside while still benefiting from the upside.
Potential for better plan design – Because you're essentially self-funding (with protections), you often have more flexibility to customize your benefits. Want to add telemedicine? Enhance mental health coverage? You've got options that fully insured plans might not offer.
What About the Downsides?
We're not here to sell you something that isn't right for your business, so let's be real about the challenges:
You might not get a refund – If claims are high, you won't see money back. Some years you'll get a nice check. Other years, you won't. The key is that over time, most businesses see savings compared to traditional affordable group health insurance options.
It requires some financial literacy – You need to understand how the funding mechanism works. We'll walk you through everything, but it's more complex than just writing a check for a premium each month.
Claims reporting can create cash flow considerations – While your contributions are level, the actual timing of claims can vary. This usually isn't an issue, but it's worth understanding.
Not available in every state – Some states have regulations that make level funding difficult or impossible. We can tell you immediately if it's an option where you operate.
How It Compares to Traditional Insurance
Here's the honest truth: traditional fully insured plans are designed to protect the insurance company's profit margins, not to reward you for having healthy employees.
When your team has a good year health-wise, the insurance company celebrates (they keep the difference). When your team has a tough year, you celebrate (your premiums stay relatively stable: at least until renewal). That's fine. It's how insurance is supposed to work.
But level funding flips the script. Good years benefit you directly. Bad years are still protected by stop-loss insurance. You're sharing in both the risk and the reward.
For businesses in that 20-150 employee range, we've seen level funding save anywhere from 10% to 30% compared to traditional group coverage over a three-year period. That's real money that goes back into your business, your people, or your own pocket.
Is Your Business Ready for Level Funding?
The businesses that succeed with level funding share a few characteristics. They're willing to think differently about health insurance. They understand that some years will be better than others, but over time, the math works in their favor. And they want more control and transparency over one of their biggest expenses.
If you're nodding your head reading this, level funding deserves a serious look. If you're shaking your head thinking "this sounds too complicated," that's fine too: traditional group coverage isn't going anywhere, and for some businesses, it's still the right choice.
Making the Switch
Here's what the process typically looks like:
We'll analyze your current plan and claims history (if available). We'll get quotes from level-funded carriers that make sense for your industry and employee demographics. We'll model out different scenarios: what happens if claims are low, average, or high. And we'll present you with options that make sense.
If you decide to move forward, we handle the entire transition. Your employees will barely notice the difference (their cards, networks, and coverage stay largely the same). But you'll notice the difference in your monthly costs and, if the year goes well, in your year-end statement.
Let's Talk About Your Options
Level funding isn't the right answer for everyone, but it's worth exploring if you're tired of watching your health insurance costs climb every single year with nothing to show for it.
We're independent brokers, which means we can shop the entire market for you. We're not tied to any one carrier or funding mechanism. Our job is to find what actually works for your business: whether that's level funding, traditional coverage, or something else entirely.
Ready to see if level funding could work for your business? Contact us at Total Benefit Solutions or give us a call at (856) 424-4325. We'll run the numbers, answer your questions, and show you exactly what you could save. No pressure, no sales pitch: just honest guidance on finding the right group health insurance for employers that actually makes sense.
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