If you run a business in Texas with up to 250 employees, you’ve likely faced challenges in managing health insurance costs. Traditional group health plans continue to get more expensive, while many brokers offer limited service. That’s where a level funded health plan comes into the picture.

So, what is a level funded health plan? It is a hybrid insurance model that blends features of fully insured and self-funded plans. It offers predictable monthly costs with the opportunity to lower overall spending if your employees have fewer claims.

This guide explains how level funded plans work, how they compare to other options and why they could be a strong fit for your business.

Definition and Explanation of Level Funded Health Plans

A level funded health plan allows your business to pay the same monthly amount for employee coverage. Each payment covers three components: a fund for expected claims, administrative fees and stop-loss insurance to limit financial exposure if an employee has a major medical issue.

If claims end up being lower than expected, your business may receive a refund. If claims are higher, the stop-loss insurance protects you from paying out of pocket beyond a set threshold.

From your employees’ perspective, the plan functions like any other group health insurance. They can visit in-network providers, use preventive services and access care as needed.

Unlike traditional plans, level funded models give you more insight into how health dollars are spent. You see claims activity and trend data. This transparency helps you make better decisions about plan design and long-term budgeting.

This structure appeals to many employers who feel disconnected from how their current insurance plans operate. Instead of handing over premiums to a carrier without explanation, you remain involved in managing the plan’s performance.

Key Features of Level Funded Health Plans

Level funded plans combine predictability with flexibility. Here’s what sets them apart:

  • Fixed monthly payments simplify your budgeting process.
  • Claim funding ensures that actual health care usage is covered without unnecessary markup.
  • Stop-loss insurance shields your company from high, unexpected claims.
  • End-of-year refunds allow you to recoup part of your spending if your employees use fewer services.
  • Reporting tools offer visibility into what services employees use most, helping you adjust benefits based on real needs.
  • Plan customization lets you match benefits to your team’s priorities, whether that’s preventive care, mental health or access to specific providers.

In contrast to a fully insured plan, where you pay a fixed premium and receive no return regardless of claims, a level funded plan gives you the chance to benefit when claims are low.

Many employers appreciate how this model creates a stronger connection between employee health habits and overall plan performance. The added visibility into claims can also support internal wellness initiatives.

How Level Funded Health Plans Benefit Businesses

Texas companies that want to take a more strategic approach to benefits often choose level funded plans. These businesses gain a way to offer competitive coverage while maintaining cost control.

For many employers, cost savings come first. A level funded plan gives your company the chance to lower overall health care spending. If your workforce is healthy, you can avoid overpaying for coverage you don’t use.

Monthly costs remain stable, even in years when claims rise. This structure protects your cash flow and makes planning easier.

Your employees benefit as well. You can use plan data to build benefits that reflect what your team values. For example, if your reports show high use of mental health services, you can add or expand that part of the plan. If preventive care is underused, you can promote it more actively.

Offering smarter health benefits can also reduce turnover. Employees stay longer when they feel valued. A thoughtfully designed plan helps you recruit and retain quality people, especially in competitive industries.

With a level funded plan, businesses can also stay ahead of healthcare trends. You may notice shifts in utilization, such as increased telehealth usage and make proactive adjustments to ensure your benefits align with evolving employee expectations.

Risk Considerations and Limitations of Level Funded Health Plans

Every insurance model includes some trade-offs. Before you switch to level funding, consider the following:

Your claims history matters. If your employees tend to use more health care, your business may not qualify for the best pricing. Higher claims may also raise your renewal rates.

To prepare, look at your historical claims data and assess the overall health of your workforce. A broker who understands level funded plans can help you evaluate this information and guide you through underwriting.

You’ll also want to review your stop-loss insurance terms carefully. This coverage protects you, but it needs to be structured correctly to avoid gaps in protection.

Another consideration is your comfort level with involvement. Fully insured plans are hands-off. Level funded plans require more engagement, especially when setting up the plan and reviewing reports. Many employers find the extra effort worthwhile, especially when they see savings and better results.

You also need a solid understanding of your business’s financial health. While costs are fixed each month, businesses should maintain reserves in case of unexpected claim trends in future renewal cycles.

Comparing Level Funded vs. Fully Insured Plans

Here’s a side-by-side look at how level funded plans compare to traditional fully insured coverage:

Feature

Level Funded Plan

Fully Insured Plan
Monthly Premium Fixed with refund potential Fixed with no refund
Risk Exposure Limited by stop-loss insurance Low, but all risk is carried by the insurer
Data Access Detailed claims reports provided regularly Limited or none; carriers rarely share detailed reports
Plan Customization High; plan design can be tailored to workforce needs Low; plan options are often pre-set by the carrier
Flexibility Strong; options to adjust based on claims data Minimal; changes typically require a new policy
Cost Savings Possible with low claims and good plan management Not available; premiums remain fixed regardless of use
Transparency Full visibility into claim trends and performance Limited insight into where dollars are spent
Year-End Refund Available if claims come in below expected Not available; unused funds stay with the carrier
Administrative Work Moderate; requires some oversight and analysis Low; minimal employer involvement once the plan is active

 

Level funded plans work well for businesses that want more flexibility and control. These plans provide insight into healthcare usage and create opportunities for strategic cost management. Employers can work with their broker to refine benefits over time based on actual usage, making the plan more efficient and responsive.

In contrast, fully insured plans suit companies that prefer a hands-off experience. The insurance carrier handles everything, but employers give up control, customization and the chance to benefit from lower claims activity. Premiums remain the same for the calendar year and can be re-underwritten at renewal.

The right choice depends on your goals, your team’s overall health and your comfort with plan oversight. Employers who want greater influence over their benefit strategy and who value long-term savings often find level funded plans a better fit. Those who want simplicity without deeper involvement may prefer the structure of a fully insured plan.

If you’re unsure which option makes more sense for your company, a consultation can help you weigh the pros and cons based on your budget, workforce and risk tolerance.

Is a Level Funded Health Plan Right for Your Business?

To find out if this option suits your company, start by reviewing your current health plan’s performance. Look at your total spending, claims data and employee feedback.

If your business employs up to 250 people, has a stable or healthy workforce and wants a more active role in managing health benefits, level funding could work well.

You’ll also need a broker who knows how to build and support this type of plan. Many brokers push fully insured or non-underwritten plans because they require less work. At Selected Benefits, we do the extra legwork to find the best possible outcome for your business.

We negotiate with carriers, shop rates every year and provide free software for employee enrollment. We also stay available to answer questions and help you manage your plan.

A quick consultation can help you determine if your business is a good fit. We walk through your current strategy, your goals and your claims profile to build a clear path forward.

Moving Forward with a Smarter Health Plan Strategy

Business owners who want to take more control of their company’s benefits have options. A level funded health plan creates opportunities to manage expenses, improve employee satisfaction and build a more sustainable health care strategy.

Many companies overpay for insurance because they never see real claims data. A level funded model changes that. You can adjust your plan based on how people actually use it, rather than guessing what works.

A custom plan shows employees that their needs matter. It also helps you stand out as an employer that cares about long-term well-being, not just short-term costs.

If your current broker doesn’t review your options every year or if you’ve never received guidance on plan design, it’s time to ask for more.

Selected Benefits works with businesses throughout Texas, including Houston, Dallas, Austin and San Antonio. We focus on companies with up to 250 employees that need a high-performing plan without unnecessary complexity.

If you’re ready to take the next step, we’re here to help. Take a moment to request more information, and we’ll walk you through the best options for your team.