# Level-funded plans vs. Prescience

Source: https://www.getprescience.com/compare/level-funded-alternative
Author: Aditya Jain, MD, Cofounder and COO, Prescience
Published: 2026-10-03
Updated: 2026-10-13

A level-funded arrangement combines a scheduled monthly payment with employer responsibility for a self-funded health plan. I compare the contract limits, surplus rules, run-out claims and renewal terms before comparing price. Prescience offers a monthly cost set in your quote, an effective $0 deductible and physician-led care navigation.

- **Small-firm workers in level-funded plans:** 37% (KFF, 2025)
- **Prescience admin fees:** $0
- **Deductible your team sees:** Effective $0 deductible
- **Minimum group size:** 2 employees

## What a level-funded plan is

A level-funded plan is a self-funded plan packaged to feel like insurance. You pay the same amount each month. That payment funds a claims account, the administrator's fees and a stop-loss policy that covers claims above set limits. If claims come in low, some plans refund part of the surplus; higher claims may affect renewal pricing.

They're now common: KFF's 2025 survey found 37% of covered workers at firms with 10 to 199 workers are in a level-funded plan.

I use the primary sources listed below for the legal rules and original survey benchmarks. Any worked cost scenario is illustrative. A proposal must still be checked against its own eligibility, coverage and contract terms before enrollment.

## How the money moves and who carries the risk

Each monthly payment is split three ways:

- **The claims fund.** The largest share. It pays your employees' medical and pharmacy claims as they come in. Legally, this is the employer's money paying the employer's plan.
- **Fixed costs.** The third-party administrator's fee for processing claims, network access, the pharmacy benefit manager and member services.
- **The stop-loss premium.** Insurance bought by the employer, not by the plan. **Specific** stop-loss reimburses claims for any one person above a set amount (the specific deductible or attachment point). **Aggregate** stop-loss covers total claims above a ceiling, as specified in the policy.

**Who carries the risk.** The employer remains responsible for benefits promised by its self-funded plan. Stop-loss reimburses the employer only for eligible claims within its policy terms. Exclusions, payment timing, an individual higher attachment point and claims outside the policy period can leave additional employer obligations. A scheduled monthly payment is not, by itself, proof that every liability is capped.

**The year-end settlement.** After the plan year ends, the administrator waits for late claims (the run-out period, often a few months), then compares total claims with the claims fund. A surplus may be refunded, credited to next year or kept, depending on the contract. Some contracts pay a refund only if you renew. Eligible claims above the aggregate attachment point may be reimbursed under the policy. Check exclusions and whether the employer must pay first; renewal pricing is separate.

## The trade-offs

- **Underwriting.** Stop-loss carriers price your group from health questionnaires or claims. One employee with a serious diagnosis can raise your rate or get you declined. Having trained in medicine, I find it uncomfortable that a colleague's cancer diagnosis can become a pricing input for the whole company.
- **Lasering.** At renewal, a stop-loss carrier can set a much higher specific deductible for one known high-cost person, leaving the employer to fund more of that person's care.
- **Renewals can reflect claims.** Ask which factors affect the new quote and whether any renewal cap or protection against individual higher attachment points is contractual.
- **Your team still has a deductible.** Most level-funded designs look like a standard PPO or HDHP to employees.
- **Several vendors.** Administrator, stop-loss carrier, network and pharmacy benefit manager are often separate, each with a fee.
- **Run-out and terminal liability.** If you leave, claims incurred before the end date but paid after it may not be covered unless the contract includes run-out protection. Read that clause before you sign, not when you want to leave.
- **State limits.** New York Insurance Law 3231(h) restricts stop-loss coverage for small groups. Other states regulate attachment points and availability differently. Have the broker identify the current law that applies to your employer and proposed policy. A product advertised nationally is not evidence that it is available to your group.

The [DOL stop-loss guidance](https://www.dol.gov/node/63762) explains why state regulation and the employer's plan obligations need separate attention.

## Level-funded vs. Prescience, feature by feature

**How a typical level-funded plan compares with a Prescience plan**

|  | Level-funded | Prescience |
| --- | --- | --- |
| Monthly cost | Scheduled payment; check additional liability and renewal terms | One monthly cost set in your quote, usually 10–20% below comparable fully insured coverage |
| Underwriting | Stop-loss policy underwritten to your group | Ask for the written quote and eligibility terms |
| Admin fees | Administrator and stop-loss fees built into the payment | $0 |
| Year-end surplus | May be refunded, credited or kept, per contract | Compare the monthly cost set in your quote |
| Leaving | Run-out claims and contract terms to settle | Set out in your plan documents |
| Deductible your team sees | Usually a standard deductible | Effective $0 deductible |
| Cost of a visit | Service-specific deductible, copay or coinsurance | Simple copays shown before the visit |
| Network | A carrier or rented PPO network | Broad national PPO network plus direct-contract providers |
| Care support | Varies by administrator | 24/7 physician-led care navigation |
| Claims reporting | Often detailed group claims reports | Ask what reporting is available in your proposal |
| Minimum group size | Varies by carrier and state | 2 employees |

## What 5, 25 and 75 employees pay: a good year and a bad year

These KFF averages describe employer coverage across funding arrangements at firms with 10–199 workers. They are not fully insured quotes or observed prices for teams of five. I use the rounded monthly values of $768 single and $2,171 family only as illustrative arithmetic inputs. The exact tier counts, not an assumed 70/30 percentage, determine each total.

Level-funded pricing depends heavily on the group, so these numbers are illustrative only. To isolate the mechanics, I set the level-funded payment equal to a fully insured plan's premium, using illustrative premiums of $768 single and $2,171 family a month, rounded from KFF's 2025 averages for firms with 10–199 workers.

**A 25-person team on a level-funded plan, two ways the year can go**

Illustrative assumptions, not a quote: annual payment $348,252; 70% for expected claims and 30% for fixed costs and stop-loss; 50% of surplus returned. The lower-claims scenario uses 80% of expected claims. The higher-claims scenario assumes all excess claims qualify for protection and no extra employer obligation remains. Actual contracts can leave additional liability.

- Level payment for the year: $348,252
- Claims fund (70%): $243,776
- Fixed costs and stop-loss premium (30%): $104,476
- Good year: claims at 80% of the fund: $195,021
- Good year: surplus: $48,755
- Good year: refund at 50%: $24,378, paid after run-out
- Good year: net cost: $323,874
- Bad year: extra cost during the year: $0 assumed; only if all excess claims qualify and contract obligations are satisfied
- Bad year: next year's payment at a 25% renewal: $435,315

Under these assumptions the refund reduces annual cost by about 7%. The hypothetical 25% renewal adds $87,063 next year. Neither outcome is a prediction or a maximum liability calculation. Before accepting a quote, ask the administrator to show a scenario with excluded claims, delayed reimbursement and termination during run-out.

**Illustrative annual cost at three team sizes, same assumptions**

| Team | Fully insured | Level-funded, good year (after refund) | Level-funded, next year after a bad year (+25%) | Prescience (15% below fully insured) |
| --- | --- | --- | --- | --- |
| 5 employees | $62,916 | $58,512 | $78,645 | $53,479 |
| 25 employees | $348,252 | $323,874 | $435,315 | $296,014 |
| 75 employees | $1,061,592 | $987,281 | $1,326,990 | $902,353 |

The Prescience column uses the middle of the usual 10–20% range. The 25% bad-year renewal is an assumption to show the shape of the risk, not a market average. A very small group feels this most: at 5 employees, one hospitalization can be a large share of a year's claims fund.

> **Prescience Diamond: A company health plan with an effective $0 deductible.** No year-end settlement to wait for: your monthly cost is set in your quote before the plan starts, and employees see an effective $0 deductible instead of a standard PPO deductible.
> - **An effective $0 deductible** and simple copays shown before a visit
> - **A broad national PPO network,** plus providers we contract with directly
> - **24/7 physician-led care navigation** that books visits and explains costs
> - **Usually 10–20% below comparable fully insured coverage,** fixed in your quote, with no admin fees
> Best for teams of about 15 or more that want one great group plan. [Get a Diamond quote](https://www.getprescience.com/get-started?p=Employer&product=diamond)

## How level-funded renewals behave over two to three years

A renewal can change administration charges, expected claims funding and stop-loss pricing. Ask for each component separately. The following paths are arithmetic scenarios, not a claim about what a diagnosis causes or how often employers receive any particular increase.

**Illustrative renewal paths for the 25-person team**

| Path | Year 1 | Year 2 | Year 3 |
| --- | --- | --- | --- |
| Hypothetical steady renewal (6% each year) | $348,252 | $369,147 | $391,296 |
| Hypothetical higher renewal (+25%, then +6%) | $348,252 | $435,315 | $461,434 |
| Fully insured small group (pool trend, not your claims) | $348,252 | Set by the carrier's filing | Set by the carrier's filing |

Compare a level-funded renewal against current fully insured alternatives and the cost of leaving. ACA-compliant small-group coverage cannot be priced using your company's health status. However, enrollment rules, effective dates and benefits still require review. Do not cancel the existing plan before replacement coverage is confirmed.

## What it is like to be the employee

- **The card and network.** Most level-funded plans use a big carrier's network and ID card, so the plan looks like ordinary insurance.
- **Deductibles.** Designs usually mirror standard PPOs or HDHPs. Among workers with a general annual deductible, KFF's 2025 average single deductible at firms with 10 to 199 workers was $2,631.
- **Claims and support.** The administrator processes claims and runs member services. Quality varies.
- **Health questionnaires.** If underwriting requires health information, ask how employees submit it privately, who can access it and when the quote becomes final.
- **Benefits.** ERISA generally preempts state benefit mandates for private self-funded plans. Federal requirements and their exceptions still matter. Do not assume this treatment applies to government or church plans, or that every mental health parity provision applies to every small employer.

## Compliance and admin burden

Because the employer is the self-insured plan sponsor, more of the compliance work lands on the employer than with a fully insured plan. The administrator does much of it, but the legal responsibility stays with you.

**Compliance tasks on a level-funded plan**

| Task | Who is responsible | Notes |
| --- | --- | --- |
| ERISA plan document and summary plan description | Employer, usually drafted by the administrator | Identify each fiduciary by the functions performed |
| Summary of Benefits and Coverage | Employer, usually prepared by the administrator | At enrollment and renewal |
| PCORI fee | Employer, on IRS Form 720 by July 31 | $3.84 per covered life for plan years ending Oct. 2025–Sept. 2026 |
| Form 5500 | Employer, if 100+ participants or if plan assets are held in trust | Small unfunded or insured welfare plans are generally exempt |
| HIPAA privacy and security | Covered health plan and responsible parties; verify applicability | Small plans with fewer than 50 participants administered solely by the employer have a HIPAA covered-plan exception |
| COBRA | Employer or its administrator (20+ employees) | COBRA premiums are set from the plan's cost |
| Year-end settlement and run-out | Administrator and employer | Track refund timing and any terminal liability |

Level-funded plans also sit outside the ACA's small group rating rules and the medical loss ratio rules that apply to fully insured carriers. That is part of why they can be cheaper for healthy groups and pricier for sick ones.

## How to switch off a level-funded plan, step by step

1. **Read the contract (90–120 days out)** Find the notice period, the run-out terms, any terminal liability, and whether a surplus refund requires renewal. These decide your real exit cost.
2. **Get a quote from your census** Compare it against your level-funded renewal, plus the refund you would give up and any run-out charges.
3. **Check networks and active treatment** Confirm the doctors and hospitals your team uses, and flag anyone in active treatment so their care continues.
4. **Give written notice** Notify the administrator and stop-loss carrier in writing with the exact last day of coverage.
5. **Run enrollment (2–3 weeks before the start)** Employees elect the new plan, which starts the day after the old one ends. Update payroll deductions.
6. **Close out the old plan** Track run-out claims and the final settlement, file the last PCORI fee and any Form 5500, and confirm the retention periods for plan documents, filings, claims and participant records.

## Seven questions to ask before you sign a level-funded quote

1. What are the specific and aggregate attachment points, and can they change at renewal?
2. Is the quote final, or can it change after employees complete health questionnaires or after a new hire with a known condition joins?
3. How is a surplus calculated, what share comes back, when is it paid, and do we lose it if we don't renew?
4. How long is the run-out period, and who pays claims incurred before we leave but paid after?
5. Is there a cap on the renewal increase, or a promise not to laser anyone?
6. Which network and pharmacy benefit manager does the plan use, and what does each charge?
7. What does the claims fund cover if total claims exceed it before the aggregate stop-loss pays?

Get the answers in writing. A low first-year payment matters less than these terms, because they decide what the plan costs in a bad year and what it costs to leave.

## How a Prescience plan works

At Prescience, we design and run your company's health plan, from setup and enrollment to claims, compliance and COBRA. What your team gets:

- **An effective $0 deductible,** so the plan helps from the first visit.
- **Simple copays** shown before a visit, capped by a low out-of-pocket maximum.
- **A broad national PPO network,** plus providers we contract with directly.
- **24/7 physician-led care navigation:** a care team that finds the right provider, books appointments and explains costs up front.

What your company gets: one monthly cost set in your quote, usually 10–20% below comparable fully insured coverage and fixed before the plan starts, with no admin fees. You keep your payroll provider, and the plan can start mid-year.

## When a level-funded plan is honestly the better choice

- **Your team is stable and healthy, and you can absorb a bad renewal.** The refunds in good years can make it cheaper than full insurance.
- **You want detailed claims data** to manage your own plan, and you have someone who will use it.
- **You are growing toward 100+ employees** and plan to move to a fully self-funded plan later; level funding is a common first step.
- **You need one uniform plan design across many states** and a carrier's level-funded product gives you that.

It is a poor fit if one diagnosis would make next year's renewal unaffordable, if you can't stomach health questionnaires, or if you are in New York, where small group stop-loss isn't allowed. For the full comparison of funding types, read [level-funded vs. self-funded vs. fully insured](https://www.getprescience.com/guides/level-funded-vs-self-funded-vs-fully-insured).

> **Prescience Choice: ICHRA for $20 per enrolled employee per month.** For a very small team, where one claim could swing a level-funded renewal, an allowance through Choice caps the company's cost per person and leaves claims risk with individual-market insurers.
> - **You set a monthly allowance;** each employee picks and owns an individual plan
> - **$20 per enrolled employee per month,** with no setup or platform fee
> - **Works in all 50 states and DC,** so remote and multi-state teams fit
> - **Plan comparison, enrollment help and Crystal,** our assistant for benefits questions
> Best for small teams, teams in several states, and anyone pricing ICHRA. [Get a Choice quote](https://www.getprescience.com/employer/choice)

## Frequently asked questions

**Is Prescience a level-funded plan?**

This page compares decision factors rather than describing Prescience funding. At Prescience, we design and run your company's health plan, with a monthly cost fixed in your quote and an effective $0 deductible. Ask for the written terms of each proposal.

**Are level-funded plans cheaper than fully insured plans?**

They can be for healthy groups, especially in a low-claims year. The savings are less predictable because renewals and refunds depend on your own claims.

**What happens to unused money in a level-funded plan?**

It depends on the contract. Some plans refund part of the surplus after the year closes, some roll it into next year and some keep it. Read the surplus terms before you sign.

**Can a 5-person company get a level-funded plan?**

Some carriers offer level-funded plans to very small groups, but eligibility and underwriting vary and state rules may limit stop-loss. Prescience works with groups of 2 or more employees.

**What is a stop-loss attachment point?**

The amount of claims after which stop-loss insurance starts paying. A specific attachment point applies to one person's claims; an aggregate attachment point applies to the group's total claims for the year.

**What is lasering?**

When a stop-loss carrier sets a higher specific deductible for one person with known high costs at renewal. The employer funds more of that person's care until the higher limit is reached.

**What are run-out claims?**

Claims for care received during the plan year that are paid after it ends. Level-funded contracts set how long the run-out period lasts and who pays those claims if you leave.

**Do state insurance mandates apply to level-funded plans?**

Generally, state benefit mandates do not apply to a private single-employer self-funded ERISA plan. Government, church and multiple-employer arrangements can require different analysis. Federal requirements still apply, with scope and exceptions that depend on the plan and employer. Non-grandfathered plans are subject to applicable preventive-care rules; mental health parity requirements need a separate applicability review.

**Can we leave a level-funded plan mid-year?**

Often yes, but check the contract. Leaving early can mean giving up a surplus refund and paying run-out claims. Prescience plans can start mid-year, so you can time the switch to your contract.

## Sources

- [KFF, 2025 Employer Health Benefits Survey (original survey)](https://www.kff.org/health-costs/2025-employer-health-benefits-survey/)
- [CMS, ACA market rating rules](https://www.cms.gov/marketplace/private-health-insurance/market-rating-reforms)
- [IRS, PCORI fee questions and answers](https://www.irs.gov/affordable-care-act/patient-centered-outcomes-research-trust-fund-fee-questions-and-answers)
- [29 CFR 2520.104-20, small welfare plan reporting exemption](https://www.ecfr.gov/current/title-29/subtitle-B/chapter-XXV/subchapter-C/part-2520/section-2520.104-20)
- [DOL, Employer guide to COBRA](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/an-employers-guide-to-group-health-continuation-coverage-under-cobra)
- [HealthCare.gov, Summary of Benefits and Coverage](https://www.healthcare.gov/health-care-law-protections/summary-of-benefits-and-coverage/)
- [New York Insurance Law 3231(h), small-group stop-loss restrictions](https://www.nysenate.gov/legislation/laws/ISC/3231)
- [DOL, ERISA scope and exemptions](https://www.dol.gov/general/topic/health-plans/erisa?lang=en)
- [DOL Technical Release 2014-01, stop-loss and state authority](https://www.dol.gov/node/63762)
- [HHS, covered entities and group health plan exception](https://www.hhs.gov/hipaa/for-professionals/covered-entities/index.html)