# Level-funded vs. self-funded vs. fully insured: which is best?

Source: https://www.getprescience.com/guides/level-funded-vs-self-funded-vs-fully-insured
Author: Aditya Jain, MD, Cofounder and COO, Prescience
Published: 2026-10-28
Updated: 2026-10-28
Cite as: Aditya Jain, MD. "Level-funded vs. self-funded vs. fully insured: which is best?." Prescience, October 28, 2026. https://www.getprescience.com/guides/level-funded-vs-self-funded-vs-fully-insured

Fully insured coverage transfers covered claims risk to an insurer in exchange for premiums. A self-funded employer retains plan claims obligations, often with stop-loss protection. Level funding is a packaged form of self-funding with scheduled payments. I would compare contractual exposure, cash flow, benefits and renewal terms before choosing.

- **Firms of 10–199: level-funded:** 37% of covered workers
- **Firms of 10–199: self-funded:** 27% of covered workers
- **Small group MLR floor:** 80% of premium
- **Prescience admin fees:** $0

## The short version

KFF’s 2025 survey reports 37% of covered workers at firms with 10–199 workers in level-funded plans and 27% reported in self-funded plans. These categories overlap and must not be added: the combined measure is 51%. Survey respondents can be uncertain about how level-funded products are classified. Across all surveyed firms, 67% of covered workers were reported in self-funded plans. The survey excludes firms with fewer than ten workers in 2025.

**Three funding approaches**

|  | Fully insured | Level-funded | Self-funded |
| --- | --- | --- | --- |
| Who owes plan claims | Insurer under policy | Employer; stop-loss reimburses eligible costs | Employer; optional stop-loss reimburses eligible costs |
| Monthly cost | Fixed premium | Fixed payment | Varies with claims |
| Unspent money | Carrier keeps it | Partial refund on some plans | Employer keeps it |
| Renewal factors | Market rules, rates and census | Claims, stop-loss and contract terms | Claims, stop-loss and contract terms |
| Underwriting | None in small group | Yes, for stop-loss | Yes, for stop-loss |
| Deductible your team sees | Plan's deductible | Plan's deductible | Plan's deductible |

## Who pays when a $400,000 claim lands

Consider an entirely illustrative $400,000 covered claim in a 20-person company. This is an assumed claim amount, not a price for a medical condition or procedure. Whether it changes the employer’s cash needs depends on the policy and stop-loss contract, not just the funding label.

**One $400,000 claim on a 20-person team, by funding model**

|  | Fully insured | Level-funded | Self-funded |
| --- | --- | --- | --- |
| This year’s employer cost | Premium plus contractual adjustments | Scheduled amount only if the contract covers the event; exclusions can leave liability | Retained eligible claims plus fixed costs and any uncovered amounts |
| Who pays above retained risk | Insurer under policy | Stop-loss reimburses eligible amounts under its contract | Stop-loss reimburses eligible amounts if purchased |
| Next year's renewal | Carrier's filed rate change, same as every group like yours | Repriced on your claims; possible laser on that person | Repriced on your claims; possible laser on that person |
| Can the group be dropped? | Cannot terminate solely for claims; legal renewal exceptions exist | The plan can renew, but stop-loss terms can change sharply | Same as level-funded |

**Use your team to compare the coverage and the contract**

Hold employee tiers and the effective date constant across proposals. Start a quote, create your account and complete the census, then compare the written benefits and obligations alongside the funding examples.

[Start my plan comparison](https://www.getprescience.com/quote)

[Review the fully insured comparison](https://www.getprescience.com/compare/fully-insured-alternative)

## Fully insured

You pay a premium per enrolled employee; the carrier pays claims and keeps the difference. Small group pricing follows ACA rating rules, so your team's health doesn't change your rate, but a healthy team also doesn't benefit from low claims. Carriers must spend at least 80% of small group premiums on care and quality; the rest covers administration, commissions and profit.

- **Rating:** in the small group market, premiums can vary only by age, tobacco use, location and family size. Health status cannot determine the ACA-compliant small-group premium, and a cancer diagnosis on your team can't raise your group's rate on its own.
- **Guaranteed issue and renewal:** the carrier must accept your group and can't drop it for claims.
- **Refunds:** if an insurer fails the applicable adjusted medical loss ratio standard for its state and market segment, rebates may be due. The federal small-group threshold is generally 80%, calculated under rules including quality expenses, taxes, credibility adjustments and multiple years. That's pooled across all its groups, not based on yours.
- **State rules apply:** state benefit mandates, premium taxes and state continuation coverage all come with the policy.
- **Best for:** groups with older employees, known health conditions or a low appetite for surprises.

## Level-funded

Self-funded under the hood, billed like insurance: one fixed monthly payment covers expected claims, admin fees and stop-loss premiums. If claims run low, some plans refund part of the surplus. If they run high, stop-loss may reimburse eligible claims under its terms; future pricing is not guaranteed.

The payment schedule alone does not establish maximum liability. Ask which claims count toward specific and aggregate protection, whether the administrator advances reimbursement, and what happens if the health plan covers an expense the stop-loss policy excludes. Check enrollment-based adjustments, claims submission deadlines and reimbursement timing. A fixed monthly invoice can coexist with contractual liabilities outside it.

**20 employees, $1,000 per employee per month (illustrative)**

Assumes a level-funded plan billing $20,000 a month: $13,000 to the claims fund, $5,000 for stop-loss and $2,000 for administration. The contract refunds 50% of any surplus after a 3-month run-out, only if the group renews. Terms vary widely; read yours. Assume all claims qualify under matching plan and stop-loss terms, enrollment is unchanged, no exclusions or higher individual limits apply, and stop-loss pays the modeled excess.

- Annual payments: $20,000 × 12: $240,000
- Claims fund for the year: $13,000 × 12: $156,000
- Good year: claims $120,000, surplus $36,000: Refund $18,000 next spring, if you renew
- Bad year: claims $210,000: Stop-loss pays the $54,000 excess; you still pay $240,000
- Bad year, next renewal: Claims fund and stop-loss repriced to your higher claims

Under these assumptions the good-year net cost is $222,000 and the bad-year payment remains $240,000. Actual exposure can be higher for excluded, late or otherwise unreimbursed claims. The hypothetical refund requires renewal and timely run-out settlement; it is not cash guaranteed at the beginning of the year.

- **Underwriting:** carriers ask for a census and often a health questionnaire for each employee. A group with a known high-cost condition may be quoted high or declined.
- **Surplus refunds:** check the share (some refund half, some all, some none), the timing and whether you must renew to get it.
- **Leaving:** if you leave, run-out claims and any surplus are handled by the contract terms. Some plans keep the surplus if you don't renew.
- **State limits:** states set minimum stop-loss attachment points for small employers; New York bans stop-loss for small groups, so level-funding isn't available there.

## Self-funded

You pay actual claims plus administration and stop-loss premiums. Monthly costs move with claims. Unspent employer assets generally remain available subject to contract and plan-asset rules, while benefit design remains subject to applicable federal requirements. For small groups, volatility is the problem. More in [What is self-funded health insurance?](https://www.getprescience.com/guides/what-is-self-funded-health-insurance)

- **Monthly bill:** fixed TPA, network and stop-loss costs, plus actual claims as they're paid. Monthly payments can vary substantially with the timing of claims.
- **Exposure:** calculate fixed fees, retained claims and amounts outside stop-loss coverage. The aggregate attachment point is not an absolute cap on every employer obligation.
- **Data:** you get your own claims data, which lets you see what drives cost and change the plan.
- **Best for:** larger employers with cash reserves and a few hundred or more covered people.

For most private-sector employers, ERISA applies to the health plan and generally preempts state insurance mandates for a single-employer self-funded plan. Governmental and church plans, and multiple-employer arrangements, need separate analysis. Federal requirements remain, and states regulate stop-loss insurance. New York’s restrictions can prevent a small group from obtaining the stop-loss needed for a conventional level-funded product. Confirm applicable state law before relying on a proposal.

## Switching between models

**What to expect when you change funding model**

| Move | What happens | Watch out for |
| --- | --- | --- |
| Fully insured to level-funded | Underwriting on a census and often health questionnaires; the first year can price below your renewal if the group is healthy | Year-two renewal after a bad claim; surplus terms that require renewal |
| Level-funded back to fully insured | Eligible small groups have guaranteed-availability protections; enrollment, participation and contribution conditions still need review | Run-out claims and any surplus are settled under the old contract; a mid-year move restarts deductibles unless credited |
| Level-funded to traditional self-funded | Usually at 100+ employees, when claims are steadier and reserves exist | Cash flow in a bad quarter; choosing the contract basis |
| Any model mid-year | Possible, but employees' deductibles and out-of-pocket totals may reset | Ask the new plan for deductible credit and collect accumulator reports first |

## Mistakes I see small companies make

- **Comparing a level-funded quote with a fully insured renewal on month one only.** Compare the maximum possible cost and the likely year-two price, too.
- **Counting the surplus refund as savings.** It's uncertain, arrives months later and may require renewing.
- **Assuming the health questionnaire is a formality.** Inaccurate answers can void stop-loss coverage when you need it.
- **Forgetting the plan is now yours.** Under a self-funded or level-funded plan, the employer is the ERISA plan sponsor and fiduciary, with the plan document, notices and claims appeals that come with it.
- **Changing enrollment.** Model hires, departures and dependent enrollment under the contract. Handle health underwriting through authorized confidential channels; do not base employment decisions on diagnoses or expected claims.

## Where Prescience fits

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.

> **Prescience Diamond: A company health plan with an effective $0 deductible.** Whatever the funding label, the questions above come down to cost certainty and what employees pay. Diamond answers both: one monthly cost set in your quote and an effective $0 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)

## Which is best for you

- Simplest setup, cost isn't the constraint: fully insured.
- Healthy group of a few dozen people, comfortable with renewals that follow claims: level-funded.
- Hundreds of employees and an appetite for risk: traditional self-funding.
- If Prescience interests you, compare its quoted monthly cost and written benefits alongside the alternatives. Do not infer a funding structure or a blanket absence of underwriting from the public description.

1. **Get a fully insured quote as your baseline** Confirm eligibility, participation, contribution and enrollment requirements. Use the resulting price and written benefits as a reference for other proposals.
2. **Get level-funded quotes with the full terms** Ask for the monthly payment split (claims fund, stop-loss, admin), the surplus refund rules, the run-out terms and the renewal cap, if any.
3. **Model a bad year, not just an average one** Ask what renewal looks like if one person has a $300,000 claim. If nobody will answer, assume a large increase.
4. **Compare two years of cost** Year one plus a realistic year two for each option, including any expected refund at its real timing.

## Cash timing can change the decision

I would ask the finance lead to model when money leaves the company, not only the eventual net cost. If an administrator draws funds to pay claims before stop-loss reimbursement arrives, the employer needs liquidity for that delay. An annual aggregate settlement may not help with an unusually expensive month. Ask whether accommodation payments exist and what documentation triggers them.

Run-out deserves its own line in the exit budget. Claims for care incurred before termination can arrive afterward. Match the health plan’s payment obligation to the stop-loss contract’s incurred and paid periods, filing deadline and terminal coverage. A new fully insured policy ordinarily does not assume the old self-funded plan’s unpaid claims. Obtain a written closeout schedule and keep enough resources for obligations that remain.

Finally, distinguish corporate funds from participant contributions and other plan assets. The employer cannot assume every favorable balance is unrestricted profit. Have the administrator explain custody, permitted expenses, surplus handling and fiduciary responsibilities. If the proposal cannot explain these items clearly, fully insured coverage may be the more suitable choice even when a self-funded expected-cost estimate is lower.

## Frequently asked questions

**What is the difference between level-funded and self-funded?**

Both pay claims from employer money. Level-funded plans bill a fixed monthly amount that bundles expected claims, admin and stop-loss, and may refund some surplus. Traditional self-funded plans bill actual claims, so costs vary month to month.

**Is level-funded the same as fully insured?**

No. A level-funded plan feels like insurance because the payment is fixed, but it's self-funded underneath, and your claims drive your renewal.

**Which is cheapest for a small business?**

It depends on your team. Level-funded and self-funded plans can cost less for healthy groups but carry renewal risk. Prescience quotes are usually 10–20% below comparable fully insured coverage and are fixed before the plan starts.

**Do level-funded plans refund unused money?**

Some do. Contracts differ on the share refunded, when it's paid (usually after a run-out period of a few months) and whether you must renew to receive it.

**Can a level-funded plan raise my rates because of one sick employee?**

Yes. Renewals follow your group's claims, and the stop-loss insurer can raise the price or set a higher attachment point for a known high-cost person. Fully insured small group rates can't be raised for one person's claims.

**Are level-funded plans available in every state?**

No. States regulate stop-loss for small employers. New York prohibits issuing stop-loss to groups within its small-group definition, generally up to 100 employees. Other states impose their own conditions. Check the applicable law and contract before budgeting for this coverage.

**Do level-funded plans have to follow state insurance mandates?**

Private-sector single-employer self-funded ERISA plans generally avoid state insurance benefit mandates. Federal rules remain: ACA preventive-care and out-of-pocket requirements generally apply to non-grandfathered plans, with the cost-sharing limit tied to essential health benefits. States still regulate stop-loss insurance.

**What size company should self-fund?**

Traditional self-funding usually makes sense from a few hundred employees up. Below about 50, one large claim can dominate a year, so most small groups that self-fund use level-funded products.

## Sources

- [KFF, 2025 Employer Health Benefits Survey (original survey and methodology)](https://www.kff.org/health-costs/2025-employer-health-benefits-survey/)
- [CMS, market rating reforms and state variations](https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/state-rating)
- [CMS, medical loss ratio rules](https://www.cms.gov/marketplace/private-health-insurance/medical-loss-ratio)
- [DOL, ERISA coverage and exceptions](https://www.dol.gov/general/topic/health-plans/erisa?lang=en)
- [DOL, fiduciary responsibilities under a group health plan](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/understanding-your-fiduciary-responsibilities-under-a-group-health-plan)
- [New York Insurance Law section 3231](https://www.nysenate.gov/legislation/laws/ISC/3231)
- [New York DFS, small-group expansion and stop-loss restrictions](https://www.dfs.ny.gov/apps_and_licensing/health_insurers/small_group_expansion_to_1_100_employees_faqs)
- [DOL, ACA implementation FAQs Part 71, 2026 cost-sharing limits](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-71)
- [HealthCare.gov, preventive health services](https://www.healthcare.gov/coverage/preventive-care-benefits/)
- [DOL Advisory Opinion 2015-02A, employer stop-loss and plan obligations](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/advisory-opinions/2015-02a)