What Is Level-Funded Health Insurance? A Plain-English Guide for Texas Business Owners
Level-funded health insurance is a type of employer-sponsored health plan where the employer pays a fixed monthly amount — similar to a traditional insurance premium — but retains the right to receive a refund at year-end if employees use less healthcare than projected.
It sits between two more familiar options: fully insured plans (where the carrier assumes all risk) and self-funded plans (where the employer assumes all risk). Level-funded plans give small businesses the cost savings of self-insurance with the budget predictability of a fixed monthly payment.
How Does Level-Funded Health Insurance Work?
Each month, the employer pays a fixed amount to the insurance carrier. That fixed payment is divided into three components:
| Component | What It Pays For |
|---|---|
| Claims fund | Actual employee healthcare claims up to a set limit |
| Stop-loss insurance | Covers catastrophic claims above the per-employee limit |
| Administrative fee | Carrier’s cost to administer the plan |
At the end of the plan year, the carrier reviews the actual claims paid from the claims fund. If employees used less healthcare than the projected amount, the unused portion of the claims fund is returned to the employer as a refund. If claims exceed the projected amount, the stop-loss insurance covers the excess.
How Much Can a Level-Funded Plan Save a Texas Business?
Level-funded plans typically save Texas small businesses 15–30% compared to traditional fully insured plans. The savings come from lower base premiums and potential year-end refunds. A Texas business paying $5,000 per month on a fully insured plan might pay $3,500–$4,000 per month on a comparable level-funded plan — and could receive a $5,000–$15,000 refund at year-end if claims are low.
Who Qualifies for a Level-Funded Health Plan in Texas?
Level-funded health plans in Texas are available to businesses with as few as 2 employees, though some carriers require a minimum of 10. Key qualification factors include group size, employee health status, participation rate, and Texas domicile.
Level-Funded vs. Fully Insured Health Insurance: Key Differences
| Feature | Level-Funded | Fully Insured |
|---|---|---|
| Monthly cost | Fixed, typically 15–30% lower | Fixed, typically higher |
| Year-end refund | Yes, if claims are low | No |
| Claims data access | Yes — detailed reporting | Limited |
| Carrier risk | Shared (stop-loss protects employer) | Carrier assumes all risk |
| Minimum group size | 5–10 employees | 2 employees |
| Best for | Healthy groups, cost-conscious employers | Employers who want zero risk |
Frequently Asked Questions About Level-Funded Health Insurance
What happens if my employees have high claims on a level-funded plan?
Stop-loss insurance protects the employer from catastrophic claims. Most level-funded plans include both individual stop-loss (covering a single employee’s claims above a set threshold, typically $20,000–$50,000) and aggregate stop-loss (covering total group claims above a set percentage of expected claims). The employer never pays more than the fixed monthly amount within the plan year.
Do level-funded plans cover the same services as fully insured plans?
Yes. Level-funded plans must comply with ACA requirements and cover the same essential health benefits as fully insured plans, including preventive care, mental health, and prescription drugs.
How long does it take to get a level-funded health plan quote in Texas?
Working with Kenly Insurance Advisors, most Texas businesses receive a level-funded quote within 48–72 hours of submitting their census data.
Are level-funded plans available for businesses with only 2–4 employees in Texas?
Most carriers require a minimum of 5–10 employees for level-funded plans. Businesses with fewer than 5 employees are typically limited to fully insured small group plans or individual coverage options.
Is a level-funded health plan right for my Texas business?
A level-funded plan is likely a good fit if your business has 10–100 employees, your workforce is generally healthy, and you want to reduce monthly costs. It may not be right if your workforce includes employees with significant ongoing health conditions or if multi-year budget predictability is the top priority.
Get a Free Level-Funded Health Plan Quote for Your Texas Business
Kenly Insurance Advisors is an independent employee benefits broker serving small businesses throughout Texas. We work with all major carriers offering level-funded plans and can provide a free, no-obligation comparison of level-funded and fully insured options.
Additional Level-Funded Insurance Insights
As a Texas small business owner, you’re constantly looking for ways to control costs without sacrificing the quality of your employee benefits. Level-funded health insurance is a powerful tool that can help you do just that. This guide from Kenly Insurance Advisors breaks down what it is, how it works, and why it might be the right choice for your business.
What is a Level-Funded Plan?
A level-funded plan is a hybrid of a traditional fully-insured plan and a self-funded plan. It offers the cost-saving potential of self-funding with the predictable, fixed monthly payments of a fully-insured plan.
Here’s how it works:
-
Fixed Monthly Payment: You pay a fixed amount to the insurance carrier each month. This payment covers:
- Administrative Costs: The carrier’s fees for managing the plan.
- Stop-Loss Insurance: This protects you from unexpectedly high claims.
- Claims Fund: This portion is set aside to pay for your employees’ medical claims.
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Claims Are Paid: As your employees incur medical expenses, the carrier pays the claims from the claims fund.
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Year-End Refund: If the actual claims are lower than what was funded, you get a refund. This is the key advantage over a fully-insured plan, where the carrier keeps all the unused premium.
Level-Funded vs. Fully-Insured
| Feature | Level-Funded Plan | Fully-Insured Plan |
|---|---|---|
| Monthly Cost | Fixed and predictable | Fixed and predictable |
| Year-End Surplus | Refunded to the employer | Kept by the insurance carrier |
| Data Transparency | You receive detailed reports on claims data | You receive little to no data |
| Flexibility | More flexibility in plan design | Limited to off-the-shelf plans |
| Ideal For | Healthy, smaller groups (5-100 employees) | Businesses that prefer zero risk |
Is a Level-Funded Plan Right for Your Texas Business?
A level-funded plan is an excellent option for businesses that:
- Have a relatively young and healthy workforce.
- Want more control over their healthcare spending.
- Are looking for ways to reduce their insurance costs without increasing deductibles.
“We’ve seen Texas small businesses save 15-30% in their first year by switching to a level-funded plan. It’s one of the most effective cost-containment strategies available today.” – Clint Wallace, Kenly Insurance Advisors
How to Get Started
The first step is to determine if your group is a good fit. This involves a process called medical underwriting, where the carrier assesses the health of your employees. An experienced broker like Kenly Insurance Advisors can guide you through this process and help you determine if a level-funded plan is the right move for your business.
Ready to explore if a level-funded plan can save your business money? Schedule a free, no-obligation consultation with a Kenly advisor today.
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