As healthcare costs continue to rise, employers are exploring alternatives to traditional fully insured health plans. Two of the most powerful options—level-funded and self-funded health plans—promise greater cost control, plan flexibility, and the potential for meaningful savings. While these models share similarities, they differ in structure, risk tolerance, and financial predictability. Understanding the nuances can help employers choose the right strategy for their workforce and budget.
What Is Self-Funding?
In a self-funded health plan, the employer takes on the financial risk of providing healthcare benefits. Instead of paying a fixed monthly premium to an insurance carrier, the employer pays medical claims as they occur. This approach can offer significant advantages:
- Greater flexibility: Employers can customize benefits, networks, wellness programs, and cost-containment strategies.
- Transparency: Reporting provides deeper insight into claims drivers, chronic conditions, and utilization patterns.
- Cost savings: When claims run lower than expected, the employer keeps the savings.
However, self-funding also involves higher financial exposure. Large or unexpected claims can create volatility. To mitigate this risk, most employers purchase stop-loss insurance, which caps exposure at both the individual and group levels.
Self-funding is especially attractive to mid-size and large employers with stable employee populations and predictable claims.
What Is Level-Funding?
Level-funded plans blend the financial predictability of fully insured arrangements with the savings potential of self-funding. Employers pay a fixed monthly amount—“the level”—which is divided into three components:
- Claims Fund – money set aside to pay employee healthcare claims
- Administrative Fees – for plan administration, networks, and customer service
- Stop-Loss Coverage – protection against high-cost or catastrophic claims
At the end of the year, if claims are lower than expected, employers often receive a refund or credit of unused funds. If claims exceed projections, stop-loss kicks in to protect the employer.
Level-funded plans are ideal for small to mid-size employers who want more control and potential savings but are not ready for the full financial responsibility of self-funding.
Key Differences to Consider
1. Financial Risk
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Self-Funded: Employer assumes higher risk and greater claim volatility.
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Level-Funded: Monthly costs are fixed; risk is capped by stop-loss insurance.
2. Cash Flow
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Self-Funded: Cash flow fluctuates based on claims activity.
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Level-Funded: Predictable monthly payments make budgeting easier.
3. Savings Opportunity
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Self-Funded: Potential for maximum savings if claims are well-managed.
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Level-Funded: Savings potential still strong but typically lower than full self-funding.
4. Compliance
Both plans avoid many ACA community-rating restrictions and come with ERISA oversight, but reporting requirements may differ based on size and structure.
Which Option Is Right for Your Business?
The best choice depends on your organization’s size, risk tolerance, financial stability, and long-term benefits strategy.
- Choose self-funding if you have a larger workforce, access to analytics and wellness tools, and the desire to own and manage your claims experience.
- Choose level-funding if you want predictable costs with upside potential and a gradual transition toward more strategic benefit financing.
Both models can provide meaningful savings and stronger plan control—especially when paired with data analytics, proactive risk management, and expert guidance.
No matter which funding strategy an employer chooses, the Employee Benefits team at Tooher-Ferraris Insurance Group provides the expertise, tools, and guidance to make the decision smarter—and to manage it confidently moving forward. Our team evaluates your unique workforce, analyzes claims and risk patterns, models financial scenarios, and compares level-funded and self-funded options so you understand the true cost and long-term impact of each. Once your plan is in place, we support you with ongoing compliance oversight, cost-containment strategies, carrier negotiations, employee education, and real-time data insights to ensure your benefits program stays efficient, sustainable, and aligned with your business goals. With Tooher-Ferraris, you get more than a benefits plan—you get a strategic partner committed to your success.
