Level funded vs fully insured: what's actually different

Fully insured vs level funded vs self funded

How the money moves

Fully insured is the simplest. You pay the premium. The insurer pays the claims and takes the risk. In Texas, groups of 2 to 50 are small employers and groups of 51 or more are large employers, and that line changes how your plan is rated.

Level funded looks like a premium on the bill. Underneath, part of it is set aside for your own claims, and stop-loss insurance kicks in above a set point. KFF notes that level-funded plans can use health status when they’re priced, unlike insured small group plans. That’s why a healthy group can get a lower number, and why employees are sometimes asked to fill out health questionnaires first.

Self funded means your plan pays claims directly, usually through a TPA, with stop-loss on top. Nationally, KFF found 80% of covered workers at firms with 200 or more workers were in self-funded plans in 2025, compared with 27% at firms with 10 to 199 workers.

Where level funding goes wrong

Level funding works well for some groups. When it goes wrong, it’s usually one of these:

• Year two. The first-year price was based on a healthy snapshot. One large claim later, the renewal can jump, or the stop-loss carrier can decline to renew.
• Lasers. At renewal, stop-loss can set a higher threshold for one specific person who had large claims. Ask whether your contract allows that.
• The refund isn’t guaranteed. Read how any surplus is calculated, when it’s paid, and whether you lose it if you leave.
• Run-out. If you switch away, ask who pays claims incurred before you left but billed after.
• Thin reporting. Some level-funded plans share less claims detail than you’d expect. Ask what reports you’ll actually get before you sign.
• Questionnaires. If the insurer’s numbers depend on employee health questionnaires, the number can change once they’re in.

Self funded vs fully insured: which questions to ask first

1. How much cash-flow swing can the company absorb in a bad claims month?
2. What does our own claims history show? (In Texas, here’s how to get your claims report.)
3. What’s the stop-loss point, and can they laser someone at renewal?
4. What reports will we get, and how often?
5. If we leave, who pays run-out claims?

I’d rather you understand these before any insurer prices your plan. That’s what the Health Plan Cost Review is for.

What's the difference between level funded and fully insured?

With fully insured, you pay a fixed premium and the insurer pays the claims. With level funded, you pay a fixed monthly amount too, but part of it funds your own claims, and stop-loss insurance covers you above a set point. Some level-funded plans pay back part of any unused claims money after the year ends.

Is level funding cheaper?

Sometimes, for a healthier group, at first. It depends on your people, the stop-loss terms, and what happens at renewal. A low first-year number doesn’t tell you much about year two.

Do I need a certain number of employees for level funding?

It depends on the insurer and the state. It’s offered to smaller groups than self funding usually is. KFF found 37% of covered workers at firms with 10 to 199 workers were in level-funded plans in 2025.

What are the health insurance requirements for companies over 50 employees?

At an average of 50 or more full-time employees, counting full-time equivalents, the IRS treats you as an applicable large employer, whatever your funding type. That brings the employer shared responsibility rules and annual reporting.