How Health Plan Funding Works

Compare funding options before you compare quotes.

Funding describes how a health plan is paid for and who carries the risk when claims are higher than expected. It is a different question from what medical care the plan actually covers.

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Side-by-side comparison

Funding determines how the plan is paid for. Benefits determine what medical care is covered. Both need to be evaluated.

Comparison of fully insured, level-funded and self-funded health plan funding
	Fully insured	Level-funded	Self-funded
How the employer pays	Set premium for the policy term.	Set monthly amount covering expected claims, administration and stop-loss.	Administration and stop-loss costs plus covered claims as they are incurred.
Who funds covered claims	The insurance company, under the policy.	The employer's claims account, with stop-loss above specified levels.	The employer, with stop-loss above specified levels where purchased.
Monthly funding predictability	Fixed during the policy term.	Level payments, reconciled after the plan year.	Varies with actual claims activity.
Potential benefit from lower claims	Generally none during the term.	A share of unused claims funds may be returned where the contract provides for it.	Unspent claims funding stays with the employer.
Plan-design flexibility	Limited to the plans a carrier offers.	Moderate, within the program's available designs.	Highest, within legal and contractual limits.
Main employer responsibilities	Pay premiums and administer eligibility.	Fund monthly payments, oversee the plan and review reconciliation terms.	Fund claims, oversee the plan and manage vendor and stop-loss contracts.

How the employer pays

Fully insured: Set premium for the policy term.
Level-funded: Set monthly amount covering expected claims, administration and stop-loss.
Self-funded: Administration and stop-loss costs plus covered claims as they are incurred.

Who funds covered claims

Fully insured: The insurance company, under the policy.
Level-funded: The employer's claims account, with stop-loss above specified levels.
Self-funded: The employer, with stop-loss above specified levels where purchased.

Monthly funding predictability

Fully insured: Fixed during the policy term.
Level-funded: Level payments, reconciled after the plan year.
Self-funded: Varies with actual claims activity.

Potential benefit from lower claims

Fully insured: Generally none during the term.
Level-funded: A share of unused claims funds may be returned where the contract provides for it.
Self-funded: Unspent claims funding stays with the employer.

Plan-design flexibility

Fully insured: Limited to the plans a carrier offers.
Level-funded: Moderate, within the program's available designs.
Self-funded: Highest, within legal and contractual limits.

Main employer responsibilities

Fully insured: Pay premiums and administer eligibility.
Level-funded: Fund monthly payments, oversee the plan and review reconciliation terms.
Self-funded: Fund claims, oversee the plan and manage vendor and stop-loss contracts.

A funding model is not a measure of medical coverage. An option that costs less may cover less care, and employee count alone does not determine which arrangement suits a business.

Employer coverage FAQ

Short answers to the questions that come up most often when employers start comparing funding arrangements.

Is level-funding different from self-funding?

Level-funding is a structured form of self-funding. The employer still funds covered claims, but payments are levelled into a set monthly amount that bundles expected claims, administration fees and stop-loss premium, then reconciled against actual claims under the contract.

What does stop-loss insurance do?

Stop-loss protects the employer against defined excess claims costs above a stated level, subject to the terms of the stop-loss policy. It reimburses the employer. It does not expand the medical benefits available to employees.

Does minimum essential coverage mean comprehensive coverage?

No. Minimum essential coverage (MEC) is a coverage classification used in federal rules. It is not the same as minimum value, and it does not by itself mean the plan provides comprehensive medical protection.

Do these plans meet employer ACA requirements?

That depends on the specific benefits offered, the plan's minimum-value status, the employee contribution amount and how the employer offers coverage to its workforce. It has to be assessed plan by plan rather than answered yes or no.

Does a limited number of hospital days automatically meet minimum value?

No. The full plan design has to be assessed. There is no universal number of covered hospital days that establishes minimum value.

What happens when a limited-day benefit runs out?

Once a stated benefit limit is reached, additional care under that exhausted benefit may not be covered, and the employee may be responsible for those costs. The actual plan documents govern what applies.

These answers are educational. They are not legal, tax or actuarial advice, and nothing on this website certifies a plan's compliance status.

Want to talk it through?

We can walk through the trade-offs for your workforce and what you would need to confirm before making a decision.

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