Level-Funded vs. Traditional Group Health Plans
There are two ways to buy a group health plan. One is priced like everyone else's, and the other is priced on your team. We quote both for businesses on both sides of the state line and tell you plainly which one wins for your group.
A traditional (fully insured) plancharges a fixed premium, and the insurer takes all the claims risk. For groups under 50, the price can't reflect your employees' health. A level-funded planalso charges a fixed monthly amount, but it is self-funded behind the scenes, protected by stop-loss insurance, priced on your group's health, and may refund part of the unused claims money after a good year. Healthy, younger groups often pay less with level funding. Groups with older employees or significant health conditions are usually safer fully insured.
Fully insured vs. level-funded, row by row
Same monthly predictability, very different math underneath.
| Traditional (fully insured) | Level-funded | |
|---|---|---|
| Who carries the risk | The insurance company. You pay the premium; it pays every claim. | Mostly you, up to a limit. Stop-loss insurance covers any single large claim and a bad year overall. |
| How it's priced | Small-group (ACA) rating for groups under 50: age, location and tobacco use only. Your team's health doesn't change the price. | Medically underwritten. Employees usually fill out a health questionnaire, and the group's health shapes the rate. |
| Monthly cost | A fixed premium. | A fixed payment that covers a claims fund, administration and stop-loss. |
| If claims are low | The insurer keeps the difference. | Part of the unused claims fund may come back as a refund or credit, depending on the contract. |
| If claims are high | Your rate can rise at renewal, but for groups under 50 it can't be based on your own group's claims. | Stop-loss pays the overage this year, but your renewal can jump, sometimes enough to send you back to a traditional plan. |
| Benefit rules | Must cover the ACA's ten essential health benefits. | Not bound by the essential-benefit list, but core ACA rules still apply: preventive care, no lifetime dollar caps, dependents to 26 and an out-of-pocket ceiling. |
| Usually best for | Groups with older employees or known health conditions, and owners who want no surprises. | Younger, healthier, stable groups that want lower premiums and a shot at money back. |
Where your monthly payment goes
Your team gets ID cards and a carrier network just like any other plan. The difference is in how the money is handled.
The claims fund
The biggest piece, sized to your group's expected medical and pharmacy claims for the year. Claims are paid from here.
Administration
A third-party administrator (often an arm of a major carrier) processes claims, provides the network and ID cards, and handles customer service.
Stop-loss insurance
Protection above the fund: specific stop-loss for any one person's large claims, aggregate stop-loss if the whole group's claims run over.
Which one fits your business?
Level-funded tends to win when
- Your team is mostly younger and healthy, with no large ongoing claims you know about.
- Your headcount is stable, so this year's health questionnaire describes next year's group too.
- You want to see where the money goes. Level-funded plans usually give you claims reporting that fully insured small groups don't get.
- You'd like a chance at money back after a good year, and you're comfortable with a renewal that reflects a bad one.
Traditional fully insured tends to win when
- Someone on the plan has a serious or expensive condition, or a pregnancy or surgery is expected this year.
- Your workforce skews older. Underwriting usually costs older groups more than community rating does.
- You value a predictable renewal more than a possible refund.
- Employees would rather not answer health questions.
The honest catch with level funding
A level-funded plan is cheapest in the year your group is healthiest. One premature baby, cancer diagnosis or transplant can make next year's renewal much higher. That's not a reason to avoid level funding, but it is the reason to set it up with a way back. Under the ACA, a business can generally return to a traditional small-group plan at renewal, and that plan can't price in the claims that made level funding expensive. We look at both options again every year so you're never stuck.
A third option: no group plan at all
Some Kansas City employers skip the group plan and give employees a tax-free allowance to buy their own coverage. That works especially well when employees live in different counties or states, or when the group's health would make underwriting expensive. See ICHRA & QSEHRA.
What we need from you, and what you get back
- A census.A simple list of each employee's age, ZIP code and whether they'll cover a spouse or children. That's enough for a fully insured quote.
- Health questionnaires, for level-funded quotes. Each enrolling employee fills out a short form that goes directly to the carrier. We help employees through it so nobody is held up.
- A side-by-side comparison. Fully insured and level-funded options across carriers, with the same plan designs priced each way, the worst-case cost of each, and any refund terms in plain English.
- Year-round service. We handle enrollment, new hires, terminations and employee claims questions, then quote both ways again at every renewal.
Level-funded & group health FAQ
What is a level-funded health plan?
What is a traditional (fully insured) group plan?
Is a level-funded plan cheaper?
How common are level-funded plans?
Do employees have to answer health questions?
What happens if we have a bad claims year?
How small can a group be for level funding?
Are there state rules in Kansas or Missouri?
Is there an option without a group plan at all?
- KFF, 2025 Employer Health Benefits Survey (opens in a new tab)
- 42 U.S.C. § 300gg-6: essential benefits and the out-of-pocket limit (Cornell LII) (opens in a new tab)
- K.A.R. 40-1-49: Kansas stop-loss minimums for small employers (Cornell LII) (opens in a new tab)
- CMS 2027 Payment Notice parameters (ACA out-of-pocket maximums) (opens in a new tab)
General information, not tax or legal advice. Dollar limits and percentages are set by the IRS each year — we re-check them every fall, and your CPA has the final word on your own return.
