Level-funded health plans: who administers them

Updated October 21, 2026

A level-funded health plan is a self-funded plan packaged with stop-loss insurance and paid as one fixed monthly amount. That payment covers expected claims, administration and the stop-loss premium, and if claims come in lower than expected, a surplus may be refunded. Insurers sell many of these packages, and TPAs also administer them with stop-loss from a separate insurer.

What is a level-funded health plan?

A level-funded plan is self-funded on paper but priced and billed much like insurance. KFF calls these arrangements nominally self-funded options that package a self-funded plan with extensive stop-loss coverage, which significantly reduces the risk the employer keeps.

The insurer calculates an expected monthly expense that includes a share of the estimated annual cost of benefits, the stop-loss premium and an administrative fee. The employer pays that “level premium.” There may be a reconciliation at year end, although small employers are often protected from any meaningful additional liability.

In KFF’s glossary, the monthly payment funds a reserve account for claims, administrative costs and stop-loss premiums, and surplus may be refunded at the end of the contract when claims are lower than expected.

How are level-funded plans regulated?

Because they are sold as self-funded plans, level-funded plans generally are not subject to state requirements for insured plans. For employers with fewer than 50 employees, they are also not subject to the Affordable Care Act’s small-group rating and benefit standards. Unlike insured plans, they use health status in rating and underwriting and are not required to cover all the essential health benefits that insured plans must.

How common are level-funded plans?

Level funding is now widespread at small firms. In KFF’s 2025 survey, 37% of covered workers at firms with 10 to 199 workers were in a level-funded plan, and 37% of small firms offering health benefits offered one. By firm size, KFF’s figure data show:

The small-firm share was 6% in 2018 and has been between 35% and 39% every year since 2021. Counting level-funded and self-funded plans together, 51% of covered workers at small firms are in one or the other.

Treat the figures with some care. KFF notes that respondents may be confused about whether their plan is self-funded or insured, partly because insurers use different labels for these arrangements.

How do level-funded, fully insured and self-funded plans compare?

Level funding sits between the other two: the employer is nominally self-funded, but the monthly cost is fixed like a premium.

The fully insured rebate comes from the medical loss ratio rule, under which insurers that spend less than 80% of small-group premiums on care and quality improvement must pay a rebate to the group policyholder. A level-funded refund depends on the contract.

Who administers level-funded plans?

There are two main models, and they put different parties in charge of claims. KFF’s glossary describes the monthly payment going to an insurer or third party administrator.

Insurer-packaged products

In the packaged model, an insurer sets the monthly amount, writes the stop-loss and administers the plan. KFF says the plan administrators are generally insurers, and they use different names for the product. You can filter for carrier-owned administrators.

TPA-administered plans with separate stop-loss

In the second model, a TPA handles claims and plan administration while a separate insurer writes the stop-loss. A November 2025 presentation by a national benefits-broker association, posted by the Maryland Insurance Administration, described renewals as competitive among carriers and non-carriers with outside stop-loss. You can browse TPAs that administer level-funded plans, independent TPAs, TPAs that coordinate stop-loss or administrators by state.

The line between the models can blur. The NAIC found that some stop-loss insurers require a specific TPA, usually one they own or have a special relationship with. In small-employer products, those TPAs may design the plan, prepare the summary plan description, process claims and collect payments, and some stop-loss insurers end coverage if the employer changes TPAs.

In either model, the employer is the plan fiduciary and ultimately liable for claims decisions made by the TPA. The guide to TPA vs ASO covers how the two administration routes differ.

What should you check before signing?

Key terms are easy to miss. The broker-association presentation said gaps in protection are rarely explained in simple language and usually buried in the stop-loss or administrative agreement.

How are surplus refunds calculated?

Ask what share of a surplus comes back, when and on what conditions. The presentation named the excess claims balance kept by the administrator or carrier as “additional administrative fees” as one factor in a plan’s expense and profit ratios, and said that in its experience fewer than 20% of employers receive a claims refund. It also listed the handling and distribution of excess claims funds among employer compliance duties, so review refund terms with benefits counsel.

What if claims run high early in the year?

The broker-association presentation said small-group level-funded plans typically include a “monthly accommodation” that limits deficits from claims early in the plan year. The NAIC describes these provisions as letting the claims account run a temporary negative balance, with advances usually repaid immediately if the contract ends. Check the repayment terms.

How does stop-loss renewal work, and can it laser?

Stop-loss is written for one-year terms and re-underwritten each year, so price and terms can change, and an insurer may decline to renew. Lasering means setting a higher attachment point for specific people with higher risk profiles. The policies the NAIC reviewed all triggered re-underwriting and rate increases if the employee census changed by more than a set percentage, such as 10% or 20%. Ask for any rate guarantee in writing.

What happens to claims after the plan ends?

Unless the policy extends coverage, stop-loss reimburses only claims incurred and paid during the same policy year. The NAIC found run-out periods as short as three months, while some claims take as long as 18 months to run out, for reasons including appeals.

The broker-association presentation flagged gaps from inadequate run-out protection, or terminal liability provisions that apply only if the employer returns to a fully insured plan. Before you switch administrators, read the guide to switching TPAs.

Can you get your claims data?

Federal guidance treats unreasonable limits on a plan’s access to de-identified claims data, such as reviews no more than once a year or access only on the TPA’s premises, as possible prohibited gag clauses. The NAIC has noted that disclosure of de-identified claims information allows small employers to shop for other stop-loss coverage.

Do states regulate stop-loss for small groups?

Some states do, by regulating the stop-loss insurer rather than the plan. The Department of Labor’s view is that a state law barring stop-loss with attachment points below specified levels would not be preempted by ERISA.

The NAIC’s model act bars stop-loss with a specific attachment point under $20,000. For groups of 50 or fewer, the aggregate attachment point must be at least the greatest of $4,000 per group member, 120% of expected claims or $20,000. For groups of 51 or more, it must be at least 110% of expected claims.

State examples:

The Connecticut summary dates from September 2019, and state rules change, so check current rules with your state insurance department.