A level-funded health plan is self-funding with the volatility smoothed out at the surface. The employer is still self-funded — it still holds the claims risk, the same as any self-funded plan — but instead of paying whatever claims actually come in that month, the employer pays one fixed amount every month, set in advance for the plan year. That fixed payment is the level part: it doesn’t move with a bad claims month or a light one, which is the main appeal for an employer that wants self-funding’s cost advantages without a fully-insured plan’s premium but also without the cash-flow unpredictability of traditional self-funding.
What the fixed payment actually funds
The level monthly payment isn’t one number — it’s three components bundled into one bill:
- Expected claims — an actuarially estimated monthly claims cost, funded into a claims account the TPA pays claims out of.
- Administrative fees — the TPA’s cost to run eligibility, adjudication, EOBs, and reporting.
- A stop-loss premium — level-funded plans carry stop-loss insurance built into the structure by design, not as an optional add-on, which caps the employer’s exposure if actual claims run well above the expected amount funded each month.
Because stop-loss is embedded rather than separately shopped, a level-funded plan reads to the employer almost like a fully-insured premium — one number, one invoice — even though the underlying claims dollars are the employer’s own money moving through the claims account, not an insurer’s general account.
A worked example
An employer with 100 employees is quoted a level-funded plan at $650 per employee per month, all-in. That’s $65,000/month, or $780,000 for the plan year. Broken into components, that monthly figure is roughly $520 PEPM in expected claims funding, $70 PEPM in administrative fees, and $60 PEPM in stop-loss premium.
At year-end, actual claims came in lower than expected — $580,000 in paid claims against the $624,000 ($520 × 100 × 12) funded into the claims account over the year. That $580,000 figure isn’t final the moment the plan year closes: claims for services rendered before year-end keep arriving for months afterward, so the settlement waits out a run-out period before the paid-claims number is treated as locked, rather than closing the books on incurred-but-not-reported claims that simply haven’t been submitted yet. Once run-out is accounted for, because the plan is level-funded rather than fully insured, that $44,000 surplus doesn’t just disappear into a carrier’s margin — depending on the plan’s specific contract terms, it’s returned to the employer as a refund, credited toward next year’s rate, or split with the carrier under a formula set at renewal. Had claims instead come in over the funded amount, the plan’s embedded stop-loss is what caps the employer’s exposure to the overage, rather than the employer owing the full gap out of pocket.
Where it sits between fully-insured and self-funded
| Fully-insured | Level-funded | Traditional self-funded | |
|---|---|---|---|
| Who holds claims risk | Insurance carrier | Employer | Employer |
| Monthly payment | Fixed premium | Fixed monthly payment | Variable, tracks actual claims |
| Stop-loss | Not applicable (carrier bears risk) | Embedded in the monthly payment | Purchased separately |
| Year-end settlement | None — premium is final | Reconciled against actual claims | N/A — employer already paid actual claims |
Both level-funded and traditional self-funded plans can be administered either by the carrier itself or by an independent TPA — see ASO vs. TPA for how that administrative choice works and who typically buys each.
Why this matters operationally — and where Claimaro sits
Level funding is popular with smaller and mid-market employers specifically because it delivers self-funding’s cost transparency and potential surplus without the cash-flow swings that scare employers away from full self-funding. Claimaro is claims administration software, not a carrier, TPA, or insurance broker — it does not sell, place, or underwrite level-funded plans or the stop-loss embedded in them. What a level-funded plan needs from its adjudication platform is the same thing traditional self-funding needs: accurate claim-by-claim pricing and cost-sharing, and clean tracking of paid claims against the funded amount so the year-end settlement reconciles without a manual reconstruction. For a TPA administering level-funded books alongside traditional self-funded and ASO clients, that reporting has to hold up the same way across all three structures, since the claims adjudication underneath them doesn’t actually change — only the funding mechanism on top of it does.