Level-funded plans vs. Prescience

What a level-funded plan is

A level-funded plan is a self-funded plan packaged to feel like insurance. You pay the same amount each month. That payment funds a claims account, the administrator's fees and a stop-loss policy that covers claims above set limits. If claims come in low, some plans refund part of the surplus; higher claims may affect renewal pricing.

They're now common: KFF's 2025 survey found 37% of covered workers at firms with 10 to 199 workers are in a level-funded plan.

I use the primary sources listed below for the legal rules and original survey benchmarks. Any worked cost scenario is illustrative. A proposal must still be checked against its own eligibility, coverage and contract terms before enrollment.

How the money moves and who carries the risk

Each monthly payment is split three ways:

• The claims fund. The largest share. It pays your employees' medical and pharmacy claims as they come in. Legally, this is the employer's money paying the employer's plan.
• Fixed costs. The third-party administrator's fee for processing claims, network access, the pharmacy benefit manager and member services.
• The stop-loss premium. Insurance bought by the employer, not by the plan. Specific stop-loss reimburses claims for any one person above a set amount (the specific deductible or attachment point). Aggregate stop-loss covers total claims above a ceiling, as specified in the policy.

Who carries the risk. The employer remains responsible for benefits promised by its self-funded plan. Stop-loss reimburses the employer only for eligible claims within its policy terms. Exclusions, payment timing, an individual higher attachment point and claims outside the policy period can leave additional employer obligations. A scheduled monthly payment is not, by itself, proof that every liability is capped.

The year-end settlement. After the plan year ends, the administrator waits for late claims (the run-out period, often a few months), then compares total claims with the claims fund. A surplus may be refunded, credited to next year or kept, depending on the contract. Some contracts pay a refund only if you renew. Eligible claims above the aggregate attachment point may be reimbursed under the policy. Check exclusions and whether the employer must pay first; renewal pricing is separate.

The trade-offs

• Underwriting. Stop-loss carriers price your group from health questionnaires or claims. One employee with a serious diagnosis can raise your rate or get you declined. Having trained in medicine, I find it uncomfortable that a colleague's cancer diagnosis can become a pricing input for the whole company.
• Lasering. At renewal, a stop-loss carrier can set a much higher specific deductible for one known high-cost person, leaving the employer to fund more of that person's care.
• Renewals can reflect claims. Ask which factors affect the new quote and whether any renewal cap or protection against individual higher attachment points is contractual.
• Your team still has a deductible. Most level-funded designs look like a standard PPO or HDHP to employees.
• Several vendors. Administrator, stop-loss carrier, network and pharmacy benefit manager are often separate, each with a fee.
• Run-out and terminal liability. If you leave, claims incurred before the end date but paid after it may not be covered unless the contract includes run-out protection. Read that clause before you sign, not when you want to leave.
• State limits. New York Insurance Law 3231(h) restricts stop-loss coverage for small groups. Other states regulate attachment points and availability differently. Have the broker identify the current law that applies to your employer and proposed policy. A product advertised nationally is not evidence that it is available to your group.

The DOL stop-loss guidance explains why state regulation and the employer's plan obligations need separate attention.

Level-funded vs. Prescience, feature by feature

What 5, 25 and 75 employees pay: a good year and a bad year

These KFF averages describe employer coverage across funding arrangements at firms with 10–199 workers. They are not fully insured quotes or observed prices for teams of five. I use the rounded monthly values of $768 single and $2,171 family only as illustrative arithmetic inputs. The exact tier counts, not an assumed 70/30 percentage, determine each total.

Level-funded pricing depends heavily on the group, so these numbers are illustrative only. To isolate the mechanics, I set the level-funded payment equal to a fully insured plan's premium, using illustrative premiums of $768 single and $2,171 family a month, rounded from KFF's 2025 averages for firms with 10–199 workers.

The Prescience column uses the middle of the usual 10–20% range. The 25% bad-year renewal is an assumption to show the shape of the risk, not a market average. A very small group feels this most: at 5 employees, one hospitalization can be a large share of a year's claims fund.

How level-funded renewals behave over two to three years

A renewal can change administration charges, expected claims funding and stop-loss pricing. Ask for each component separately. The following paths are arithmetic scenarios, not a claim about what a diagnosis causes or how often employers receive any particular increase.

Compare a level-funded renewal against current fully insured alternatives and the cost of leaving. ACA-compliant small-group coverage cannot be priced using your company's health status. However, enrollment rules, effective dates and benefits still require review. Do not cancel the existing plan before replacement coverage is confirmed.

What it is like to be the employee

• The card and network. Most level-funded plans use a big carrier's network and ID card, so the plan looks like ordinary insurance.
• Deductibles. Designs usually mirror standard PPOs or HDHPs. Among workers with a general annual deductible, KFF's 2025 average single deductible at firms with 10 to 199 workers was $2,631.
• Claims and support. The administrator processes claims and runs member services. Quality varies.
• Health questionnaires. If underwriting requires health information, ask how employees submit it privately, who can access it and when the quote becomes final.
• Benefits. ERISA generally preempts state benefit mandates for private self-funded plans. Federal requirements and their exceptions still matter. Do not assume this treatment applies to government or church plans, or that every mental health parity provision applies to every small employer.

Compliance and admin burden

Because the employer is the self-insured plan sponsor, more of the compliance work lands on the employer than with a fully insured plan. The administrator does much of it, but the legal responsibility stays with you.

Level-funded plans also sit outside the ACA's small group rating rules and the medical loss ratio rules that apply to fully insured carriers. That is part of why they can be cheaper for healthy groups and pricier for sick ones.

How to switch off a level-funded plan, step by step

1. Read the contract (90–120 days out) Find the notice period, the run-out terms, any terminal liability, and whether a surplus refund requires renewal. These decide your real exit cost.
2. Get a quote from your census Compare it against your level-funded renewal, plus the refund you would give up and any run-out charges.
3. Check networks and active treatment Confirm the doctors and hospitals your team uses, and flag anyone in active treatment so their care continues.
4. Give written notice Notify the administrator and stop-loss carrier in writing with the exact last day of coverage.
5. Run enrollment (2–3 weeks before the start) Employees elect the new plan, which starts the day after the old one ends. Update payroll deductions.
6. Close out the old plan Track run-out claims and the final settlement, file the last PCORI fee and any Form 5500, and confirm the retention periods for plan documents, filings, claims and participant records.

Seven questions to ask before you sign a level-funded quote

1. What are the specific and aggregate attachment points, and can they change at renewal?
2. Is the quote final, or can it change after employees complete health questionnaires or after a new hire with a known condition joins?
3. How is a surplus calculated, what share comes back, when is it paid, and do we lose it if we don't renew?
4. How long is the run-out period, and who pays claims incurred before we leave but paid after?
5. Is there a cap on the renewal increase, or a promise not to laser anyone?
6. Which network and pharmacy benefit manager does the plan use, and what does each charge?
7. What does the claims fund cover if total claims exceed it before the aggregate stop-loss pays?

Get the answers in writing. A low first-year payment matters less than these terms, because they decide what the plan costs in a bad year and what it costs to leave.

How a Prescience plan works

At Prescience, we design and run your company's health plan, from setup and enrollment to claims, compliance and COBRA. What your team gets:

• An effective $0 deductible, so the plan helps from the first visit.
• Simple copays shown before a visit, capped by a low out-of-pocket maximum.
• A broad national PPO network, plus providers we contract with directly.
• 24/7 physician-led care navigation: a care team that finds the right provider, books appointments and explains costs up front.

What your company gets: one monthly cost set in your quote, usually 10–20% below comparable fully insured coverage and fixed before the plan starts, with no admin fees. You keep your payroll provider, and the plan can start mid-year.

When a level-funded plan is honestly the better choice

• Your team is stable and healthy, and you can absorb a bad renewal. The refunds in good years can make it cheaper than full insurance.
• You want detailed claims data to manage your own plan, and you have someone who will use it.
• You are growing toward 100+ employees and plan to move to a fully self-funded plan later; level funding is a common first step.
• You need one uniform plan design across many states and a carrier's level-funded product gives you that.

It is a poor fit if one diagnosis would make next year's renewal unaffordable, if you can't stomach health questionnaires, or if you are in New York, where small group stop-loss isn't allowed. For the full comparison of funding types, read level-funded vs. self-funded vs. fully insured.