Fully Insured vs. Level-Funded: Who Should Actually Make the Switch

Every year, thousands of employers get hit with renewal increases they didn't see coming. And every year, the same conversation happens: "Should we look at level-funding?"

For some employers, the answer is yes. For others, it's not the right move — at least not yet. But the decision is rarely as simple as brokers make it sound, and it's almost never as risky as employers assume.

Here's what actually matters when deciding whether to make the switch.

What Fully Insured Plans Do Well

Fully insured plans are predictable. You pay a fixed premium every month, and the insurance carrier assumes all the risk. If your claims are higher than expected, you're protected. If your claims are lower than expected, the carrier keeps the difference — but you don't have to think about it.

For many employers, that predictability is worth the cost. Budgeting is straightforward. There are no surprise cash flow issues mid-year. The carrier handles claims adjudication, member services, and network access. You know exactly what you're paying, and you know it won't change until the next renewal.

Fully insured plans work especially well for employers who value stability over visibility, or for groups with volatile or unpredictable claims experience. If your workforce is small, high-risk, or you've had catastrophic claims in recent years, staying fully insured may be the right call.

What Fully Insured Plans Don't Tell You

Here's what most employers don't realize: your fully insured premium includes far more than just your expected claims costs.

It includes the carrier's profit margin. It includes risk and administrative charges. It includes funding for the carrier's reserve pool, which spreads risk across all their fully insured groups — including groups with much worse claims experience than yours.

You're paying for all of that, whether your group uses it or not. And if your claims come in lower than expected — which happens more often than employers think — you never see that money back. The carrier keeps it.

You also have zero visibility into what you're actually spending on healthcare. Most fully insured employers couldn't tell you their top five claimants, their specialty drug spend, or whether their utilization patterns are trending up or down. They're flying blind, year after year, and making benefits decisions based on premium quotes instead of data.

How Level-Funded Plans Work

Level-funded plans are a hybrid between fully insured and self-funded. You pay a fixed monthly amount — just like a fully insured plan — but that payment is broken into three components:

1. Expected claims costs — an estimate based on your group's demographics and claims history
2. Stop-loss insurance — coverage that caps your exposure if claims exceed expectations
3. Administrative fees — the cost of claims processing, network access, and plan management

At the end of the plan year, your actual claims are reconciled against what you paid. If your claims came in lower than expected, you get money back. If your claims were higher, stop-loss insurance covers the excess.

The key difference: you're paying for your actual healthcare costs, not subsidizing a carrier's risk pool or profit margin. And you get visibility into your claims data, which allows you to make smarter decisions about plan design, cost containment, and employee benefits.

Who Should Consider Level-Funding

Level-funding isn't right for everyone, but it's worth evaluating if:

You've been fully insured for years with no idea what your actual claims costs are. If you're making benefits decisions based purely on renewal quotes and premium trends, you're missing critical information. Level-funding gives you transparency into where your money is actually going.

Your group has stable or improving claims experience. If your workforce is relatively healthy, your utilization is predictable, and you haven't had catastrophic claims in recent years, level-funding allows you to benefit from that. With a fully insured plan, you're paying as if you're a high-risk group even if you're not.

You want more control over plan design and cost management. Fully insured plans limit your flexibility. Level-funded plans give you access to your claims data, which allows you to identify cost drivers, implement targeted interventions, and adjust plan design based on actual utilization — not guesswork.

Who Should Stay Fully Insured

Level-funding isn't the right move if:

Your claims experience is volatile or high-risk. If you've had multiple large claims in recent years, or if your workforce includes known high-cost conditions, staying fully insured may be the safer play. Stop-loss coverage protects you, but your monthly costs will reflect that risk — and you may not see much savings over a fully insured plan.

You value absolute budget certainty above all else. If you cannot tolerate any mid-year adjustments or cash flow variability — even small amounts — fully insured is the safer option. Level-funded plans are designed to be predictable, but they're not identical to fully insured in that respect.

Your group is very small. While some carriers offer level-funded options for small groups, the risk pool is smaller and the underwriting is stricter. Small groups with even one or two high claimants can see significant cost swings. In those cases, the fully insured risk pool may offer better protection.

You don't have a broker or advisor who understands level-funding. This is critical. Level-funded plans require more active management than fully insured plans. If your broker is just quoting premiums and walking away, you're not set up to succeed with level-funding. You need an advisor who will help you read your claims data, manage your stop-loss strategy, and optimize your plan year over year.

The Real Question

The decision to switch from fully insured to level-funded isn't about risk tolerance. It's about visibility and control.

With a fully insured plan, you're paying a fixed price for stability — but you have no idea whether you're overpaying, and no opportunity to benefit if your group has a healthy year.

With level-funding, you're paying for your actual healthcare costs plus protection against catastrophic claims. If your claims are low, you get money back. If your claims are high, you're protected. And either way, you have the data you need to make better decisions going forward.

Not every group is ready for that. But if you've been fully insured for years and you have no visibility into your costs, it's worth the conversation.