Written by Wade Secrest · Professional Insurance Solutions
The short answer
A fully insured plan means you pay a fixed premium and the carrier takes all the claims risk. A level funded plan means you pay a fixed monthly amount too, but part of it funds your own claims account — and if your group stays healthy, some of that money can come back to you at the end of the year.
That refund possibility is the whole argument for level funding, and it is also the reason it is not right for everyone. Below is what actually separates the three funding models, and the questions we ask a Coastal Bend business owner before recommending one.
What is a fully insured health plan?
This is the model most small employers start with and the one most people picture when they think of group health insurance. You agree a premium with the carrier, you pay it every month, and the carrier pays the claims — however large they turn out to be.
Your cost is completely predictable for the plan year. If your employees have a catastrophic year, that is the carrier’s problem. The trade-off is that if your group has a very healthy year, the carrier keeps the difference. You never see it.
Rates are also set largely by the wider risk pool and state-filed rates rather than by your specific group, which means a young, healthy workforce can end up subsidising everyone else.
What is a level funded health plan?
A level funded plan is a self funded plan wearing a fully insured plan’s clothes. You pay one steady monthly amount, so it feels like a premium, but that payment is actually split three ways: a claims fund for your employees’ medical bills, an administration fee, and a stop-loss insurance premium that caps your exposure if claims run high.
The stop-loss piece is what makes this workable for a small business. It means a single serious claim cannot bankrupt the plan — the insurer picks up costs above an agreed threshold. Your monthly outlay stays level all year, which is where the name comes from.
At the end of the plan year, the claims fund is reconciled. If your group used less than was funded, you may receive a share of the surplus back. If claims ran hot, stop-loss absorbs the excess and you are not billed for it.
The refund is the headline, but the underwriting data is often worth more. A level funded plan shows you what your group actually costs — information a fully insured renewal never gives you.
Where self funded fits in
Fully self funded — sometimes called self insured — is the same principle without the training wheels. The employer pays claims directly as they arrive, usually alongside separately purchased stop-loss cover, and takes on the administrative machinery that goes with it.
Cash flow is lumpy by design: a quiet month costs little, an expensive month costs a great deal. That variability is manageable for a large employer with reserves and far riskier for a business of twenty people. Level funding exists precisely to give smaller groups the upside of self funding without the volatility.
Level funded vs fully insured vs self funded, side by side
| Fully insured | Level funded | Self funded | |
|---|---|---|---|
| Monthly cost | Fixed premium | Fixed monthly amount | Varies with claims |
| Who carries claims risk | Carrier | Employer, capped by stop-loss | Employer, above stop-loss |
| Surplus if claims are low | Carrier keeps it | Employer may get a share back | Employer keeps it |
| Claims data visibility | Very limited | Detailed reporting | Full |
| Typical group size | Any | Roughly 10–150 enrolled | 100+ enrolled |
| Admin burden on you | Lowest | Low — bundled | Highest |
| State premium tax | Applies | Largely avoided | Largely avoided |
| Plan design freedom | Carrier’s filed plans | More flexible | Almost total |
Which one fits your business?
There is no universally correct answer, and any agent who gives you one without seeing your census is selling rather than advising. These are the factors that actually decide it.
What Texas employers most often get wrong
The first mistake is assuming this decision can only be revisited in the autumn. Group plans renew on your own anniversary date, not the January individual-market calendar, so the month to start modelling a change is usually two to three months before that date — whenever it falls.
The second is comparing a level funded quote to a fully insured premium as though they are the same number. They are not. A level funded quote has a maximum funding figure as well as an expected one, and an honest comparison uses the maximum. If the worst case still beats your fully insured renewal, the decision is easy. If it does not, the refund potential has to be worth the variability.
The third is switching for the refund alone. A surplus cheque is pleasant; it is not a benefits strategy. The durable reason to move is that you gain visibility into what your group actually costs, and that information is what lets you negotiate every year afterwards.
Want both quotes side by side for your group?
Send us your census and your renewal date. We will model level funded against fully insured on identical assumptions — including the maximum funding figure, not just the expected one — and tell you plainly which one we would choose. It costs nothing. We place group benefits and Medicare coverage across twelve carriers.