Level Funding vs. Fully Insured: Why Employers Are Rethinking Benefits for 2027

Your health insurance renewal arrives, and the premium increase is higher than expected. Again.

Now you’re facing familiar choices: absorb the additional cost, increase employee contributions, raise deductibles, or reduce benefits. None is particularly appealing when you’re trying to control expenses while attracting and retaining employees.

But there’s another option worth considering. Instead of accepting another fully insured renewal, more employers are exploring level-funded health plans as a potentially more affordable way to provide coverage.

With healthcare costs expected to rise again in 2027, understanding the differences between level funding and fully insured coverage could help your business make a smarter benefits decision.

Why Health Insurance Costs Are Driving Employers to Explore Alternatives

Healthcare costs remain a significant concern for employers.

According to KFF’s analysis of the small-business insurance market, insurers in the fully insured small-group market project a median premium increase of about 14% for 2027.

Meanwhile, PwC projects a 9% medical cost trend for the group insurance market.

Those figures aren’t predictions of what every employer will pay. But they illustrate why businesses are taking a closer look at how they fund employee health benefits.

For a company spending $500,000 annually on health insurance, a 14% increase would add $70,000 in costs.

That’s money that could otherwise support hiring, wages, business expansion, or other priorities.

Rather than accepting higher premiums, employers can evaluate whether a different funding arrangement could provide better value.

What Is a Fully Insured Health Plan?

With a fully insured plan, your company pays a fixed premium to an insurance carrier. The carrier assumes the financial risk of covered medical claims.

This arrangement offers predictable premium payments during the coverage period and relatively straightforward administration.

However, the employer generally doesn’t receive a share of unused claims funds when employees have lower-than-expected medical expenses.

And when renewal arrives, premiums may increase based on applicable rating factors, medical costs, and other considerations.

For businesses experiencing repeated increases, that can make long-term benefits budgeting difficult.

How Level-Funded Health Plans Work

Level funding combines elements of traditional self-funding with predictable monthly payments.

Instead of paying a conventional insurance premium, the employer makes a fixed monthly payment that generally covers three components:

• Expected employee medical claims.
• Administrative costs.
• Stop-loss insurance to help protect against unexpectedly high claims.

Employees continue using their health benefits through the plan’s network and coverage arrangements.

The important difference is how the employer’s money is managed.

If actual claims are lower than expected, the employer may qualify to receive a portion of the unused claims funds, depending on the contract and applicable law.

If claims are higher than expected, stop-loss insurance protects the employer under the plan’s specific terms.

This structure allows employers to benefit from favorable claims experience while maintaining more predictable monthly funding.

Why Level Funding Can Be More Cost-Effective

The potential for lower costs is one of the biggest reasons employers are reconsidering fully insured coverage.

Level-funded arrangements may offer competitive initial pricing, potential claims-surplus distributions, and additional information about how healthcare dollars are being spent.

Some arrangements also provide flexibility in plan design, allowing employers to evaluate deductibles, copays, coinsurance, and other benefit options.

That doesn’t mean every level-funded plan will cost less.

Pricing depends on factors such as workforce size, enrollment, underwriting, expected claims, plan design, and stop-loss coverage.

Still, the potential savings can be meaningful enough to justify comparing the two options before renewal.

Is Your Business a Good Candidate for Level Funding?

Level funding isn’t limited to large corporations. Some arrangements are available to relatively small employers, although eligibility and minimum participation requirements vary.

Your company may be a good candidate if:

• You’re experiencing repeated fully insured premium increases.
• You want more visibility into healthcare spending.
• You’re interested in potential savings from favorable claims experience.
• You have a workforce that meets the plan’s underwriting and participation requirements.
• You want to explore different benefit designs without sacrificing coverage quality.
• You’re comfortable evaluating the financial and administrative responsibilities associated with a self-funded arrangement.

Your company’s claims experience, financial position, workforce size, and risk tolerance all matter.

For some employers, fully insured coverage remains the better fit because of its simplicity and transfer of covered claims risk to the insurer.

For others, level funding may offer a more competitive alternative.

What Should You Compare Before Switching?

A lower monthly payment is attractive, but it shouldn’t be the only consideration.

Before moving from fully insured to level-funded coverage, compare the total annual cost, provider networks, prescription benefits, employee out-of-pocket expenses, administrative fees, and stop-loss protections.

Pay particular attention to how the arrangement handles unexpectedly high claims and what happens at renewal.

You should also understand the rules governing potential surplus distributions. Not every arrangement offers the same terms, and savings are never guaranteed.

The goal isn’t simply to find the lowest quote. It’s to identify coverage that provides meaningful value for your employees at a sustainable cost for your business.

Make Your 2027 Renewal an Opportunity to Save

With healthcare costs continuing to rise, renewing the same plan without reviewing alternatives could mean overlooking a more competitive option.

Level funding gives employers another way to manage healthcare expenses, with predictable monthly payments, stop-loss protection, and the chance to benefit when claims are lower than expected.

For businesses that want to control costs while still offering competitive employee benefits, it’s an option worth exploring.

INFINITI HR works with businesses to evaluate employee benefits as part of their broader HR and workforce strategy. If your company is preparing for its 2027 renewal, contact INFINITI HR to discuss whether level funding or fully insured coverage makes the most sense for your organization.

This article is for general informational purposes only and is not legal or tax advice. Employment and tax requirements vary by state and situation. Consult qualified legal or tax counsel about your specific circumstances.