37% of small firms now offer level-funded plans. That's up from 7% in 2019, according to KFF. Fivefold growth in five years. And almost none of those employers fully understand what they actually bought.
Their brokers called it self-funding. It isn't. Not really anyways. Not in the ways that matter to your balance sheet.
The 22% premium savings UnitedHealthcare cites for employers who migrated to level-funded plans is real. The structural concessions made to get there are rarely disclosed at the point of sale.
What You're Actually Paying For Each Month
A level-funded plan bundles three things into one fixed monthly payment: a claims fund estimate, a stop-loss premium, and an administration fee. The insurer calculates that number, not you.
You write one check. The carrier controls what's inside it.
That's the first problem. You may know what you're paying for stop-loss, claims funding, and admin. But you can't competitively bid the stop-loss.
You can't negotiate the TPA. You can't choose your PBM. And the pharmacy carve-out decision, which can run $400 per member per year in downstream impact, isn't even on the table.
In a properly structured self-funded plan, you hire those vendors separately. You own the relationships. You can fire them.
| Feature | Level-Funded Plan | True Self-Funded Plan |
|---|---|---|
| Stop-Loss Contract | ✗ Bundled, carrier-owned — cannot be independently bid | ✓ Separate, independently negotiated policy |
| Claims Surplus at Year End | ✗ Carrier keeps unused funds | ✓ Employer paid claims as incurred, held the excess cash |
| TPA Selection | ✗ Carrier-assigned, no employer choice | ✓ Employer-hired, employer-owned relationship |
| PBM Selection | ✗ Carrier-controlled, no independent negotiation | ✓ Independently negotiated by employer |
| Plan Design Flexibility | ✗ Templated by carrier | ✓ Custom-designed by employer |
| ERISA Mandate Exemption | ✗ Label only — carrier may voluntarily opt back in | ✓ Full exemption, employer controls plan design |
The Risk Corridor Is a Feature That Works Against You
Here's where the self-funded comparison breaks down completely. In a true self-funded plan, you assume all financial responsibility for employee health claims. No carrier-imposed ceiling embedded in your monthly payment structure.
Your stop-loss is a separate, independently negotiated policy. You control the specific and aggregate attachment points.
In a bundled level-funded plan, you assume risk only up to a threshold. Once you hit it, risk transfers to the carrier. Sounds like protection, and it is.
But the carrier built that risk corridor into your monthly rate and priced it for their benefit, not yours.
The bigger issue is what happens when your claims run well. If you don't use your claims fund, many carriers keep it, or at least a portion of it.
You funded a reserve. The carrier captured the surplus. Sounds similar to fully-insured to me, no?
The ERISA Label Gives a False Sense of Control
Level-funded plans are ERISA-governed and generally exempt from state insurance mandates. That's technically accurate.
But that exemption implies you have control over plan design. In most level-funded products, you don't.
Some level-funded vendors voluntarily incorporate state-required benefits even when they're not legally obligated. Why? Because it simplifies administration and generates more premium.
In plenty of circumstances, it makes sense to cover state specific Essential Health Health benefits under a level-funded or self-funded plan, even when not required to. But the key is to have the choice, and decision power.
True self-funding lets you design a plan that covers what your population actually needs. You can carve out benefits. You can add them.
Bundled level-funded plans are largely templated. The carrier decides what the plan looks like. You're buying from their menu.
What a CFO Should Be Asking Before Signing
Nearly 40% of small employers were considering switching to level-funded plans as of late 2025, per KFF. Most of them are doing it because their broker recommended it and the premium comparison looked favorable. That's not enough diligence.
- Who owns the stop-loss contract, and can you bid it independently at renewal?
- What happens to unused claims dollars at year end?
- Can you access complete, line-level claims data, or just summary reports the carrier chooses to share? That data access question has a fiduciary answer, not just an operational one.
- Can you switch TPAs or PBMs without terminating the entire arrangement?
- Is the plan truly exempt from state mandates, or has the carrier opted back in voluntarily?
Level-funded plans are a legitimate product. For some employers, they're the right first step. But bundled versions are a carrier-controlled hybrid, not a self-funded arrangement.
Calling them self-funded isn't just imprecise. It costs you negotiating power, data access, and real dollars left on the table at year end.