Health insurance: two ways to fund the same coverage

Fully insured (traditional)

Where the premium goes

Every fully insured premium includes carrier margin, state premium tax, and a cushion for claims that may never happen. In a good year, the carrier keeps what your group did not use. That is the trade for predictability, and for some groups it is the right trade.

The coverage option most businesses already know. Simple. Familiar. Ready to go.

What this means for your business

Comprehensive coverage.
Fixed monthly premiums.
Less control over plan design.
Small groups often pay more under Traditional coverage. Premiums are based on the entire insurance pool, not your specific group's health.

Level funded

How the payment splits

You write one fixed check a month, same as before. Behind it, the money goes three places: an administration fee, stop-loss insurance that caps what your group can owe in a high claims year, and a fund for your expected claims.

Not every group qualifies. Level funded plans use underwriting, so your group's claims history shapes the price. Results vary by group.

Pay for your own group's health, not everyone else's.

The option healthy groups often never hear about. Smarter. Fairer. Can reward good health.

What this means for your business

Level funded premiums are based on your specific group's claims experience, not the entire insurance pool.
A plan that pays a larger share of costs usually has a higher premium, so knowing exactly what you are paying for, and why, matters.
One client's own renewal mailer from their previous carrier showed savings up to 30 percent on a matched, gold-to-gold plan comparison, a real result, not a typical one.

Good planning shows up quietly, season after season.

From Farm to Office™

How we got here

2014

The Affordable Care Act required small group plans to price coverage using community rating, not a specific group's own health. Healthy groups started paying to help cover the cost of less healthy groups in the same pool.

2026

In 2026, 37% of firms with 10 to 199 workers that offer health benefits offer a level-funded plan. Healthy groups found a way to base pricing on their own claims experience instead.

Source: KFF 2026 Employer Health Benefits Survey, Plan Funding, Figure 10.8

How Traditional Group Health got here

1929
Baylor Hospital in Dallas let schoolteachers pay a small monthly fee for guaranteed hospital care. That idea became the seed of what we now call group health insurance.
Source: Federal Reserve Bank of Richmond, Econ Focus, 2014
1940s
The federal government froze wages during World War II. Employers could not raise pay to compete for workers, so they started offering health coverage instead. Benefits were not covered by the freeze.
Source: KFF, history of health reform
1954
That tax-free treatment was written directly into Section 106 of the Internal Revenue Code. It has stayed that way ever since.
Source: Cornell Legal Information Institute, 26 U.S.C. 106
2010 to 2014
The Affordable Care Act was signed into law in 2010. Its major provisions, including required minimum benefits, went into effect in 2014. That is the version of Traditional Group Health most businesses have today.
Source: Affordable Care Act (Public Law 111-148)

Questions about level funding

Is level funded safe for a mid-size group?

A fixed monthly cost and stop-loss protection cap what the group can owe in a bad year. It requires underwriting, so the review determines whether it fits your group.

What happens in a bad claims year?

Stop-loss insurance pays eligible claims above the agreed cap. Your monthly cost stays fixed, so the downside is defined before the plan begins.

What is Traditional Group Health insurance?

A standard employer-sponsored health plan with fixed monthly premiums and comprehensive coverage.

How is Traditional different from Level Funded coverage?

Traditional premiums are based on the entire insurance pool. Level Funded pricing is based on your specific group's health.

Is Traditional Group Health more expensive for small groups?

Often, yes. Small groups typically pay a larger share to help cover less healthy groups in the same pool.

What is Level Funded Group Health insurance?

A funding model where your group's premium is based on your own group's health and claims experience, not pooled with every other group your carrier insures.

Is every group a good fit for Level Funded?

Not automatically. A review of your group's claims history and current health profile determines whether it is a strong fit.

Bring the renewal. We will look at the math behind it.

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