The Mechanics of Level-Funding: Predictable Monthly Premiums
In a traditional fully insured health plan, insurance carriers retain 100% of unspent premium dollars during healthy years. Level-funded plans split monthly employer payments into three distinct buckets: estimated claims allowance, stop-loss reinsurance premiums, and third-party administrator (TPA) fees.
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Specific vs. Aggregate Stop-Loss Protection
Employers fear that a single catastrophic medical condition (e.g., $1M oncology treatment) will bankrupt their self-funded plan. Specific stop-loss caps employer liability at a fixed threshold (e.g., $50,000 per member), while aggregate stop-loss caps the overall plan spend at 120% of projected claims.
Year-End Surplus Refunds & Tax Advantages
When employees experience lower-than-expected claims, the remaining balance in the claims account is returned directly to the employer as a cash refund or credit toward the following year's renewal.