Fully-Insured vs. Self-/Level-Funded
Fully-insured and self- or level-funded describe who is financially on the hook for a health plan's claims, not what the benefits look like. In a fully-insured plan the insurance carrier takes the risk in exchange for a fixed premium; in a self- or level-funded plan the employer pays claims from its own funds, usually with stop-loss insurance as a backstop. This page explains the mechanics in plain English.
At a glance
| Fully-Insured Plan Fully-Insured | Self- / Level-Funded Plan Self-/Level-Funded | |
|---|---|---|
| Who bears the claims risk | The insurance carrier | The employer, with stop-loss protection |
| Payment structure | Fixed monthly premium | Set monthly amount for the claims fund, administration, and stop-loss (level-funded) |
| Refund of unused claims dollars | No | Possible surplus refund if claims run low, depending on the contract |
| Primary regulation | State insurance regulation | Primarily federal ERISA |
| Access to claims data | Limited | More detailed reporting typically available |
Where the real difference lies
The dividing line is who carries the claims risk. In a fully-insured plan the employer pays a fixed premium and the carrier keeps whatever is left if claims run low and absorbs the loss if they run high. In a self- or level-funded plan the employer funds the claims itself and buys stop-loss coverage to cap its exposure.
A level-funded plan is a packaged version of self-funding: the employer pays a steady monthly amount covering the expected claims fund, administration, and stop-loss, which smooths cash flow. That structure can produce a surplus refund in a low-claims year, something a fully-insured premium does not offer.
How they are regulated
Fully-insured plans are governed by state insurance rules, while self- and level-funded plans are primarily governed by the federal ERISA framework, which affects mandates and reporting.
Master plan document or contract
The plan document or insurance contract states whether the carrier or the employer holds the claims risk and how any surplus is handled.
Employer's funding summary
The employer's funding summary shows whether payments are a fixed premium or a level-funded amount split into a claims fund, administration, and stop-loss.
Stop-loss policy
In a self- or level-funded plan, the stop-loss policy spells out the thresholds at which the insurer begins absorbing large claims.
What it looks like on a real claim
Example 1 — A year with lower-than-expected claims
A 30-person employer budgets for claims, the group stays healthy, and claims come in well under projections.
The carrier keeps the difference because the premium was fixed regardless of claims.
Depending on the contract, the employer may receive a surplus refund of the unused claims dollars.
Example 2 — A year with one large, unexpected claim
One employee has a $400,000 medical event during the plan year.
The carrier pays and the employer's fixed premium does not change mid-year.
The employer's claims fund pays up to the stop-loss threshold, and stop-loss coverage absorbs the amount above it.
The bottom line
Fully-insured and self- or level-funded plans can offer very similar benefits, so the difference is about financial mechanics: a fixed premium with the risk on the carrier, versus employer-funded claims with stop-loss protection and the chance of a refund in a good year. Level funding sits between the two by making monthly costs predictable.
Because refunds, stop-loss thresholds, and regulatory treatment depend on the specific contract, the plan document, funding summary, and stop-loss policy are what determine how a given plan actually behaves. Read those together to see where the risk really sits.