Level-Funded Health Plans: The Smart Alternative to Rising Insurance Costs in Washington

If you own or manage a small business in Washington state, you have likely felt the sting of your annual health insurance renewal. Another year, another double-digit rate increase — and the feeling that there is nothing you can do about it. But there is.

A growing number of Washington employers are discovering level-funded health plans — a smarter, more flexible alternative to traditional fully insured coverage that can dramatically change the economics of offering employee benefits.

Washington’s Rate Crisis by the Numbers

Let’s start with what you’re up against on a fully insured plan. The Washington state Office of the Insurance Commissioner approved an average rate increase of 11.9% for small employers in 2025 — the highest in over a decade. Regence BlueCross BlueShield hit 21.9% in a single year, affecting thousands of Washington businesses.

And it is not just a Washington problem. Employer health coverage costs nationally are projected to surge more than 9% in 2026 — what would be the largest increase in at least 15 years. Small businesses are bearing the brunt of it.

So What Exactly Is a Level-Funded Plan?

Think of a level-funded plan as the best of both worlds: the predictable monthly payments of a fully insured plan, combined with the cost-saving potential of a self-funded plan.

Each month, you pay a fixed amount that covers three things: a claims fund (to pay your employees’ actual medical claims), stop-loss insurance (to protect you from catastrophic claims), and administrative fees. That is it — no surprises mid-year.

Watch: Level-Funded Plans Explained

The 5 Biggest Benefits for Washington Small Businesses

1. Your Rates Reflect Your Group — Not the Market

Fully insured plans use community rating, meaning your premiums are pooled with every other business in the market — including ones with terrible claims histories. Level-funded plans price based on your group’s actual experience. Healthy groups pay less.

2. Year-End Refunds Are Real

This is the feature that surprises most business owners. If your group’s claims come in under the projected amount, you receive a surplus refund. Many Washington employers have recouped thousands of dollars this way — money that simply evaporates in a fully insured arrangement.

3. You Are Protected from Catastrophic Claims

The most common concern we hear: “What if someone on my team has a major medical event?” That is exactly what stop-loss insurance covers. It caps your liability at both the individual claim level and the aggregate level — so you get the upside without unlimited downside risk.

4. You Can See Your Claims Data

With a traditional fully insured plan, your carrier keeps your claims data. With a level-funded plan, you own that data. That transparency lets you and your broker make smarter decisions at renewal — targeting wellness programs, adjusting plan design, and negotiating from a position of knowledge.

5. More Flexible Plan Design

Because level-funded plans are classified as self-insured, they are exempt from many state benefit mandates and ACA community rating rules. This opens up more plan design options — from HDHPs to PPOs — tailored to what your workforce actually needs.

Is This a Growing Trend?

Absolutely. According to the Kaiser Family Foundation, the share of small employers offering level-funded plans grew from just 13% in 2020 to roughly 40% by 2023. In 2024, 42% of small companies with 3 to 199 employees chose level-funded plans. This is not a fringe option anymore — it is becoming the mainstream choice for small businesses that are serious about controlling benefits costs.

Is a Level-Funded Plan Right for Your Washington Business?

Level-funded plans tend to work best for employers who:

• Have 2 to 150 employees
• Have a reasonably healthy workforce
• Are tired of unpredictable, escalating renewal increases
• Want more control and transparency over their benefits spend

They are not ideal for every group — if your team has very high claims utilization, the math may favor staying fully insured. That is why working with an independent broker who can run a proper analysis matters.

Sources: Washington Office of the Insurance Commissioner (2024, 2025); Kaiser Family Foundation; UnitedHealthcare; National Federation of Independent Business. Washington Insurance Brokers serves small and mid-size employers across Washington state including Seattle, Bellevue, Spokane, Tacoma, and the greater Puget Sound region. wa-insurance.com