Level-Funded vs. Fully Insured Health Plans: A Guide for Washington Employers

If your business has renewed a fully insured group health plan lately, you have probably felt the sting: another year, another rate increase, often delivered right before the deadline. More and more Washington employers are asking about an alternative that most brokers never bring up: the level-funded health plan.

I have helped Washington businesses move to level-funded plans for years, including several large McDonald’s franchise owners who left their corporate plans, saved money up front, and received claims reimbursements at the end of the year. This guide explains how these plans work, who qualifies, and how to decide if one fits your business.

How a fully insured plan works

With a traditional fully insured plan, you pay the carrier a fixed premium every month, and the carrier takes on all the claims risk. If your team barely uses the plan all year, the carrier keeps the difference. If claims run high, the carrier raises your rates at renewal. Either way, the money only flows one direction: away from your business.

How a level-funded plan works

A level-funded plan keeps the part employers like, one predictable monthly payment, and changes what happens to the money. Your monthly payment covers three things:

• Expected claims funding for your group, based on your team’s profile
• Stop-loss insurance that caps your risk if claims run unexpectedly high
• Administration for processing claims and running the plan

Here is the part that gets employers’ attention: if your group’s claims come in lower than expected, many level-funded plans return a portion of the unused claims funding to you at the end of the plan year. Instead of the carrier keeping every unused dollar, your business can get money back.

The five differences that matter

1. Rate stability

If you qualify for a level-funded plan, your rates are locked for the entire plan year. No mid-year surprises.

2. Money back potential

Low claims year? With fully insured, that surplus is gone. With level funding, some of it can come back to your business.

3. Risk protection

This is the concern I hear most: “level funded sounds risky.” The risk is mitigated by design. Stop-loss insurance caps what your business can be responsible for, which is exactly why these plans can offer stable rates.

4. Underwriting

Level-funded plans are underwritten, meaning the carrier evaluates your group before offering rates. This is why they are not an option for every business, and why healthier groups often see meaningful savings.

5. Transparency

Level-funded plans typically give employers far better reporting on where their healthcare dollars actually go.

Who level-funded plans fit, and who they do not

Level funding tends to work well for Washington businesses with roughly 5 to 150 employees and a workforce in reasonable health. It is usually not the right answer for groups with very high expected claims, and an honest broker will tell you that up front rather than force a fit.

The only way to know which side your business lands on is to run the numbers. Underwriting is free, and the quote comes back showing exactly how the plan compares to your current fully insured renewal.

A real example

Several McDonald’s franchise owners I work with had been on corporate-arranged plans for years. We moved them to a level-funded package. The result: lower costs up front, stable rates through the year, and claims reimbursement checks at the end. Not every group will see that outcome, but it shows what is possible when the plan structure matches the group.

How to find out if your business qualifies

Have an independent broker run a level-funded analysis alongside your next renewal. You will see the fully insured number and the level-funded number side by side, and you can make the call with real data instead of a hunch.

Curious what level funding would look like for your business? Visit our level-funded health plans page, request a free analysis, or call (206) 653-9636. We shop every major carrier in Washington and will tell you honestly whether level funding fits.