The way a health plan is funded determines who pays claims, how predictable your monthly costs are, and how much visibility you have into spending. Most employers choose between three models: fully insured, self-funded, or level-funded. This guide explains each model in plain English and helps you decide which fits your organization.
What “funding model” means
A plan’s funding model describes who carries the financial risk for medical claims and how cash flows through the plan. It’s separate from network (HMO/PPO) or plan design (deductible, OOP max). Choosing the right model balances predictability, flexibility, transparency, and risk.
How each model works
Fully insured (carrier risk)
- Monthly cost: Fixed premium to the insurer
- Risk: Carrier assumes claims risk
- Data access: Limited to high-level reporting
- Flexibility: Low — carrier designs plan
Best for small teams or startups prioritizing administrative simplicity and budget certainty.
Self-funded (employer risk)
- Monthly cost: Variable — employer funds actual claims
- Risk: Employer bears claims risk (usually with stop-loss protection)
- Data access: Full claims transparency
- Flexibility: High — plan design is customizable
Best for larger groups with reserves and a tolerance for variability who want data-driven cost control.
Level-funded (hybrid)
- Monthly cost: Fixed (bundled admin + pooled claims + stop-loss)
- Risk: Moderate — stop-loss caps exposure
- Data access: Partial to robust, depending on carrier/TPA
- Flexibility: Moderate — within program parameters
Best for small-to-mid sized groups seeking predictable payments with potential refunds when claims run low.
At-a-glance comparison
| Feature | Fully Insured | Self-Funded | Level-Funded |
|---|---|---|---|
| Monthly Cost | Fixed premium | Variable (claims) | Fixed (with refund potential) |
| Risk Exposure | Low (carrier) | High (employer) | Moderate (stop-loss) |
| Claims Transparency | Minimal | Full | Partial to full |
| Plan Flexibility | Low | High | Moderate |
| Potential Savings | None | High with good experience | Moderate |
| Best Fit | Small teams prioritizing simplicity | Mid/large orgs with reserves | Small/mid orgs wanting predictability |
How to choose a model
- Budget predictability: If certainty is critical, start with fully insured or level-funded.
- Risk tolerance: If you can weather volatility and want upside, consider self-funding.
- Data needs: If you want to actively manage cost drivers, transparency from level- or self-funding helps.
- Headcount & stability: Larger, stable groups can handle variability better than very small, fluctuating teams.
Want help comparing options?
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Talk to a Specialist →FAQs
Will a level-funded plan always save money?
No. Refunds or credits depend on claims performance. The value is predictable payments with potential upside if claims are favorable.
Do self-funded plans require a minimum employee count?
There’s no hard rule, but many carriers/TPAs look for 100+ employees. Smaller groups can still explore level-funded programs.
Can we switch models later?
Yes. Many employers start fully insured, test level-funded as they grow, and move to self-funding when scale and reserves allow.
Related resources
Newsletter: Funding Models (quick read)
Short, plain-English breakdown of fully insured vs. self-funded vs. level-funded.
Read newsletter →Blog: Funding Model Comparison
High-level overview and when each model fits best.
Read article →Guide: HSA 101 (coming soon)
How HSA-compatible plans affect premiums, taxes, and care decisions.
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