Three sentences, three models. Fully-insured: the carrier owns the claims risk and the employer pays a premium. Level-funded: a fixed monthly payment that bundles a claims fund, stop-loss insurance, and admin fees, with a possible year-end refund, usually for healthier small groups. Self-funded: the employer pays claims directly through a third-party administrator with separate stop-loss insurance, usually for large employers, and the monthly cost varies with claims.
This guide explains each in plain English and shows who they fit. For a deeper dive on level-funded specifically, see our Level-Funded Health Plans Explained for Small Employers.
Last updated: June 2026.
Key takeaways
- Fully insured plans hand the claims risk to the carrier in exchange for a fixed monthly premium.
- Level-funded plans bundle a claims fund, administration, and stop-loss insurance into a fixed monthly payment, with possible refund if claims run low.
- Self-funded plans pay actual claims plus administration, usually with stop-loss insurance, and offer the most control with the least cost predictability.
- Level-funded usually fits healthy small to midsize groups; self-funded historically fits midsize to large groups but is increasingly used by smaller groups too.
Fully insured vs level-funded vs self-funded at a glance
| Feature | Fully insured | Level-funded | Self-funded |
|---|---|---|---|
| How you pay | A fixed monthly premium to the carrier | A fixed monthly payment split into claims fund, administration, and stop-loss | The employer pays actual claims plus administration |
| Who bears claims risk | The carrier | The employer up to the stop-loss limit, then the stop-loss insurer | The employer up to the stop-loss limit, if stop-loss is purchased |
| Refund if claims run low | None | Possible refund or credit | The employer keeps unused claims dollars |
| Cost predictability | The most predictable | Mostly predictable with some upside | The least predictable |
| Typical employer size | Any size | Small to midsize | Midsize to large, though smaller groups use it too |
| Administrative load | The lowest | Moderate, with more claims data | The highest |
| Best fit | Employers who want simplicity | Healthy groups that want savings potential with a cap | Employers who want maximum control |
Fully-Insured
The employer pays a monthly premium to the carrier. The carrier collects the premiums, pays the claims, and keeps any surplus. If claims spike, the carrier eats it that year and reprices the group at renewal. The employer's only job is to pay the premium and offer the plan. This is the simplest model and the default for most small employers.
Level-Funded
The employer pays a fixed monthly amount that bundles three things into one payment: an estimated claims fund, stop-loss insurance to cap catastrophic claims, and the carrier's admin fees. If actual claims come in below the estimate, the carrier may refund the surplus at the end of the plan year. If claims spike, stop-loss covers the overage and the employer's monthly payment did not change. Level-funded is technically a self-funded plan, but the carrier smooths the monthly cost and packages stop-loss into one product so the cash flow behaves like a premium.
Self-Funded
The employer hires a third-party administrator (TPA) to process claims and rents a provider network. The employer pays each claim as it comes in, plus the TPA fee. The employer also buys stop-loss insurance separately to cap exposure on any single claim and on total annual claims. Monthly cost moves with claims volume. This model is typically used by large employers with the scale and cash flow to absorb that variability, in exchange for full control over plan design and access to detailed claims data.
Side-by-Side Comparison
| Feature | Fully-Insured | Level-Funded | Self-Funded |
|---|---|---|---|
| Who owns the claims risk | Carrier | Employer (stop-loss caps downside) | Employer (stop-loss caps catastrophic claims) |
| Cost predictability | Premium fixed within plan year | Fixed monthly payment | Variable monthly cost |
| Year-end refund possible | No | Yes, if claims are low | Employer keeps unused claims dollars by definition |
| Underwriting | Community-rated for small groups in many states | Medically underwritten on the group | Underwriting on the stop-loss policy |
| Best group size | Any | Roughly 10 to 100 enrolled lives | Generally larger employers |
| Exposure to state mandates | Subject to state insurance mandates | Federally regulated (ERISA), often fewer state mandates | Federally regulated (ERISA), often fewer state mandates |
| Claims data and reporting | Limited | Detailed | Full |
Who Each Model Fits
- Fully-insured: small employers who want simplicity and predictable cost, mixed-health groups, employers who do not want to think about claims risk.
- Level-funded: healthier small and mid-size groups (roughly 10 to 100 enrolled lives) that want predictable monthly cost with the upside of a refund if claims are low.
- Self-funded: larger employers with the cash flow and scale to handle variable monthly claims, who want full plan-design control and detailed claims data.
If you are weighing one of these against an HRA approach instead, start with QSEHRA vs ICHRA or the broader pillar: Group Health Insurance Alternatives for Small Businesses.
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Frequently Asked Questions
What is the difference between fully-insured, level-funded, and self-funded?
Fully-insured: the carrier owns the risk and the employer pays a premium. Level-funded: a fixed monthly payment that bundles a claims fund, stop-loss, and admin fees, with a possible refund if claims are low. Self-funded: the employer pays claims directly with a TPA and separate stop-loss, and monthly cost varies with claims.
Who carries the claims risk in each model?
Fully-insured: the carrier. Level-funded: the employer, with stop-loss capping the downside. Self-funded: the employer, with stop-loss covering catastrophic claims.
Which model has the most predictable monthly cost?
Fully-insured and level-funded both have a fixed monthly payment within the plan year. True self-funded plans have variable monthly costs.
Can the employer get money back at year-end?
Fully-insured: no. Level-funded: yes, if claims are low. Self-funded: the employer keeps any unused claims dollars by definition.
What group size fits each model?
Fully-insured works at any size. Level-funded usually fits small and mid-size groups with at least 10 to 15 enrolled lives. Self-funded is typically used by larger employers.
How does ERISA affect self-funded and level-funded plans?
Self-funded plans (including level-funded) are governed primarily by federal ERISA rules and can be exempt from many state insurance mandates.
Is level-funded the same as self-funded?
Level-funded is a small-employer subtype of self-funded with bundled stop-loss and a fixed monthly payment.
Want help choosing a funding model for your group? I'm a licensed independent agent based in Omaha. I can quote fully-insured and level-funded options side by side and explain when self-funded actually makes sense. Free consultation, no obligation, no pressure.
Book a free consultation with Nick Depke or call (402) 680-6171.