Level-funded plans have moved from niche to mainstream in the small group market. KFF's 2025 Employer Health Benefits Survey found that 37% of covered workers at firms with 10 to 199 workers were in a level-funded plan. With fully insured small-group renewals rising, more clients will ask about level funding for 2027, and more existing level-funded clients will face renewal decisions.
Here's a checklist for evaluating a level-funded option, or a level-funded renewal, before you make a recommendation.
What a level-funded plan really is
A level-funded plan is a self-funded plan with a fixed monthly payment. That payment typically covers three things: administrative fees, stop-loss insurance premiums, and a claims fund. If claims come in below expectations, some arrangements return part of the surplus; if claims are high, stop-loss coverage limits the employer's exposure.
KFF highlights why that matters for the market: unlike insured small-group plans, level-funded plans use health status in rating and underwriting and aren't required to cover all of the essential health benefits that insured small-group plans must include. That's why healthier groups often see attractive level-funded quotes, and why groups with significant claims may not.
1. Read the stop-loss contract, not just the rate sheet
Key terms to review:
- Specific and aggregate attachment points. How much can a single claimant cost before stop-loss pays, and what's the employer's maximum total claims liability for the year?
- Contract basis. Which claims are covered depends on when they're incurred and paid. Look for what happens to claims incurred near the end of the year but paid afterward.
- Termination and run-out. If the employer leaves level funding, who pays claims incurred before termination but submitted afterward? Is run-out coverage included, and for how long?
- Renewal protections. Is there a cap on renewal increases? Can the carrier "laser" a high-cost claimant with a higher individual attachment point at renewal?
- Surplus terms. If there's a refund, how is it calculated, when is it paid, and is it conditioned on renewing?
2. Understand the employer's compliance duties
Because a level-funded plan is self-funded, the employer takes on obligations that a carrier would otherwise handle:
- Plan documents and SPD under ERISA, plus Summaries of Benefits and Coverage.
- Fiduciary responsibility for plan assets and claims decisions, even when a TPA administers the plan.
- PCORI fee. The employer, not the carrier, pays the fee for a self-insured plan. For plan years ending after September 30, 2025, and before October 1, 2026, it's $3.84 per covered life, filed on Form 720 by July 31 of the following year. Calendar-year 2025 plans paid it by July 31, 2026.
- ACA coverage reporting for covered individuals (Part III of Form 1095-C for ALEs, or Forms 1094-B and 1095-B for smaller employers).
- Form 5500 filing when the plan has 100 or more participants or other conditions require it.
- Prescription drug data (RxDC) reporting each June and the annual gag clause attestation, usually coordinated with the TPA and PBM.
Confirm in writing which of these the TPA or carrier handles and which remain with the employer.
3. Factor in the new PBM rules
The Consolidated Appropriations Act, 2026, signed in February, will require PBMs serving self-funded plans to provide regular reporting on drug costs, rebates, and other data, and to pass through 100% of rebates and related remuneration. Detailed reports go to plans of employers with at least 100 employees (or plans with at least 100 participants); all plans receive a summary document. Most requirements apply to later plan years, but they're worth raising now:
- Does the level-funded product bundle pharmacy with a specific PBM?
- What reporting can the PBM provide today?
- How are rebates handled in the current pricing?
4. Check how pharmacy, including GLP-1s, is covered
Pharmacy is often the fastest-growing part of claims. Ask whether GLP-1 drugs for weight loss are covered, what prior authorization applies, and how those claims count toward the stop-loss attachment points. A plan design decision made for the medical side can be undone by pharmacy trend.
5. Plan the exit before you enter
Groups that have a bad claims year may find level-funded renewals unaffordable. Small groups can generally return to the ACA-rated fully insured market, where health status isn't used in rating. Before recommending level funding, make sure the client understands:
- What a bad year would mean for their renewal.
- What run-out liability they'd have if they leave.
- What their alternatives would be, including fully insured plans and, for some workforces, an ICHRA.
6. Keep an eye on federal legislation
H.R. 6703, which the House passed in December 2025, includes a section that would clarify that stop-loss policies purchased by self-insured plans aren't health insurance coverage under ERISA and would preempt state laws that prevent plans from insuring against excess claims. Some states currently regulate stop-loss sold to small employers. As of this writing, the bill hasn't advanced in the Senate, so state rules continue to apply.
The takeaway
Level funding can be a smart choice for the right group, offering lower costs and potential surplus refunds. It also shifts risk and compliance responsibility to the employer. A thorough review of the stop-loss contract, compliance duties, pharmacy terms, and exit options is what separates a good recommendation from a renewal surprise next year.