Most small businesses are quoted a "fully-insured" health plan by default, but "level-funded" is the option that reps increasingly pitch as a way to save money — and the two work very differently under the hood. The difference comes down to who holds the claims risk, whether you can ever get money back, and how much of the year's cost is actually fixed. This guide explains both, plus the PEO master-policy route that's a third path entirely.
This is an independent guide from QuoteSweep, which maps the modern commercial insurance landscape.
TL;DR: A fully-insured plan is the traditional model — you pay a fixed premium and the carrier absorbs all claims risk, keeping any surplus. A level-funded plan lets you self-fund claims up to a set cap, buys stop-loss insurance to cap your downside, and charges a steady monthly amount that can pay back a refund if claims run low. A PEO master policy is a different approach again: it pools many small employers into one large group. Level-funded rewards healthier, stable groups; fully-insured trades upside for predictability.
What is level-funded vs fully-insured?
These are two ways to fund an employer health plan — the coverage employees see can look nearly identical, but the money mechanics behind it are different.
A fully-insured plan is the model most people picture. You pay a carrier a fixed monthly premium per enrolled employee. The carrier takes on 100% of the claims risk: if your team has a costly year, that's the carrier's problem; if claims come in low, the carrier keeps the surplus. Your only real variable is next year's renewal, which the carrier re-rates based on the pool and, in some markets, your group's experience.
A level-funded plan sits between fully-insured and full self-funding. The employer technically self-funds its own claims, but pays a level (steady, predictable) monthly amount made up of three parts: an expected-claims fund, an administrative fee, and a stop-loss insurance premium that caps how much the employer can ever owe. Because the employer holds the claims risk up to that cap, a good claims year can end in a refund of the unused claims fund — something fully-insured plans don't offer. A bad year is limited by the stop-loss coverage, so the monthly bill stays flat regardless.
A third route worth naming is the PEO master policy. Instead of your business buying its own plan, a Professional Employer Organization pools many small employers together and offers coverage through one large-group contract with a major carrier. That's neither level-funded nor fully-insured in the single-employer sense — it's a way for a tiny company to buy group medical at large-group scale.
How it works
Fully-insured, step by step:
- The carrier rates your group and quotes a fixed monthly premium.
- You pay that premium; the carrier pays all covered claims.
- Low-claims year → the carrier keeps the surplus. High-claims year → the carrier eats the loss.
- At renewal, the carrier re-rates and you get a new premium.
Level-funded, step by step:
- The plan sets an expected monthly amount covering (a) a claims fund, (b) admin, and (c) stop-loss premium.
- You pay that same level amount every month, so cash flow is predictable.
- Claims are paid from your funded account; stop-loss insurance covers claims above the cap (both per-person and aggregate).
- If actual claims come in below the funded amount, you may receive a refund of the surplus at year-end. If they run high, stop-loss absorbs the excess and your monthly cost is unchanged.
PEO master policy, step by step: you join the PEO's co-employment arrangement, your workers are pooled into its large-group plan, and you pay a per-employee rate that bundles the coverage with payroll and HR. The claims risk sits with the master policy's carrier, not your business.
Key considerations
Where level-funded wins:
- Potential refunds. A healthy, stable group can get money back in a low-claims year — impossible under fully-insured.
- Cost transparency. You see the claims, admin, and stop-loss components broken out.
- Predictable monthly outlay. Stop-loss caps the downside, so the bill stays level even in a bad year.
Where level-funded has trade-offs:
- Underwriting matters more. Insurers often ask for a health questionnaire or a member-level census, and the model rewards healthier groups. A higher-risk group may be quoted less favorably or not at all.
- More moving parts. You're technically self-funded, which means claims administration, stop-loss, and reconciliation — more to understand than a single premium.
- Refunds aren't guaranteed. A high-claims year returns nothing; you just don't pay above the cap.
Where fully-insured wins: total simplicity and zero surprises. You pay one premium, the carrier owns all risk, and you never reconcile claims or chase a refund. The cost is that you never share in a good year.
Where a PEO master policy fits: it's less about level-vs-fully-insured and more about access — a very small employer getting large-group coverage it couldn't buy alone, bundled with payroll and HR. The trade-off is co-employment and less plan-design flexibility than picking your own funding structure. (For the individual-coverage alternative, see PEO vs ICHRA.)
A practical rule of thumb: fully-insured trades upside for predictability, level-funded trades a little complexity for the chance to save on a healthy group, and a PEO master policy trades flexibility for access and bundled administration.
| Fully-insured | Level-funded | PEO master policy | |
|---|---|---|---|
| Who holds claims risk | Carrier | Employer (up to stop-loss cap) | Master-policy carrier |
| Monthly cost | Fixed premium | Level payment (claims fund + admin + stop-loss) | Per-employee rate, bundled |
| Refund possible? | No | Yes, in a low-claims year | No |
| Underwriting | Group/pool rated | Often census or health questionnaire | Pooled large-group |
| Best for | Zero-surprise simplicity | Healthier, stable groups | Very small employers needing group access |
Who offers it
Several modern small-business platforms are built on the level-funded model — the coverage looks like a normal plan, but the funding mechanics above are what's underneath:
- Gravie — its Comfort plan is a level-funded health plan that, per Gravie, covers most common care at $0 to members. Gravie also offers an ICHRA as a separate, reimbursement-based route.
- Sana Benefits — an all-in-one level-funded plan with built-in virtual-first primary care at $0 to members and transparent pricing that can return a refund. Sana notes availability in a limited set of states.
- Angle Health — an AI-native level-funded plan that leans on payroll/HRIS integrations and quotes from a member-level census.
For the PEO master-policy route:
- Justworks — a Professional Employer Organization that delivers large-group health via a master policy with carriers like Aetna and UnitedHealthcare, bundled with payroll, HR, and compliance, so a small employer can access group medical it couldn't get alone.
Compare all of these side by side on the health & benefits insurtech hub. Note that the level-funded plans don't publish flat rates — pricing depends on your group, census, and plan design, so you'll need a quote for your own team. Justworks is the exception among these: as a PEO it publishes flat per-employee pricing, though the large-group health inside it still rides on carrier underwriting.
Frequently Asked Questions
Is a level-funded plan cheaper than fully-insured?
It can be, for a healthy, stable group — because you keep the upside if claims run low, potentially as a year-end refund. But it's not automatically cheaper, and a high-claims group may be quoted less favorably. The only way to know is to compare quotes for your own census.
Can I actually get money back with a level-funded plan?
Yes — that's the defining feature. If your funded claims account isn't fully spent, the surplus can be refunded at year-end. A fully-insured plan never refunds a good year; the carrier keeps the surplus. In a bad year, level-funded doesn't refund, but stop-loss caps what you owe.
What is stop-loss insurance?
It's the insurance inside a level-funded plan that caps the employer's exposure — both per individual (specific stop-loss) and across the whole group (aggregate stop-loss). It's what keeps your monthly cost level even when claims spike.
How is a PEO master policy different from either one?
A PEO pools many small employers into one large-group contract, so the claims risk sits with the master-policy carrier rather than your business. It's about access to group coverage and bundled payroll/HR — a separate decision from choosing between fully-insured and level-funded funding. See Justworks and PEO vs ICHRA.
The bottom line
Fully-insured and level-funded plans can look identical to employees, but they split the claims risk very differently: fully-insured hands it all to the carrier for a fixed premium and no refunds, while level-funded lets you self-fund up to a stop-loss cap and share in a low-claims year. A PEO master policy is a third path — pooling small employers for large-group access. Healthier, stable groups often lean level-funded for the upside; those who want zero surprises stay fully-insured. Because pricing depends entirely on your group, compare quotes from the modern platforms — Gravie, Sana, and Angle Health for level-funded, or Justworks for the PEO route — on the health & benefits insurtech hub.
