Level funding

Level funding (also called alternate funding) is a group health insurance product available to employers. It behaves just like a fully-insured product, and allows some groups to get coverage at more competitive rates than traditional ACA (opens in new tab) plans.

How does level funding work? An employer pays a set monthly premium into an account. This premium money is then used to pay claims for employee health care. If there’s any money left in the account at the end of the plan year, it goes back to the employer. If employee claims spending exceeds the funds in the account, the health insurer covers the difference.

Level funding has three financial components under the hood funded by monthly payments:

• A claims fund: A pool of money pre-funded by the employer to cover claims cost.
• Reinsurance: Monthly premiums the employer pays to protect itself against high claims from individual employees and the entire group.
• Administrative fees: Costs the employer pays to the health insurer for being a plan administrator.