Look at your current health plan. How did you end up with that structure? Was it because you did thorough research, compared options, understood the trade-offs, and made a deliberate call? Or was it because a rushed broker handed you that and told you it was what you needed? For far too many employers, it’s the latter. The plan gets renewed, the structure stays the same, and nobody asks whether it still makes sense.
There are three ways to structure employer-sponsored health coverage. Here’s what all three look like and how to figure out which one your organization should use.
The 3 Structures
- Fully insured is the traditional model and still the most common. You pay a fixed monthly premium to a carrier, the carrier pays your employees’ claims, and the pricing logic stays hidden behind the carrier’s wall.
If your workforce stays healthy and claims run low, the carrier keeps the savings. If claims run high, the carrier absorbs the cost. You pay the same either way. The upside is predictability. The downside is that you’re permanently paying for certainty you may not need, with no visibility into whether you’re getting fair value for the premium. - A level-funded health plan sits between fully insured and self-funded. You still pay a fixed monthly amount, but that payment is structured differently: a projected claims fund, a stop-loss premium, and admin fees.
The claims fund belongs to you, not the carrier. Your actual claims are tracked throughout the year, and when they come in below projections, unused funds come back to you. When claims spike, stop-loss coverage absorbs the overrun. You also get access to your own claims data, which changes how you can approach renewal. - Self-funded health insurance is the fully employer-driven model. There’s no fixed premium paid to a carrier. As the employer, you fund claims directly as they come in, with stop-loss coverage capping catastrophic exposure. This means maximum control over plan design, maximum access to data, and maximum financial upside when claims run well. The trade-off is more risk, more operational complexity, and more active management required.
The Core Trade-Off
Every health plan structure comes down to two questions: who holds the financial risk, and who keeps the upside when that risk pays off.
With a fully insured plan, the carrier holds both the risk and the upside. You pay a fixed premium, and they manage everything behind it. If claims run low, whatever’s left stays with them. If it’s an expensive year, they eat that cost.
With a self-funded plan, the employer holds both. When claims run high, you absorb more of the cost. When your team stays healthy, the savings stay in your fund.
Look at fully insured vs. self-funded health plans, and you see opposite ends of that spectrum. Level-funded splits the arrangement: the monthly payment is fixed like fully insured, but the claims fund belongs to you, not the carrier.
The right position on that spectrum depends on how much risk your organization can absorb and how much control you want over the outcomes. Those two things determine where you belong.
How the 3 Plans Compare Where It Matters
Fully insured plans win on payment predictability. The monthly number is fixed and doesn’t move regardless of what claims do. But that certainty comes at a cost: no visibility into what’s driving your spend, no financial upside when employees stay healthy, and no ability to make strategic decisions at renewal because the data stays with the carrier.
Level-funded and self-funded plans flip that dynamic. Both give you access to your own claims data, which is the starting point for any real cost-management strategy. Both have a mechanism for the employer to capture financial upside when claims run well. The key difference between them is how much risk you’re holding and how actively you need to manage the plan.
Employee experience can be strong across all three structures. The differences show up in plan design flexibility.
Self-funded plans allow the most customization. You control what benefits are included, how they’re structured, and which network you use. Fully insured plans are the most constrained. You have very little say in what the plan looks like or how it’s run, but you have budget predictability thanks to the set premium. Level-funded sits between them.
Administrative complexity follows the same trajectory: the more control you want, the more operational lift the plan requires.
Different Fits for Different Priorities
Fully insured plans still make sense for very small employers (under 25 employees) who need clean administration and genuine cost predictability. They’re also a reasonable starting point for employers who haven’t built the infrastructure to manage a more complex plan. What they aren’t is a permanent home for growing companies that keep paying for certainty and getting nothing back for it.
The first real decision point for employers in the 25 to 100 employee range is whether to go with level-funded or fully insured. Level-funded gives you a path to cost savings, claims data, and a refund mechanism without the full complexity of self-funding. For employers on fully insured plans who want to start getting more from their benefits spend without taking on full self-funded exposure, that’s often the most practical next step.
Self-funded plans are best suited for employers with 100 or more employees who have an experienced third-party administrator (TPA), active plan management, and the infrastructure to support the model. The savings potential is real. So is the operational load. Employers who treat self-funding as a cost-cutting shortcut, without considering the downsides, tend to create the problems that send them back to fully insured.
The Direction Most Employers Are Moving
More employers are shifting away from fully insured plans, and the reasons are consistent: rising premiums, no claims data, no financial upside, and a carrier relationship that benefits the carrier more than the employer.
Level-funded plans have become the most common entry point for employers who want to change that dynamic without making a dramatic leap. Self-funded plans are the next layer for employers who’ve built the foundation to support them.
The right move isn’t always the most sophisticated option. A poorly managed self-funded plan creates more problems than a well-run level-funded one. And a well-run fully insured plan is still the right answer for some employers at some stages. The mistake is staying on a structure that no longer fits because nobody put another option in front of you.
The Plan Structure That Actually Fits Your Business
These three models represent three different philosophies about who should hold healthcare risk and who should benefit when that risk pays off. Choosing between them should be a strategic decision, not a default.
At The Benefit Doctor, we help employers figure out where they actually sit on that spectrum and which structure makes sense for their size, their workforce, and their appetite for managing complexity.