Fully Insured vs. Self-Insured vs. Level Funded Plans: What’s the Difference?

When choosing a health insurance strategy for your business, especially if you’re a small employer, the terms fully insured, self-insured, and level funded might sound like confusing jargon. But understanding the differences could make a big impact on your bottom line—and your employees’ satisfaction.

At Altura Benefits, we specialize in helping small businesses navigate these choices with clarity and confidence. Here’s a breakdown of the three main funding arrangements, what they mean for your business, and how to know which one might be right for you.

What it is:

This is the traditional, most common type of health insurance. You pay a fixed monthly premium to an insurance carrier, and they take on the full risk of your group’s healthcare claims. Regardless of whether your employees use a lot of healthcare services or very little, your cost remains the same.

How it works:

• You select a plan from a carrier.
• Pay a fixed premium every month.
• The insurance company handles all claims and administration.
• Your costs are predictable, but there’s no refund if your group has a healthy year.

Best for:

Small businesses that want simplicity, predictability, and minimal financial risk.

What to know:

Fully insured plans in the small group market (under 50 employees in Utah) are governed by the Affordable Care Act (ACA). This means insurance companies cannot underwrite your group based on health status—so a healthy team gets the same rate as a high risk one. That’s great for protecting those with health challenges, but it also means less pricing flexibility for healthier groups.

What it is:

With self insurance, your business pays for employees’ healthcare claims directly, rather than paying fixed premiums to an insurance carrier. You’re essentially acting as your own insurer—with the potential for big savings or big risks.

How it works:

• You fund your employees’ medical claims as they arise.
• You purchase stop-loss insurance to protect against unexpectedly high claims.
• You only pay for the care your team actually uses—no more, no less.
• If claims are low, you keep all the savings. If claims are high, you bear the cost (up to the stop-loss limit).

Best for:

Larger or financially stable small businesses that want more control and are comfortable taking on more risk in exchange for potential reward.

What to know:

You’ll need to manage cash flow carefully and will likely need third-party administrators (TPAs) to handle claims processing. In a bad year, your total cost could exceed what you’d pay in a fully insured plan—but in a good year, you could save significantly.

What it is:

Level funded plans are a hybrid between fully insured and self-insured plans. They offer the predictability of a fixed monthly cost and the potential for savings if your employees use less healthcare than expected.

How it works:

• You pay a flat monthly amount that covers:
  • Expected claims funding (based on underwriting),
  • Stop-loss insurance,
  • Admin costs.
• If claims are low at the end of the year, you get a refund from some of the unused funds.
• If claims are high, the stop-loss insurance protects you from major overages.

Best for:

Smaller employers who want a balance between risk and reward—and who have relatively healthy employee groups.

What to know:

Unlike ACA plans, level funded plans allow for medical underwriting. That means insurers can offer lower premiums to healthier groups. This can lead to big savings—but it also risks destabilizing the ACA market by moving healthy groups out, leaving behind a pool of higher-risk individuals.

As a broker, we’re mindful of both the financial opportunities and the ethical implications. Our goal is always to get our clients the best possible rates while supporting a sustainable healthcare ecosystem.

If your group is relatively healthy and your level funded quote is similar to your fully insured option, we typically lean toward level funded. You get claims transparency, the possibility of a refund, and access to custom insights that help you manage costs long term.

That said, there’s no one-size-fits-all answer. Choosing the right funding model depends on your budget, risk tolerance, and goals. That’s where we come in.

Altura Benefits can explain your choices of health insurance plans in an easy-to-understand manner, and guide you in the process of choosing the right plan for your company. Our expert staff has decades of experience in employee benefits solutions, and our insights will help you find the best possible solution for your coverage needs. Choosing the right plan is complicated, but Altura can make this process simple and give you confidence in selecting the perfect plan for your team.

For more information on our services, call 801-263-2900 or fill out this convenient contact form. Altura’s dedicated and enthusiastic team will gladly answer any/all of your health insurance questions. Let’s get started!