For many growing companies, health insurance decisions start to feel repetitive. Each year brings a renewal, premiums increase, and leadership is left trying to decide whether to absorb the cost, shift more to employees, or shop carriers again.
At a certain stage of growth, usually once a company reaches a few dozen employees or more, employers begin to realize that the issue is not just price. It is structure.
Understanding the difference between fully insured vs level funded health plans helps employers move from reacting to renewals toward building a benefits strategy that actually supports growth.
Most businesses begin with a fully insured health plan because it is familiar and easy to implement. There is a single monthly premium, the carrier takes on the risk, and administration is relatively straightforward.
Over time, however, a few patterns emerge. Employee counts increase, claims history becomes more predictable, and renewal increases start to feel disconnected from the company’s actual performance. Leadership teams begin asking whether they are paying for risk they are not actually experiencing.
This is often the moment when employers start comparing fully insured plans with level funded alternatives.
With a fully insured health plan, the employer pays a fixed monthly premium to an insurance carrier. That premium is designed to cover all expected claims, administrative costs, and the carrier’s margin.
The carrier assumes all financial risk. If claims are higher than expected, the employer’s costs do not change midyear. If claims are lower than expected, the employer does not typically benefit from that performance.
For many companies, this predictability is reassuring. Fully insured plans can be a good fit for smaller groups, newer businesses, or employers who want to avoid variability.
The tradeoff is limited transparency. Employers rarely see detailed claims data, and renewal increases may feel arbitrary even in years when the group performs well.
Level funded health plans take a different approach. Instead of paying a single premium to a carrier, employers fund expected claims and administrative costs while purchasing stop loss insurance to protect against large or unexpected claims.
Monthly payments remain predictable, which helps with budgeting. The difference is that employers gain more insight into how claims are actually performing throughout the year.
If claims are lower than expected, there may be an opportunity for savings depending on the plan design. If claims exceed expectations, stop loss coverage limits the employer’s exposure.
This structure appeals to many growing companies because it creates a balance between stability and control.
When comparing fully insured and level funded plans, the conversation is often framed around risk. In reality, the decision is just as much about transparency and control.
Fully insured plans prioritize simplicity and risk transfer. Employers pay for certainty but give up visibility into what drives their costs.
Level funded plans introduce shared responsibility. Employers gain access to claims data, insights into utilization trends, and more opportunities to adjust plan design over time.
Neither option is inherently better. The right choice depends on a company’s size, financial comfort level, workforce stability, and long term goals.
Level funded plans are not appropriate for every organization, but they tend to work well for companies that have reached a certain level of maturity.
Employers who often explore level funding include those who:
A thoughtful evaluation helps determine whether level funding aligns with the company’s risk tolerance and objectives.
One of the most common mistakes employers make is assuming that switching plan types will automatically fix rising costs. In practice, plan structure is only one piece of the puzzle.
Contribution strategy, plan design, employee education, and ongoing management all play a role in how successful a benefits program becomes. Without these elements, even a well structured plan can underperform.
This is why working with a benefits partner who understands strategy, not just insurance products, is so important as companies grow.
Palmetto Insurance Group works with growing companies across South Carolina, North Carolina, Georgia, and nationwide to help them evaluate whether fully insured or level funded health plans are the right fit.
Rather than leading with a recommendation, Palmetto starts with education. Employers are guided through how each option works, what the tradeoffs are, and how different strategies impact long term outcomes.
For companies facing renewal increases or questioning whether their current plan still supports their goals, a strategic review can provide clarity and confidence.To start that conversation, visit
https://palmettoinsurancegroup.com/contact/