For small to mid-sized companies looking to control costs and provide high-quality health care to employees, level-funded plans are an off-the-shelf solution that offers savings and other benefits. However, not all level-funded plans are created equal — so it's important to understand the plan specifics and ask the right questions before signing the dotted line.

In essence, a level-funded health plan is a hybrid between a traditional fully insured plan and a self-funded plan. With level-funded plans, employers benefit from the predictability of a monthly payment — similar to fully insured plans — with the added opportunity to achieve savings found in self-funded plans. For some employers, this is a win/win that offers control, flexibility and savings — as well as access to data that can help them make informed decisions about their benefit plans.

Why are level-funded plans desirable?

Cost-savings. Level-funded plans allow employers to contribute fixed monthly costs that are based on the number of participating employees, which provides financial stability while covering claims and administrative fees. However, the employer may receive a refund if actual claims incurred are lower than expected, rather than paying a set premium for every employee at the organization under a fully insured arrangement. What's more, a strong level-funding program from a reputable third-party administrator (TPA) should offer access to pharmacy rebates passed onto the employer. Having access to this extra savings is a significant advantage for employers — especially for smaller companies (around 25-150 employees), which may not have the cash flow of a larger organization.