Level-Funded vs. Self-Funded Under 100 Employees

Washington State health insurance renewals are climbing by an average of 21.2%. For a small business, that’s not just a number—it’s a direct hit to your bottom line. You’re already ahead of the curve by comparing level funded vs self funded plans instead of just accepting another massive rate hike. Both offer a way to control costs, but they aren’t the same. The real question is, which health plan type works better for under 100 employees level funded or self funded? Let’s break down the differences so you can find the best option for saving on healthcare costs.

This guide breaks down how each funding model works, what they cost, and how to decide which one is the right fit for your Washington business. Whether you lead a 25-person firm or a 300-employee organization, the funding strategy you choose can mean the difference between a predictable budget and tens of thousands in unexpected costs.

Get a free comparison of self-funded and level-funded options for your business.

Why Washington Businesses Are Looking Beyond Traditional Plans

For years, the routine for many Washington businesses has been the same: sign up for a traditional, fully-insured health plan, pay the monthly premium, and brace for the renewal increase. But with costs climbing relentlessly, that model is becoming unsustainable. Business leaders are tired of feeling powerless, forced to either absorb massive price hikes or reduce benefits for their teams. This frustration is driving a major shift toward alternative funding models that offer what traditional plans can’t: cost control, transparency, and flexibility. It’s no longer just about finding a plan; it’s about finding a financial strategy that supports both your company’s health and your bottom line.

The Rise of Alternative Funding

As the costs of fully-insured plans continue to climb, many employers are exploring level-funded and self-funded plans as practical alternatives. These aren’t just buzzwords; they represent a fundamental change in how you can pay for your team’s healthcare. Level-funded plans, for example, provide predictable monthly costs similar to a traditional plan but with a key difference: if your employees’ claims are lower than expected, you can get a portion of that unused money back. It introduces a potential for savings that simply doesn’t exist with a fully-insured plan. Self-funding offers even more control and potential savings, but it also comes with more financial risk, making it a better fit for companies that have a good handle on their team’s health trends.

Why Great Benefits Matter More Than Ever

This move toward alternative funding isn’t just a cost-cutting measure; it’s a strategic decision to reinvest in your people. In a competitive job market, offering a robust benefits package is essential for attracting and retaining top talent. The flexibility of level-funded and self-funded plans allows you to design benefits that truly meet your employees’ needs, rather than being stuck with a one-size-fits-all package. For companies considering self-funding, stop-loss insurance acts as a crucial safety net that protects against unexpectedly high claims, making it a much more secure option. Choosing the right strategy requires expert, unbiased advice to balance cost, risk, and employee needs, turning your benefits plan from a necessary expense into a powerful tool for building a loyal and healthy team.

What Is a Self-Funded Health Plan?

A self-funded (or self-insured) health plan is an arrangement where your company pays employee health claims directly instead of paying fixed premiums to an insurance carrier. You assume the financial risk for your employees’ healthcare costs, but you also keep the savings when claims come in lower than expected.

How Does a Self-Funded Plan Actually Work?

Under a self-funded plan, your company sets aside funds each month to cover anticipated claims. A third-party administrator (TPA) handles claims processing, network access, and plan administration. To protect against catastrophic claims, you purchase stop-loss insurance with two layers of coverage:

Specific stop-loss: Caps the maximum your company pays for any single employee’s claims in a year (typically $50,000 to $150,000 per person)
Aggregate stop-loss: Caps total claims for your entire group, usually at 125% of expected claims

The result is that your company pays actual healthcare costs rather than inflated premiums that include carrier profit margins, premium taxes, and risk loading. When your team is healthy and claims run below projections, your company keeps the surplus.

What Can You Expect to Pay with Self-Funding?

Self-funded plans eliminate several embedded costs that fully insured plans carry. Here is where the savings come from:

No premium tax: Fully insured plans include a 2-3% state premium tax. For a company spending $800,000 annually, that is $16,000 to $24,000 eliminated immediately.
No carrier profit margin: Insurance companies build 3-8% profit margins into premiums. Self-funding removes that layer entirely.
No risk loading: Carriers price conservatively to protect against bad years. Self-funded plans let you pay based on your own claims experience.
Transparent pharmacy costs: Pairing self-funding with a transparent pharmacy benefit manager eliminates hidden PBM spreads that typically add 15-25% to pharmacy spend.

In total, Washington businesses that move from fully insured to self-funded plans typically see 20-35% cost reductions in their first year.

Potential Tax Advantages of Self-Funding

Beyond the direct savings on carrier profits, self-funding offers significant tax benefits. The most immediate win is the elimination of the state premium tax. Fully insured plans in Washington include a 2-3% tax on every premium dollar you pay. By switching to a self-funded model, you sidestep this tax entirely. For a company spending $800,000 a year on premiums, that’s an instant savings of $16,000 to $24,000. This is possible because self-funded plans are governed by federal ERISA law, not state insurance mandates, which removes this tax obligation and gives you more freedom in plan design.

This federal oversight also creates other financial advantages. Since your company pays for claims directly rather than through fixed premiums, these funds may be treated differently for tax purposes, potentially reducing your overall payroll tax burden. While the specifics depend on your company’s structure, exploring these tax efficiencies is a key part of the process when you’re getting started with a self-funded plan. It’s another way you can redirect dollars that were going to taxes and carrier overhead back into your business or your employees’ benefits, helping you build a more sustainable and predictable healthcare strategy.

What Is a Level-Funded Health Plan?

A level-funded health plan is a hybrid model that blends elements of both fully insured and self-funded plans. You pay a fixed monthly amount (like a fully insured plan), but your payment is divided into three distinct buckets: administrative costs, stop-loss premiums, and a claims fund. If your employees’ actual claims come in below the funded amount, you receive a refund of the surplus.

How Does a Level-Funded Plan Actually Work?

Each month, your company pays a set per-employee amount to the carrier or TPA. That payment breaks down like this:

Administrative fees: Covers claims processing, network access, compliance support, and plan management
Stop-loss premium: Provides both specific and aggregate stop-loss protection, capping your maximum financial exposure
Claims fund: The largest portion, set aside to pay actual employee health claims throughout the year

At year-end, the carrier compares actual claims against the claims fund. If claims were lower than projected, you get money back. If claims exceed the fund, the stop-loss coverage absorbs the overage. Your monthly payments never increase mid-year regardless of claims activity.

The Role of an Administrative Services Only (ASO) Contract

Both self-funded and level-funded plans rely on an outside expert to handle the day-to-day management, which is formalized through an Administrative Services Only (ASO) contract. This agreement brings in a Third-Party Administrator (TPA) to manage essential functions like processing employee claims, providing access to doctor and hospital networks, and ensuring the plan stays compliant with regulations. For you, the business owner or HR leader, this is a huge advantage. It means you get the cost-saving benefits of an alternative funding model without having to become a health insurance expert yourself. Instead of building an internal department to handle claims, you have a dedicated partner managing the complex administrative work, freeing you up to focus on your business.

What Can You Expect to Pay with Level-Funding?

Level-funded plans deliver meaningful savings over fully insured options while limiting your downside risk. According to recent industry data, employers on level-funded plans pay 15-25% less than comparable fully insured plans, with UnitedHealthcare reporting that plan sponsors pay 19% less on average under their level-funded products.

The adoption trend tells the story: among small firms with 3-199 employees, enrollment in level-funded plans surged from 7% in 2019 to 38% in 2023, according to the Kaiser Family Foundation. Washington businesses have been part of that shift, driven by the same cost pressures affecting employers nationwide.

Drawbacks and Limitations of Level-Funding

While level-funded plans offer a great middle ground, they do come with some trade-offs. For one, they aren’t as flexible as a true self-funded plan. You’re essentially choosing from a carrier’s pre-set options, which means less ability to customize the plan design to fit your team’s specific needs. Eligibility can also be a hurdle, as carriers often have participation requirements. Because these plans fall under federal ERISA rules rather than all state insurance mandates, you might find fewer coverage options compared to a fully insured plan. The biggest thing to watch is the renewal. If your group has a high-claims year, your fixed monthly payments for the following year could see a significant jump, as the carrier will adjust your rates based on that new claims data. This is why it’s so important to work with a broker who can analyze your group’s health and forecast potential risks before you commit.

Self-Funded vs. Level-Funded: Which Saves More Money?

The table below compares the key differences between self-funded and level-funded health plans for Washington businesses:

Feature	Self-Funded	Level-Funded
Monthly costs	Variable based on actual claims	Fixed monthly payments
Savings potential	20-35% vs fully insured	15-25% vs fully insured
Financial risk	Higher (mitigated by stop-loss)	Lower (built-in stop-loss)
Cash flow predictability	Less predictable month-to-month	Fully predictable
Claims data access	Full transparency	Moderate transparency
Plan customization	Highly customizable	Some customization available
Surplus refund	You keep all surplus	Partial refund if claims are low
Ideal company size	50-300+ employees	20-100 employees
Administrative burden	Higher (TPA management required)	Lower (carrier handles most admin)
State premium tax	Exempt (ERISA-governed)	Varies by state and structure

Understanding the Regulatory Landscape: ERISA vs. State Law

One of the most significant differences between these two funding models comes down to regulation. Self-funded plans are governed by a federal law known as the Employee Retirement Income Security Act (ERISA), which means they are exempt from most state insurance laws and mandates. This gives you greater flexibility to design a plan that fits your specific workforce without being required to cover certain state-mandated benefits. Level-funded plans, on the other hand, typically fall under Washington state insurance rules, much like traditional plans. While ERISA compliance can seem complex, it’s also the source of major cost savings and customization, which is why many businesses work with an expert broker to manage the details.

Re-evaluating Risk: The Role of Stop-Loss Insurance

Stop-loss insurance is the financial safety net that makes both self-funded and level-funded plans viable for most businesses. It’s not health insurance for your employees; it’s insurance for your company that protects you from catastrophic claims. There are two layers of protection. Specific stop-loss caps the amount your company has to pay for any single employee’s medical bills in a year. Aggregate stop-loss protects your overall budget by capping the total claims for your entire group. This protection is what provides budget certainty and prevents a few high-cost claims from derailing your finances, making it a critical component for both small and large businesses.

Which Funding Model Fits Your Washington Business?

The right choice depends on your company’s size, financial stability, risk tolerance, and how much control you want over your benefits program. Here is how to think about each option based on your situation.

When to Choose a Self-Funded Plan

50 or more employees: Larger groups create a more predictable risk pool. With 50+ employees, your claims experience becomes statistically meaningful, making self-funding more reliable.
Strong cash reserves: You need the ability to absorb claims fluctuations month-to-month, even with stop-loss protection in place.
A desire for maximum control: Self-funded plans let you design benefits from scratch, choose your own TPA and PBM, and make changes mid-year without carrier approval.
Interest in advanced strategies: Self-funding is the foundation for layering additional cost-saving tactics like first-dollar HRAs, reference-based pricing, and transparent PBM contracts.

When to Choose a Level-Funded Plan

20-75 employees: Level-funding was designed for smaller groups that want to escape fully insured pricing without taking on full self-funded risk.
A relatively healthy workforce: Since refunds depend on claims coming in below projections, companies with younger or healthier employee populations benefit most.
Budget predictability as a priority: If your CFO needs to know exactly what benefits will cost each month, level-funding delivers that certainty.
Limited internal HR resources: Level-funded plans require less hands-on management than fully self-funded arrangements.

Meeting Carrier Qualification Requirements

Insurance carriers have specific criteria you’ll need to meet before they’ll approve a self-funded or level-funded plan. For self-funded plans, they typically require companies with 50-300+ employees, as a larger group creates a more stable and predictable risk pool. Level-funded plans were created for smaller businesses, usually in the 20-75 employee range, offering a way to access savings without the full risk of self-funding. Carriers will also review your company’s financial stability and claims history. This is where having an expert broker is critical. We help you gather the right information and present your company in the best light, ensuring you can meet carrier qualifications and secure a plan that aligns with your goals.

What If You Have 50-100 Employees?

Companies in the 50 to 100 employee range often have a genuine choice between both models. This is where the decision comes down to your company’s financial philosophy and risk appetite. A Washington business with 75 employees, strong cash flow, and a healthy workforce might save more with self-funding. The same company with tighter margins might prefer the predictability of level-funding while still capturing 15-25% savings over their fully insured renewal.

The best approach is to model both scenarios using your company’s actual claims data and demographics. A broker with expertise in both funding strategies can run these projections and show you the real numbers, not hypothetical averages.

Want to see the numbers for your company? Request a custom funding analysis from WHIA.

How Much Can Washington Employers Actually Save?

To put these numbers in context, here is what a typical Washington business might save under each model.

Let’s Look at a 100-Employee Company

Assume a company currently paying $1.2 million annually for a fully insured group health plan:

Self-funded savings: 20-35% reduction = $240,000 to $420,000 in annual savings, plus full claims transparency and the ability to layer in transparent PBM and HRA strategies for additional reductions
Level-funded savings: 15-25% reduction = $180,000 to $300,000 in annual savings, with the potential for a year-end surplus refund if claims are favorable

Even at the conservative end, either funding strategy puts six figures back into the business. For many Washington companies, that is the equivalent of hiring two or three additional employees or funding a significant capital investment.

So, Where Do These Savings Come From?

Both models save money for the same fundamental reason: they remove layers of cost that fully insured plans build into every premium dollar. When you pay a fully insured premium, you are covering the insurance carrier’s profit margin, premium taxes, conservative risk loading, and administrative overhead on top of your employees’ actual healthcare costs. Alternative funding strategies strip away those layers and let you pay closer to the true cost of care.

The key difference is how much of that savings you can capture. Self-funded plans offer the maximum upside because you retain full control and keep all surplus. Level-funded plans trade some of that upside for downside protection and budget predictability.

Answering Your Top Questions About Alternative Funding

What if we have a catastrophic claim?

Both self-funded and level-funded plans include stop-loss insurance specifically designed to handle this scenario. Specific stop-loss caps the cost of any single high-dollar claim, while aggregate stop-loss limits your total annual exposure. A properly structured plan ensures that one expensive claim does not blow up your budget.

Is our company too small to self-fund?

Traditional self-funding typically works best with 50+ employees, but group captive arrangements now make self-funding accessible to companies with as few as 25 employees. In a captive, multiple small employers pool their risk while each maintaining their own plan design. If you have fewer than 50 employees, level-funding is usually the more practical starting point.

Will employees notice a difference?

In most cases, no. Employees use the same provider networks, carry the same ID cards, and experience the same claims process. The funding mechanism is a back-office decision that affects how the employer pays for coverage, not how employees access care. If anything, companies that move to alternative funding often improve their benefits because the cost savings create room to enhance plan design.

How do we get started?

Transitioning to self-funded or level-funded coverage starts with analyzing your current plan’s claims history, employee demographics, and risk profile. A qualified benefits advisor can model both options using your actual data and recommend the approach that maximizes savings while keeping risk at a level your company is comfortable with.

A Simpler Alternative: Health Reimbursement Arrangements (HRAs)

If both self-funded and level-funded plans feel like a bigger leap than you’re ready for, there’s another strategy that offers cost control and employee choice with far less complexity: the Health Reimbursement Arrangement (HRA). Unlike group health plans, an HRA is not health insurance. Instead, it’s a formal, tax-advantaged way for your company to reimburse employees for their individual health insurance premiums and other qualified medical expenses. This approach gives you a predictable, fixed budget while empowering your team to choose the health plan that works best for them.

For many Washington businesses, especially smaller ones, HRAs provide the perfect middle ground. They remove the administrative burden and financial risk of managing a group plan while still offering a meaningful health benefit. Think of it as a defined contribution model for healthcare. You set the budget, and your employees get the flexibility. This can be a standalone benefit or, for larger companies, an HRA can be paired with a high-deductible self-funded plan to cover initial out-of-pocket costs. An expert can help you determine which HRA structure aligns with your company’s goals.

How Do HRAs Work?

The mechanics of an HRA are refreshingly straightforward. As the employer, you decide on a monthly allowance you want to offer each employee for their healthcare expenses. Your employees then purchase their own individual health insurance and pay for medical costs out-of-pocket. They submit proof of their expenses, and your company reimburses them up to the pre-set allowance amount. This process gives you complete control over your benefits budget; you never pay out more than the allowance you’ve set. It’s a simple system that eliminates the risk of unpredictable claims and the complex paperwork associated with traditional group plans.

QSEHRA: For Businesses Under 50 Employees

If you run a small business with fewer than 50 full-time employees, the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is designed specifically for you. This type of HRA allows you to reimburse your team for their individual health insurance premiums and a wide range of out-of-pocket medical expenses, all tax-free. You set the monthly reimbursement limits, which gives you total cost control and budget predictability. For your employees, a QSEHRA offers the freedom to choose a plan from the individual market that fits their specific health needs and budget, rather than being locked into a one-size-fits-all group plan. It’s an effective way for small groups to offer competitive benefits without the overhead of a traditional plan.

ICHRA: Flexibility for Any Size Business

The Individual Coverage Health Reimbursement Arrangement (ICHRA) offers incredible flexibility for businesses of any size. Unlike a QSEHRA, there are no employee limits or reimbursement caps. With an ICHRA, you can reimburse employees for their individual health insurance premiums and qualified medical costs. Its main advantage is the ability to customize contributions based on different employee classes. For example, you can offer one allowance amount to full-time employees and a different amount to part-time staff. This defined-contribution approach helps you manage costs with precision while providing a valuable, personalized health benefit that supports your entire team.

Why Your Broker Matters More Than Your Funding Model

Here is a truth that most articles on this topic miss: the funding model you choose matters less than the broker who implements it. A self-funded plan designed by a broker who lacks expertise in alternative funding can cost more than a well-structured fully insured plan. The strategy only works when someone with deep knowledge of claims analysis, stop-loss placement, TPA selection, and pharmacy management is guiding the process.

This is where many Washington businesses run into problems. National brokerages with thousands of clients default to fully insured renewals because that is the easiest transaction to process at scale. They lack the incentive and often the expertise to evaluate whether self-funding or level-funding would save their clients money.

At Washington Health Insurance Agency, advanced funding strategies are a core specialty, not an afterthought. With over 26 years of experience serving Washington businesses with 20-300 employees, WHIA evaluates every funding option available, including self-funded, level-funded, captive, and hybrid approaches. Every client receives a comprehensive market analysis comparing plans from 20+ carriers, with transparent recommendations backed by a guaranteed ROI: a minimum of $5,000 in demonstrated savings, or WHIA refunds its $2,500 advisory fee.

That kind of alignment does not exist with traditional commission-based brokers who earn more when your premiums go up. WHIA’s fixed-fee model means the agency succeeds only when your costs go down.

Ready to Find Your Perfect Plan? Here’s How

Choosing between self-funded and level-funded health plans is not a decision you need to make alone. The right approach depends on your company’s specific claims history, workforce demographics, financial position, and risk tolerance. Getting it right can save your Washington business hundreds of thousands of dollars. Getting it wrong can create unnecessary risk or leave savings on the table.

If you are evaluating your health plan funding options and want a clear, data-driven comparison tailored to your company, schedule a consultation with WHIA to see what self-funded or level-funded coverage could save your business. There is no obligation, and if WHIA cannot demonstrate at least $5,000 in savings, you pay nothing.

Already exploring alternative funding? Read our related guide on level-funded vs fully insured plans for a deeper look at how level-funding compares to traditional coverage, or explore how a self-funded health plan is set up step by step.

Frequently Asked Questions

What is the difference between self-funded and level-funded health plans?

A self-funded plan means your company pays employee health claims directly and assumes the financial risk, offset by stop-loss insurance. A level-funded plan is a hybrid where you pay fixed monthly amounts that include claims funding, administration, and stop-loss. If claims are low, you receive a refund. Self-funded plans offer higher savings potential but more risk; level-funded plans offer predictable costs with moderate savings.

How many employees do you need for a self-funded health plan?

Traditional self-funded plans work best for companies with 50 or more employees, which creates a statistically reliable risk pool. However, group captive arrangements now allow companies with as few as 25 employees to access self-funding benefits. For businesses with 20-50 employees, level-funded plans are typically the better starting point.

Are self-funded health plans legal in Washington State?

Yes. Self-funded health plans are governed by the federal Employee Retirement Income Security Act (ERISA), which preempts most state insurance regulations. This means self-funded plans in Washington are exempt from state premium taxes and many state-mandated benefit requirements, which is one reason they cost less than fully insured plans.

Can you switch from fully insured to self-funded or level-funded?

Yes. Most companies transition at their annual renewal date. The process involves analyzing your current claims history, selecting a TPA or level-funded carrier, designing your plan, and purchasing stop-loss coverage. A knowledgeable benefits broker can manage the entire transition with minimal disruption to employees. Your employees typically keep the same providers and networks.

What happens if claims exceed the budget in a level-funded plan?

The stop-loss insurance built into every level-funded plan covers claims that exceed projections. Your monthly payments stay the same regardless of claims activity during the plan year. The carrier absorbs the excess risk, which is why level-funded plans are considered lower risk than fully self-funded arrangements.

Key Takeaways

Alternative funding saves money by removing extra costs: Both self-funded and level-funded plans reduce expenses by eliminating carrier profit margins and state premium taxes that are built into traditional insurance rates, letting you pay closer to the true cost of care.
The best plan depends on your company’s size and risk tolerance: Self-funded plans offer the highest savings potential (20-35%) and are ideal for companies with over 50 employees. Level-funded plans provide predictable monthly costs and moderate savings (15-25%), making them a great fit for businesses with 20-75 employees.
Your broker is more important than your funding model: The success of your health plan depends on having an expert guide the process. A knowledgeable advisor will analyze your data, secure the right stop-loss coverage, and structure your plan to maximize savings and minimize risk.