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Why small businesses consider level-funded plans: Risk and cost equation

For small businesses, every dollar counts, and every decision affects both the bottom line and the staff’s well-being. Small business owners are juggling a diverse portfolio of issues: rising health care costs, limited HR resources, and the need to attract and retain top talent. Identifying a new health plan that is the right fit for their company and staff could deliver strategic advantages that address these concerns and potentially jumpstart profitability.

That’s why some small business owners are considering more flexible health plan solutions for their workforce compared to traditional health plans, such as offering level-funded small group health plans or the ability to select from multiple plans. These plan models are designed to help small businesses control health care costs, balance financial risk, and offer attractive, customizable benefits that support employee health and satisfaction.

What is a level-funded health plan?

A level-funded health plan combines the stability of a fully insured plan with the cost-saving potential of self-funding. Employers pay a fixed monthly amount to cover administrative costs, claims funding, and stop-loss insurance. The standout feature? If employee claims come in lower than expected at the end of the year, employers may receive a refund or surplus credit.¹

Level-funded plans offer predictable costs each month—no financial surprises—and stop-loss coverage ensures businesses aren’t exposed to runaway claims.¹ According to the Kaiser Family Foundation, 34% of small firms offering health benefits in 2023 chose a level-funded plan,¹ signaling growing confidence in this model.

This combination of predictable monthly payments with the possibility of financial rewards makes level-funded plans a powerful tool for businesses looking to manage risk while supporting a healthy workforce.

Predictability, flexibility, and potential savings

Level-funded plans deliver what small businesses value most: control, cost savings, and risk protection.

✅ Predictable monthly costs

Budgeting becomes easier when business owners know their exact monthly health care costs. With a level-funded plan, costs don’t fluctuate wildly from month to month. This stability is invaluable for small businesses that rely on tight budgeting,¹ so they know what they’re paying and won’t be blindsided by a surge in claims.

✅ Refund opportunities

If claims are lower than expected—perhaps because staff are young, healthy, or simply don’t use their benefits often—businesses can receive surplus credits at the end of the plan year. Workforce wellness programs like those in Kaiser Permanente health plans help improve employee health and lower costs so business owners can earn these credits. That’s money back in their pocket to reinvest in the business or future benefits.

✅ Protection from risk

What if claims skyrocket? That’s where stop-loss insurance steps in. It caps exposure to ensure businesses won’t be financially overwhelmed by high-cost medical events. If a claim exceeds a set threshold, the insurer—not the business owner—picks up the tab.¹

Level-funded plans are particularly well-suited for:

• Small to mid-size businesses
• Businesses with generally healthy, stable workforces
• Businesses with strong financial footing and growth outlook²

Multi-option plans: Flexibility for employers, choice for employees

A level-funded health plan might be the right fit for some businesses, but not others. That’s why Kaiser Permanente offers small business owners the ability to provide a range of health plan options to their employees. Employers are required to contribute at least 50% toward the premium of the lowest-cost plan. Employees, in turn, can choose from multiple plan options—including more comprehensive ones—without increasing the employer’s contribution. For example, when offering both a basic plan and a more robust plan, the employer’s contribution for either is fixed at 50% of the basic plan cost regardless of the robust plan cost.

This flexibility encourages both employer cost management and employee choice. For employers, this model maintains financial predictability and control over benefits expenditures. For employees, this model empowers them to select plans that best fit their individual health needs and financial situations, fostering a sense of autonomy and satisfaction. Such flexibility is particularly beneficial in attracting and retaining a diverse workforce, as it accommodates varying preferences and life stages.

Moreover, offering a variety of plan options enhances overall employee well-being and productivity. When employees have access to health plans that align with their personal needs, they are more likely to engage in preventive care and manage chronic conditions effectively. Kaiser Permanente provides employers with a model to start their own Workforce Well-Being Program and keep staff engaged in their health. They also offer wellness apps³ like Calm and Headspace, digital self-help tools, virtual care,⁴ recovery support, and outpatient and inpatient services—often at no additional cost to the patient. This proactive approach to health leads to reduced absenteeism and lower health care costs over time.

Customization without complexity

Providing multiple health plan options doesn’t have to complicate benefits administration. Providers like Kaiser Permanente simplify the process through their integrated care and coverage model and administrative support. Employers can tailor a benefits package that aligns with their workforce’s unique needs, whether that includes remote workers, families requiring comprehensive care, or younger employees favoring basic coverage and virtual care options.⁵

To ease the administrative burden, Kaiser Permanente collaborates with third-party administrators who handle plan administration and claims processing.⁵ Third-party administrators provide services such as eligibility verification, claims adjudication, and customer service, streamlining the overall benefits management process. This partnership ensures that employers have access to expert support in managing their health plans, allowing them to focus on their core business operations.

Additionally, Kaiser Permanente offers user-friendly online tools and digital resources for employers, streamlining the experience of administering health benefits. Through a dedicated employer web portal, businesses can manage every aspect of their health plan with just a few clicks—reducing administrative burden and enhancing operational efficiency.

Employers can designate a Primary Group Administrator to oversee account access and delegate permissions to other users, ensuring secure and appropriate access for staff involved in benefits management.⁶ The portal enables real-time membership updates, including enrolling new employees, processing terminations, and modifying member details. Plan administrators can also view and download group documents, including arbitration agreements and historical contracts, which eliminates the need for paper files.⁶

Renewals are simplified through the portal as well. Employers can review upcoming plan options, compare rates and benefits, and submit changes online. The system provides step-by-step tools for managing the entire renewal process up to 75 days before the effective date.⁶

Financial management tools are also integrated, enabling businesses to view invoices, track payment history, and set up automatic payments. These features improve transparency and ensure that billing is handled accurately and on time.⁶

Training videos, tutorials, and a comprehensive video library support users at every step, making onboarding and ongoing management intuitive even for those new to administering benefits.⁶ These tools empower small businesses to take control of their health care administration, saving time and allowing them to focus on growth.

The bottom line

Most businesses just choose a health care plan. Why not a health care partner? Insurers like Kaiser Permanente are constantly innovating their offerings and services to better support the needs of small business owners. Level-funded health plans are rising in popularity for a reason, and flexible insurers who offer multiple plan options can be a difference maker for attracting and retaining talent. Collectively, these options allow small businesses to strike the perfect balance between affordability, risk management, and employee satisfaction.