Updated November 2026. Employer health plans are paid for in one of three ways. In a fully insured plan, the employer pays a fixed premium and the insurer takes the risk. In a self-funded (self-insured) plan, the employer pays workers’ claims directly and hires an insurer or administrator to run the plan. A level-funded plan sits in between: a small employer pays a steady monthly amount that covers expected claims, administration and stop-loss insurance, and may get money back in a good year.
Self-funding is now the norm at work. Two-thirds (67%) of covered workers were in self-funded plans in 2025, and 37% of covered workers at firms with 10 to 199 employees were in level-funded plans, according to the KFF 2025 Employer Health Benefits Survey.
Fully Insured vs Self-Funded vs Level-Funded
| Feature | Fully insured | Self-funded | Level-funded |
|---|---|---|---|
| Who pays claims | Insurer | Employer | Employer, through a fixed monthly funding amount |
| Who carries the risk | Insurer | Employer, often limited by stop-loss insurance | Mostly the stop-loss carrier above a set level |
| Monthly cost | Fixed premium | Varies with claims | Fixed |
| Surplus in a good year | Kept by insurer, subject to MLR rebates | Kept by employer | Partly refunded or credited to the employer |
| Main regulator | State insurance department plus federal law | Federal law (ERISA) | Federal law (ERISA) |
| State benefit mandates and premium taxes | Apply | Do not apply | Do not apply |
| Typical employer | Small and mid-size | Large | Small and mid-size, often 10 to 199 workers |
Why Employers Self-Fund
Self-funded plans are governed by the Employee Retirement Income Security Act (ERISA), not state insurance law. That lets a company with workers in many states run one plan, skip state premium taxes and state-mandated benefits, see its own claims data and choose its own pharmacy benefit manager. The employer keeps any savings when claims come in low.
The cost is risk. One premature baby or cancer case can cost more than $1 million, so most self-funded employers buy stop-loss insurance that pays claims above a set amount per person or for the group as a whole.
How Level Funding Works
Level funding packages self-funding for smaller firms. Each month, the employer pays one amount split into three pieces: a claims fund, an administrative fee and a stop-loss premium. If claims run below the fund at year-end, the employer may receive part of the surplus. If claims run over, stop-loss covers the excess.
Level-funded plans are often cheaper for a healthy group, because premiums are underwritten on the group’s health. That is also the warning sign. A group with a costly claim can see a steep renewal or be declined, and then has to move back into the fully insured small group market, where ACA rules require community rating.
What It Means for Employees
- Your insurance card may show a large insurer’s name even when your employer is paying the claims.
- State coverage mandates, such as for fertility treatment or hearing aids, may not apply to a self-funded plan.
- Complaints about a self-funded plan usually go to the U.S. Department of Labor, not the state insurance department.
- Federal protections, including the ACA out-of-pocket maximum, preventive care coverage and the No Surprises Act, still apply.
Not sure which you have? Look for “self-funded” or “ASO” (administrative services only) in your Summary Plan Description, or ask HR.
Costs in Context
The average annual premium for family coverage reached $26,993 in 2025, with workers contributing $6,850, according to KFF. Single coverage averaged $9,325, with workers paying $1,440. Those rising costs are what push employers toward self-funding, level funding and alternatives such as an ICHRA.
Self-funded plans also control their own pharmacy contracts, which matters given the federal reforms described in our pharmacy benefit manager guide. For employer coverage news, follow our Health Insurance Companies hub.
Sources
KFF, 2025 Employer Health Benefits Survey; U.S. Department of Labor, Employee Benefits Security Administration.