With this approach employers have consistent health plan costs while only paying for the healthcare costs actually incurred by employees. This can be a good option for employers with a relatively healthy workforce. And that’s an important caveat because when employees are healthier than average, payments go down; however, if the group has higher-than-anticipated annual claims, costs will go up.
With level-funded plans, employers pay a "level" (or fixed) amount of money each month to a third-party health services company (often an insurance carrier) to cover both administrative and anticipated employee claim costs. At the end of a year, if an employer's total payments are greater than the actual claim costs, the surplus will be refunded. However, if employee claims exceed what's been paid, embedded "stop loss" insurance covers the difference.