Level-funded group health insurance plans have gained traction as a smart hybrid solution offering predictability, control, and cost savings for employers. However, misconceptions about these plans often make it challenging for insurance agents to confidently position them as a top choice for their clients.
To help you overcome objections, educate business owners, and close more sales with confidence, we’re breaking down the biggest myths about level-funded health plans and giving you the facts you need to guide more informed conversations.
Myth 1: Level-Funded Plans Are Too Complicated
One of the biggest concerns business owners voice is that level-funded plans add administrative complexity beyond what they’re ready to handle.
The truth: While level-funded plans do require more involvement than fully insured options, the administrative demands are not insurmountable, especially when the right support is in place. Unlike fully insured plans where the carrier manages almost everything, level-funded plans typically involve third-party administrators (TPAs) who handle claims processing, stop-loss insurance coordination, and compliance reporting.
Agents can provide peace of mind by helping clients understand the role of TPAs and how clear processes, combined with reliable communication, can streamline plan management and reduce perceived complexity. Familiarity with key compliance requirements and proactive support during onboarding go a long way in making the transition smooth.
Myth 2: Level-Funded Plans Offer No Customization Options
Some business owners assume that because level-funded plans come with a predictable monthly cost, they lack the flexibility to tailor benefits to their workforce.
Here’s what’s really going on: Level-funded plans often provide greater plan customization compared to fully insured options. Because employers have access to detailed claims data and insights, they can design benefit structures that better meet the unique needs of their employees. This may include adding wellness programs, choosing specific provider networks, or adjusting coverage limits.
By exploring previous utilization trends and employee feedback, businesses can build more strategic benefit offerings over time. What starts as a cost-control tactic often becomes a longer-term strategy to improve retention and employee satisfaction.
Myth 3: Level-Funded Plans Are Completely Risk-Free for Employers
In reality, level-funded plans do mitigate much of the risk by incorporating stop-loss insurance, which protects against catastrophic claims that exceed predetermined thresholds. However, employers still share in the responsibility for claims that fall below the stop-loss limits. This means if claims are higher than expected but not catastrophic, employers may face increased costs at renewal.
Advising clients on this balanced risk profile is critical. Level-funded plans offer more financial predictability than fully self-funded plans, but they are not risk-free. This nuance helps set realistic expectations and supports stronger, more transparent agent-client relationships.
Myth 4: Level-Funded Plans Are Just Like Fully Insured Plans With No Additional Benefits
Business owners sometimes lump level-funded plans in with traditional fully insured plans, missing out on the unique advantages that level-funded options provide.
The Key Differences:
- Cost Savings Potential: Unlike fully insured plans, where carriers keep leftover funds, level-funded plans may offer refunds if claims are lower than expected.
- Greater Transparency: Employers receive detailed monthly reports that break down claims, administrative fees, and stop-loss costs, enabling smarter cost management.
- Customization: As mentioned earlier, level-funded plans provide employers more control over plan design, unlike fully insured plans, which tend to be more standardized.
Pro tip for benefits agents: Instead of positioning them as merely a lower-cost alternative, present level-funded plans as a smarter investment. One that can evolve with the employer’s workforce and budget year over year.
Myth 5: Employers Don’t Need to Worry About Compliance with Level-Funded Plans
Since level-funded plans are treated as self-funded under federal guidelines, they are subject to a distinct set of compliance responsibilities. Some of these requirements may be unfamiliar to employers, but they’re entirely manageable with the right approach.
These responsibilities include:
Staying ahead of these requirements often comes down to the right planning and partnerships. Whether that means working with a trusted TPA, setting up calendar reminders, or using templated documentation, compliance can become a repeatable, manageable process with an insurance-specific CRM.
Myth 6: Level-Funded Plans Are Only for Large Companies
Level-funded plans are actually particularly well-suited to small and mid-sized businesses who want more control than fully insured plans offer but lack the risk appetite or resources for traditional self-funding. The flexibility and predictability of level-funded insurance make them a popular choice for startups and growing companies. Just be sure to check if the plan or carrier has an employee count limitation.
Agents can tap into this by educating clients on how level-funded plans provide a middle ground with predictable costs and access to customization typically reserved for larger groups. For businesses exploring their options, resources such as the Small Business Health Options Program (SHOP) provide helpful context about group health insurance tailored to smaller employers.
Why Level-Funded Plans Are a Valuable Option for Your Clients
Understanding and addressing these misconceptions gives agents the confidence to recommend level-funded group health insurance plans as a compelling choice for their employer group clients. These plans offer a balanced blend of financial predictability, transparency, and flexibility that aligns well with the goals of many small- to mid-sized employers.
As you help clients navigate the nuances of level-funded plans, AgencyBloc’s Quote+ and AMS+ solutions empower your agency to:
- Quickly shop, compare, and quote level-funded insurance options with accuracy and ease
- Streamline proposal building and enrollment management for seamless client onboarding
- Automate workflow and compliance tasks to stay ahead of deadlines and regulations
- Gain actionable insights from client data to refine plan recommendations and improve client retention
Together, these tools make it easier than ever for your group benefits agency to position level-funded plans effectively and deliver exceptional service that wins and retains clients.
Posted
by Allison Babberl
on Wednesday, June 11, 2025
in
Health Insurance
- client retention
- quoting
- selling
About The Author
Allison is the Content Marketing Manager at AgencyBloc. She manages the creation and schedule of all educational content for our BlocTalk and Member communities. Favorite quote: “Conversation is the bedrock of relationships. Without it, our relationships are devoid of substance.”
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