If you’re a business owner or HR manager in Arkansas exploring health insurance options for your team, you’ve likely heard the term “level funded health plan.” But what does it mean, and how does it compare to Affordable Care Act (ACA) compliant health plans?
Understanding the difference between these two options is key to choosing the right employee benefits strategy for your business.
ACA-Compliant Health Plans: The Standard Option
ACA health plans, often called fully insured plans, are regulated under the Affordable Care Act. Here’s what you need to know:
- Coverage – These plans must cover all essential health benefits (hospitalization, prescriptions, maternity care, preventive services, etc.).
- No Medical Underwriting – Premiums are not based on the health history of your employees. Instead, rates are determined by factors such as employee age, location, and gender.
- Predictable Premiums – Employers pay a fixed monthly premium set by the insurance carrier and approved by the Arkansas Department of Insurance.
- Community Rating – Everyone in a similar demographic pool pays similar rates, regardless of actual health risks of an individual of group of employees.
For some businesses, especially smaller groups with higher-risk employees this provides stability and guaranteed coverage.
Level Funded Health Plans: A Hybrid Approach
Level funded health plans are growing in popularity among Arkansas businesses because they combine features of both fully insured and self-funded plans with the distinct ability to provide lower premiums to healthier groups.
- Coverage – Just like ACA plans, they must cover all essential medical services. Your employees won’t lose benefits if you choose this option.
- Medical Underwriting – Unlike ACA plans, level funded plans may require a health questionnaire or claims history review. Healthier groups can often secure lower premiums compared to non-underwritten ACA plans.
- Monthly “Level” Payments – Employers pay a set monthly fee with the same look and feel as an ACA plan monthly invoice. Behind the scenes the insurance carrier allocates this payment towards claims funding, stop-loss insurance, and administrative costs. This makes budgeting easier and eliminates any fluctuation in employee premiums during the plan year.
- Potential Savings – If your employees’ claims are lower than expected, you may receive a refund or credit at the end of the plan year.
- More Flexibility – Carriers often provide better reporting, access to claims data, and plan design customization compared to ACA plans.
Premium & Rating Differences: ACA vs. Level Funding
| Feature | ACA-Compliant Plan | Level Funded Plan |
| Underwriting | No medical underwriting | Medical underwriting required |
| Premiums | Based on age, location, tobacco use, family size | Based on employee health risk + demographics |
| Stability | Predictable, no refunds | Stable monthly payments, but refund potential if claims are low |
| Flexibility | Limited | More plan design options and reporting |
| Best For | Groups with higher claims risk or pre-existing conditions | Healthy groups seeking cost savings |
Frequently Asked Questions About Level Funded Health Plans
Is level funding the same as self-funding?
Not exactly. Level funding is a hybrid between fully insured and self-funded health plans. Employers pay a fixed monthly amount, which makes costs predictable, while still having the opportunity to share in savings if claims are lower than expected.
What happens if my employees’ claims are higher than expected?
Your stop-loss insurance protects your business by covering excess claims, so your monthly payment stays the same and your business is not liable for excess claims.
Do level funded plans cover the same services as ACA plans?
Yes. Both ACA-compliant plans and level funded plans must cover essential health benefits like doctor visits, hospitalizations, prescriptions, and preventive care.
Who is a good fit for a level funded plan?
Generally, businesses with relatively healthy employees may benefit most, since underwriting can lead to lower premiums and potential refunds at year-end.
Can small businesses in Arkansas use level funded plans?
Yes. There are several carriers in Arkansas that offer level funded options for small groups, often starting at just 5 employees.
Which Option is Right for Your Arkansas Business?
- ACA plans work well if your group has higher health risks or if you want guaranteed coverage without health questionnaires or medical underwriting.
- Level funded plans may be the better choice if your workforce is relatively healthy and you want the opportunity for cost savings while maintaining predictable monthly costs.
Both plans cover the same medical services. The main difference is how premiums are determined and whether your business has the potential to share in the savings.
Final Thoughts
For many Arkansas businesses, level funded health plans represent an opportunity to save money while still providing comprehensive employee health benefits. However, they’re not the right fit for every company.
That’s where we come in. At Stepka and Associates, we help Arkansas business owners and HR managers evaluate ACA-compliant health plans and level funded options to find the best fit for your team and budget.
Contact us today to speak with an expert and learn which health plan strategy makes the most sense for your business.