Glossary of Level Funded Terms

Level Funded. A self-funded plan architecture in which the employer pays a fixed monthly amount that funds a claims account, a stop loss premium, and administrative fees. The monthly payment is set by underwriting and remains constant throughout the plan year.

Self-Funded (Self-Insured). An employer health benefit arrangement in which the employer assumes the financial risk for providing health care benefits to employees rather than purchasing insurance from a carrier. The employer funds claims directly and may purchase stop loss insurance to cap exposure.

Fully Insured. An employer health benefit arrangement in which the employer purchases a group health insurance policy from a licensed insurance carrier, transferring all claims risk to the carrier in exchange for a fixed premium.

Stop Loss Insurance. Insurance purchased by a self-funded plan to limit the plan’s liability for claims. Includes specific (per-member) and aggregate (whole-group) policies.

Specific Stop Loss (Individual Stop Loss). A stop loss policy that reimburses the plan when any single covered member’s claims exceed a specified dollar amount, the specific attachment point, during the plan year.

Aggregate Stop Loss. A stop loss policy that reimburses the plan when total group claims exceed a specified percentage of expected claims, the aggregate attachment point, during the plan year.

Attachment Point. The dollar threshold at which a stop loss policy begins to reimburse claims. Specific attachment points apply per member. Aggregate attachment points apply to total group claims.

Laser. A member-specific attachment point set by the stop loss carrier at a level higher than the standard specific attachment point, applied to members with known high-cost conditions identified through underwriting or prior claims experience.

Aggregate Corridor. The gap between expected claims and the aggregate stop loss attachment point. Claims within this corridor are the employer’s financial responsibility and are not reimbursed by either the claims fund (which may be depleted) or the aggregate stop loss (which has not triggered).

Claims Fund. The portion of the level funded monthly payment allocated to pay health care claims. Owned by the employer. Held by the TPA in a trust account, custodial account, or segregated operating account.

Surplus. The positive balance remaining in the claims fund after all plan year claims have been paid and the run-out period has closed. Return of surplus to the employer depends on contract terms.

Deficit. The negative balance that occurs when plan year claims exceed the claims fund but remain below the aggregate stop loss attachment point. The employer’s liability for the deficit depends on contract terms.

Reconciliation. The process of calculating final surplus or deficit after the plan year and run-out period close. Determines settlement between the employer, TPA, and stop loss carrier based on total claims paid, stop loss recoveries applied, and contract terms governing surplus return or deficit liability.

Run-Out Period. The window following the plan year end, commonly 60 to 90 days though it varies by contract, during which claims incurred before the plan year end but not yet submitted may still be processed and paid from the claims fund.

Third-Party Administrator (TPA). An organization that administers a self-funded health plan on behalf of the employer. Handles claims adjudication, network access, member services, compliance administration, and reporting. The TPA does not bear insurance risk.

Administrative Services Only (ASO). An arrangement in which a carrier provides administrative services for a self-funded plan, including claims processing and network access, without bearing insurance risk. Distinct from fully insured in that the employer retains claims risk.

ERISA (Employee Retirement Income Security Act of 1974). Federal law establishing minimum standards for employee benefit plans, including health plans. Creates the preemption framework that exempts self-funded plans from state insurance regulation. Codified at 29 U.S.C. §§ 1001-1461.

ERISA Preemption. The statutory framework under ERISA §§ 514(a), 514(b)(2)(A), and 514(b)(2)(B) that supersedes state laws relating to employee benefit plans while preserving state authority to regulate insurance, and preventing states from deeming self-funded plans to be insurance.

Fiduciary. Under ERISA, a person or entity that exercises discretionary authority or control over a plan’s management, assets, or administration. Fiduciaries owe duties of loyalty and prudence to plan participants. Employers sponsoring self-funded plans, including level funded, are ERISA fiduciaries.

MEWA (Multiple Employer Welfare Arrangement). A health benefit arrangement that provides coverage to employees of two or more unrelated employers. Subject to distinct regulatory treatment under ERISA and state law.

ICHRA (Individual Coverage Health Reimbursement Arrangement). An employer-funded arrangement that reimburses employees for individual health insurance premiums and medical expenses on a tax-free basis. An alternative to group coverage.

PCORI (Patient-Centered Outcomes Research Institute). A nonprofit organization funded by fees assessed on health insurance issuers and self-funded plan sponsors. The PCORI fee is an annual per-member cost that applies to level funded plans.

COBRA (Consolidated Omnibus Budget Reconciliation Act). Federal law requiring continuation of group health coverage for qualifying employees and dependents after loss of coverage due to qualifying events. Applies to employers with 20 or more employees.

COB (Coordination of Benefits). Rules governing which plan pays first when a member is covered by more than one health plan. Determines payment order and prevents duplicate payment of claims.

Subrogation. The right of a health plan to recover amounts paid for claims from a third party legally responsible for the injury or illness that caused the claims.

RBP (Reference-Based Pricing). A cost management strategy in which the plan sets reimbursement for health care services at a reference rate, often a percentage of Medicare reimbursement, rather than negotiating network discounts with providers.

DPC (Direct Primary Care). A practice model in which a primary care provider charges a fixed monthly fee per patient for primary care services, bypassing insurance billing. Used in some level funded plans as a cost management and access strategy.

PBM (Pharmacy Benefit Manager). An organization that manages prescription drug benefits on behalf of health plans. Negotiates drug pricing, manages formularies, processes pharmacy claims, and may retain or pass through manufacturer rebates depending on the contractual arrangement.

PMPM (Per Member Per Month). A unit of measurement expressing costs, fees, or contributions on a monthly per-member basis. Administrative fees, broker commissions, and claims costs are commonly expressed as PMPM amounts.

SPD (Summary Plan Description). A document required by ERISA that describes the plan’s benefits, rights, and obligations to participants in plain language. Must be distributed to participants within specified timeframes.

SBC (Summary of Benefits and Coverage). A standardized document required by the ACA that summarizes a health plan’s benefits, cost-sharing, and coverage limits in a uniform format. Required for all group health plans, including level funded.

CAA (Consolidated Appropriations Act, 2021). Federal law containing provisions requiring disclosure of broker and consultant compensation to plan fiduciaries, surprise billing protections under the No Surprises Act, and other health plan transparency requirements.

MHPAEA (Mental Health Parity and Addiction Equity Act). Federal law requiring that financial requirements and treatment limitations for mental health and substance use disorder benefits be no more restrictive than those applied to medical and surgical benefits. Applies to self-funded plans, including level funded.

NQTL (Non-Quantitative Treatment Limitation). Under MHPAEA, a limitation on mental health or substance use disorder benefits that is not expressed as a numerical value, such as prior authorization requirements, step therapy protocols, or network adequacy standards. Plans must apply NQTLs to mental health benefits no more restrictively than to medical and surgical benefits.