The Architecture of Level Funded on Syam Adusumilli

The Mechanics of Level Funded: How the Money Actually Moves

Sun, 01 Mar 2026 00:00:00 +0000

The employer pays a single monthly amount. The amount looks like a premium. It arrives on the same schedule as a fully insured premium. It is deducted from payroll on the same cycle. The employer’s HR team processes it through the same accounting line. Everything about the payment is designed to feel like insurance.

It is not insurance. It is three separate financial instruments bundled into one check.

The first is a claims fund. This is employer money, set aside to pay health care claims as they occur during the plan year. The employer owns this money. If claims are low, the balance belongs to the employer. If claims are high, the fund depletes, and the employer’s exposure depends on the terms of the second instrument.

Executive Summary: The Mechanics of Level Funded: How the Money Actually Moves

Sun, 01 Mar 2026 00:00:00 +0000

LFP-01.01 — The Architecture of Level Funded
#

The employer pays a single monthly amount that looks, schedules, and processes exactly like a fully insured premium. It is not a premium. It is three separate financial instruments bundled into one check, and the distinction between them determines what the employer owns, what risk they carry, and what they can recover at year-end.

Level Funded, Fully Insured, Self-Funded: Three Architectures, Not Three Products

Sun, 01 Mar 2026 00:00:00 +0000

Industry conversations place level funded on a spectrum between fully insured and self-funded, as if these were product tiers differentiated by complexity and risk tolerance. A broker might say level funded is “like fully insured but with upside,” or “self-funded with training wheels.” These framings are wrong in a way that produces real confusion about what level funded can and cannot do. Fully insured, self-funded, and level funded are not three products on a continuum. They are three architectures with different risk ownership structures, different regulatory treatment, and different capital requirements. The failure to understand the architectural distinction leads to purchasing decisions made on the wrong criteria.

Executive Summary: Level Funded, Fully Insured, Self-Funded: Three Architectures, Not Three Products

Sun, 01 Mar 2026 00:00:00 +0000

LFP-01.02 — The Architecture of Level Funded
#

Placing level funded on a spectrum between fully insured and self-funded, as if the three were product tiers differentiated by complexity or risk tolerance, produces purchasing decisions made on the wrong criteria. They are three architectures with different risk ownership structures, different regulatory treatment, and different capital requirements.

In a fully insured arrangement, all claims risk belongs to the carrier the moment the premium is received. The employer has no surplus claim, no usable claims data, and no plan design flexibility beyond state-mandated benefit floors. State premium taxes apply, ranging from approximately 1.75 to 4 percent. Traditional self-funding places all claims risk on the employer, funded from operating capital. Large employers manage without stop loss because statistical variance is stable across thousands of covered lives. Small employers cannot — one bad claim can consume an entire annual budget for a 25-person group.

The ERISA Foundation: Why Self-Funded Plans Exist Outside State Insurance Law

Sun, 01 Mar 2026 00:00:00 +0000

ERISA preemption is not a loophole. It is not a technicality discovered by clever lawyers and exploited by employers seeking to avoid regulation. It is a deliberate federal policy choice, enacted by Congress in 1974, that allows employers to sponsor health benefit plans under a single federal regulatory framework rather than complying with fifty separate state insurance regulatory regimes. The preemption applies to self-funded employer health plans, including level funded plans structured as self-funded. Without ERISA preemption, level funded would not exist in its current form, because the regulatory asymmetry between self-funded and fully insured plans that makes level funded economically attractive would disappear.

Executive Summary: The ERISA Foundation: Why Self-Funded Plans Exist Outside State Insurance Law

Sun, 01 Mar 2026 00:00:00 +0000

LFP-01.03 — The Architecture of Level Funded
#

ERISA preemption is not a loophole. It is a deliberate federal policy choice, enacted by Congress in 1974, that allows employers to sponsor health benefit plans under a single federal regulatory framework rather than fifty separate state insurance regimes. Without it, level funded would not exist in its current form.

How Level Funded Got Here: The ACA, the Small Group Market, and Regulatory Arbitrage

Sun, 01 Mar 2026 00:00:00 +0000

Level funded is not product innovation. It is regulatory arbitrage made operational. The distinction matters because innovation creates value that persists independent of the regulatory environment. Arbitrage creates value that depends on a gap between two regulatory regimes persisting. If the gap closes, the value disappears. The level funded market exists because of a specific gap: the ACA transformed small group fully insured economics through community rating, essential health benefits mandates, and guaranteed issue, while ERISA preserved the self-funded alternative where employers can be underwritten on their own health status, design benefits outside state mandated requirements, and avoid state premium taxes. Employers with healthy populations had a financial incentive to move from the first regime to the second. Stop loss carriers and TPAs built the product that made the move possible.

Executive Summary: How Level Funded Got Here: The ACA, the Small Group Market, and Regulatory Arbitrage

Sun, 01 Mar 2026 00:00:00 +0000

LFP-01.04 — The Architecture of Level Funded
#

Level funded is not product innovation. It is regulatory arbitrage made operational. Innovation creates value that persists independent of the regulatory environment. Arbitrage creates value that depends on a gap between two regimes persisting. The level funded market exists because the ACA transformed small group fully insured economics while ERISA preserved a self-funded alternative where health-status underwriting remained legal.

Surplus, Deficit, and Reconciliation: What Happens When the Plan Year Ends

Sun, 01 Mar 2026 00:00:00 +0000

Reconciliation is where the level funded architecture shows its actual economics. Not its marketed economics, not its projected economics, but the number that appears on the settlement statement after the run-out period closes and the TPA tallies every claim paid against every dollar contributed. The number is either positive or negative. A positive balance means the claims fund had money left over after paying all claims for the plan year. A negative balance means claims exceeded the funded amount. How that number is treated, who receives the surplus or bears the deficit, under what terms and on what timeline, varies by contract. That variation is the diagnostic test for whether a level funded plan is structurally self-funded or functionally fully insured with a different label.

Executive Summary: Surplus, Deficit, and Reconciliation: What Happens When the Plan Year Ends

Sun, 01 Mar 2026 00:00:00 +0000

LFP-01.05 — The Architecture of Level Funded
#

Reconciliation is where the level funded architecture shows its actual economics. The number that appears on the settlement statement after the run-out period closes is either positive (surplus) or negative (deficit), and how that number is treated is the diagnostic test for whether a level funded plan is structurally self-funded or functionally fully insured with a different label.

Who Touches the Money: TPA, Stop Loss Carrier, Reinsurer, Employer, and Broker

Sun, 01 Mar 2026 00:00:00 +0000

Five parties have financial relationships in a level funded arrangement. Each is compensated differently, bears different risk, and operates under different incentives. The employer cannot evaluate a level funded plan, at enrollment or at renewal, without understanding who is paid, how, and from which pool of money. The financial relationships also reveal conflicts of interest that affect plan administration, renewal pricing, surplus treatment, and the quality of advice the employer receives. Following the money through all five parties is not an exercise in suspicion. It is a minimum standard for informed purchasing.

Executive Summary: Who Touches the Money: TPA, Stop Loss Carrier, Reinsurer, Employer, and Broker

Sun, 01 Mar 2026 00:00:00 +0000

LFP-01.06 — The Architecture of Level Funded
#

Five parties have financial relationships in a level funded arrangement. Each is compensated differently, bears different risk, and operates under incentives that are not always aligned with the employer’s.

The employer pays everything and bears the most risk. Monthly payments fund the claims fund, stop loss premium, and administrative fee. PCORI fees are an ERISA compliance obligation fully insured employers do not face. The employer carries claims risk within the aggregate corridor, deficit liability per contract terms, and renewal risk that can produce stop loss premium increases of 20 percent or more after a bad claims year. Fiduciary responsibility under ERISA Section 1104 requires acting in plan participants’ interest across all vendor and plan design decisions. Most small employers sponsoring level funded plans do not know they accepted this obligation.

Structural Advantages, Structural Vulnerabilities, and the Transparency Divide

Sun, 01 Mar 2026 00:00:00 +0000

The level funded industry markets on a simple proposition: level funded gives the employer the upside of self-funding with the predictability of fully insured. The proposition is not false. It is incomplete in ways that matter for the employer making the purchasing decision. Level funded offers structural advantages over fully insured that are genuine and that this article names with specificity. It also carries structural vulnerabilities that the industry understates and that this article names with equal specificity. The transparency advantage that anchors the marketing is real but qualified: the employer sees more than they would in fully insured, and less than the marketing suggests. An honest evaluation of the level funded architecture requires naming both sides and identifying which employers the architecture serves well and which it does not.

Executive Summary: Structural Advantages, Structural Vulnerabilities, and the Transparency Divide

Sun, 01 Mar 2026 00:00:00 +0000

LFP-01.07 — The Architecture of Level Funded
#

The level funded industry markets on a simple proposition: the upside of self-funding with the predictability of fully insured. The proposition is not false. It is incomplete in ways that produce purchasing decisions made without full information.

The genuine structural advantages follow from ERISA preemption and are available to any self-funded plan. Exemption from state mandated benefits allows the employer to design the plan through the plan document. Exemption from state premium taxes, generally 1.75 to 4 percent, produces direct cost savings. A single federal regulatory regime simplifies multi-state compliance. Surplus return is real but variable: contracts return anywhere from 100 percent to nothing, and the employer should request the specific percentage and historical data before treating this as reliable. Claims data access enables plan design interventions and vendor evaluation that are structurally impossible in fully insured. Plan design flexibility allows customization including direct primary care, reference-based pricing, and specialty pharmacy carve-outs.

Glossary of Level Funded Terms

Sun, 01 Mar 2026 00:00:00 +0000

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.

Executive Summary: Glossary of Level Funded Terms

Sun, 01 Mar 2026 00:00:00 +0000

LFP-01.TD1 — The Architecture of Level Funded
#

This reference document defines 30 terms used throughout the Level Funded Playbook, covering core level funded plan architecture, stop loss mechanisms that limit employer exposure, the regulatory framework governing self-funded plans, and ancillary benefit structures that appear in plan design. Definitions cover level funded, self-funded, and fully insured as architectural categories; specific and aggregate stop loss, attachment points, lasers, and the aggregate corridor as risk transfer concepts; ERISA, ERISA preemption, and fiduciary as the legal foundation; and operational terms including TPA, ASO, PMPM, SPD, SBC, COB, subrogation, and run-out period. Regulatory and benefit program acronyms covered include MEWA, ICHRA, PCORI, COBRA, RBP, DPC, PBM, CAA, MHPAEA, and NQTL.

The Architecture of Level Funded on Syam Adusumilli

The Mechanics of Level Funded: How the Money Actually Moves

Executive Summary: The Mechanics of Level Funded: How the Money Actually Moves

LFP-01.01 — The Architecture of Level Funded #

Level Funded, Fully Insured, Self-Funded: Three Architectures, Not Three Products

Executive Summary: Level Funded, Fully Insured, Self-Funded: Three Architectures, Not Three Products

LFP-01.02 — The Architecture of Level Funded #

The ERISA Foundation: Why Self-Funded Plans Exist Outside State Insurance Law

Executive Summary: The ERISA Foundation: Why Self-Funded Plans Exist Outside State Insurance Law

LFP-01.03 — The Architecture of Level Funded #

How Level Funded Got Here: The ACA, the Small Group Market, and Regulatory Arbitrage

Executive Summary: How Level Funded Got Here: The ACA, the Small Group Market, and Regulatory Arbitrage

LFP-01.04 — The Architecture of Level Funded #

Surplus, Deficit, and Reconciliation: What Happens When the Plan Year Ends

Executive Summary: Surplus, Deficit, and Reconciliation: What Happens When the Plan Year Ends

LFP-01.05 — The Architecture of Level Funded #

Who Touches the Money: TPA, Stop Loss Carrier, Reinsurer, Employer, and Broker

Executive Summary: Who Touches the Money: TPA, Stop Loss Carrier, Reinsurer, Employer, and Broker

LFP-01.06 — The Architecture of Level Funded #

Structural Advantages, Structural Vulnerabilities, and the Transparency Divide

Executive Summary: Structural Advantages, Structural Vulnerabilities, and the Transparency Divide

LFP-01.07 — The Architecture of Level Funded #

Glossary of Level Funded Terms

Executive Summary: Glossary of Level Funded Terms

LFP-01.TD1 — The Architecture of Level Funded #

LFP-01.01 — The Architecture of Level Funded
#

LFP-01.02 — The Architecture of Level Funded
#

LFP-01.03 — The Architecture of Level Funded
#

LFP-01.04 — The Architecture of Level Funded
#

LFP-01.05 — The Architecture of Level Funded
#

LFP-01.06 — The Architecture of Level Funded
#

LFP-01.07 — The Architecture of Level Funded
#

LFP-01.TD1 — The Architecture of Level Funded
#