Executive Summary: ACA Compliance for Level Funded Plans: What Applies, What Does Not, and Where the Confusion Lives
LFP-03.03 — The Regulatory Landscape#
Self-funded plans are exempt from several major ACA requirements: community rating, essential health benefit mandates, medical loss ratio requirements, and the single risk pool requirement. These exemptions are the economic engine of the level funded market. A healthy 20-person group receives stop loss quotes reflecting its actual risk profile; the equivalent employer in the fully insured small group market receives a community-rated premium that cross-subsidizes sicker groups. The premium difference runs approximately 20% to 40% for favorable risks. The EHB exemption in practice provides less flexibility than it appears: competitive labor markets require plans to cover benefits comparable to essential health benefits regardless of the legal requirement.
Several ACA provisions apply regardless of funding arrangement, and this is where compliance failures concentrate. IRC Section 6055 requires all self-funded plan sponsors to report coverage to the IRS and furnish statements to covered individuals on Forms 1094-B and 1095-B. A 10-person employer with 50 covered individuals including dependents faces per-return penalties if filings are not made timely. The employer mandate under IRC Section 4980H applies to applicable large employers with 50 or more full-time equivalents regardless of funding arrangement; most level funded employers are below this threshold, but those near 50 FTEs must track counts carefully. The preventive care coverage requirement applies to all group health plans: no deductible, no copay, no coinsurance for recommended preventive services. A level funded plan that charges a copay for a covered preventive screening is in violation regardless of plan design authority under ERISA. The PCORI fee applies to self-funded plan sponsors at $3.47 per covered life for plan years ending between October 2024 and September 2025, requiring accurate enrollment tracking and annual filing on Form 720. Dependent coverage to age 26, prohibition on lifetime and annual limits, rescission protections, and internal and external appeals requirements also apply.
Compliance errors run in both directions. Under-compliance occurs when employers assume self-funded means ACA-exempt across the board and fail to file Section 6055 reports or apply cost-sharing to preventive services. Over-compliance occurs when employers apply EHB requirements or state mandated benefit rules that do not apply to self-funded plans, adding cost without legal necessity. The employer who relies on the TPA for compliance without verification accepts risk if compliance fails. The employer is the ERISA fiduciary and bears regulatory responsibility regardless of what the TPA was supposed to do.