The Geographic Concentration of Level Funded Growth: Where the Market Is Expanding and Where It Is Stalled

LFP-07.06 | Sharp Analysis | Series 07: The Geography of Level Funded

Level funded adoption does not distribute uniformly across the country. It concentrates in states and metro areas where a self-reinforcing infrastructure of broker expertise, stop loss carrier appetite, and TPA presence has accumulated over years of market activity. The Peterson-KFF Health System Tracker reports that in 2025, 44% of covered workers in small firms with 10 to 49 employees were enrolled in self-funded or level-funded plans, up from earlier baseline measurements. That aggregate figure obscures the geographic distribution: the growth is concentrated in markets where the infrastructure conditions described throughout this series are already in place. Markets where those conditions are absent face a cold-start problem that regulatory favorability alone cannot solve.

The Current Adoption Map

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Level funded market concentration reflects the interaction of five geographic variables established in LFP-07.01. States with favorable regulatory treatment, metro-area network density, competitive stop loss markets, established broker expertise, and weak ACA marketplace competition produce the highest penetration. Texas, Ohio, Indiana, Tennessee, Florida, Georgia, and most of the Southeast and Midwest Sunbelt have the deepest level funded markets by any available measure.

The KFF 2024 Employer Health Benefits Survey documents that 36% of covered workers in small firms offering health benefits were enrolled in level-funded plans, defined in the survey as plans combining a self-funded component with stop loss insurance. Penetration varies by employer size within the small group market: employers in the 10 to 49 employee range have higher level funded penetration than those in the 3 to 9 range, where actuarial credibility constraints make the product harder to underwrite at standard terms. The geographic concentration of that adoption skews toward markets with established broker ecosystems.

Texas leads by volume. The state’s regulatory environment has been consistently favorable to self-funded plans since ERISA’s preemption framework was established. The Dallas-Fort Worth, Houston, and Austin metro areas have broker communities that developed level funded expertise through repeated placements over the past two decades. Stop loss carriers including Sun Life, Tokio Marine HCC, Symetra, and Voya have invested in Texas market development, and their underwriting appetite for the state reflects claims experience built from that volume. The feedback between volume and carrier appetite runs in both directions: high volume creates the claims data that makes carriers comfortable underwriting aggressively, and aggressive underwriting produces competitive pricing that drives more volume.

Ohio, Indiana, and Tennessee represent the Midwest pattern: favorable regulation, adequate metro-area network density, established broker communities, and ACA marketplace competition that is present but not dominant enough to make ICHRA the obvious alternative for healthy small employer groups. These states have some of the deepest level funded penetration outside Texas, particularly among manufacturing, professional services, and healthcare-adjacent employers in their major metro areas.

Florida’s pattern is distinct. The state has favorable regulatory treatment and major metro markets with strong infrastructure, but the ACA marketplace in Florida is among the most active in the country by enrollment volume: 4.2 million Floridians were enrolled in 2025 marketplace plans. In markets where ICHRA can draw on a competitive individual market, level funded competes directly against it for employer attention. Florida TPAs and brokers operate in a market where ICHRA is a live competitive alternative in a way that Indiana TPAs largely do not.

The Northeast corridor outside New York illustrates the regulatory prohibition scenario. Pennsylvania, New Jersey, and Connecticut have varying regulatory environments, with New Jersey and Connecticut closer to the restrictive end of the spectrum. Stop loss availability is constrained in those states, and fully insured carrier competition from regional Blues plans remains strong. Level funded penetration is lower, and where it exists it tends to concentrate in specific industry verticals with national TPA relationships.

The Feedback Loops That Drive Concentration

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The self-reinforcing character of level funded adoption reflects three feedback loops operating simultaneously.

The broker expertise loop runs from placement experience to competency to market share. Brokers develop level funded knowledge through repeated placements. Each successful placement builds familiarity with stop loss mechanics, TPA selection, plan design, and the compliance obligations that differentiate self-funded from fully insured. Brokers with that competency are more likely to recommend level funded, more likely to recommend it accurately, and more likely to retain the clients who adopt it. Brokers without that competency default to fully insured, where the product design and compliance complexity is managed by the carrier. Markets dominated by brokers who lack level funded experience produce low adoption not because employers would not benefit from the product but because the brokers who advise them do not recommend it.

The stop loss carrier appetite loop runs from volume to claims data to underwriting confidence to competitive pricing to volume. Stop loss carriers assess geographic risk by segment, and their underwriting appetite reflects actual claims experience in each market. In Texas, a carrier with years of stop loss premium and claims data from the Houston metro area can price that geography with confidence and offer competitive specific and aggregate attachment points. In a market where the carrier has placed little stop loss volume, the same carrier applies geographic loading or declines to underwrite at the attachment points that make the product economical for small groups. That pricing differential makes level funded harder to sell in thin markets, which keeps volume low, which perpetuates the carrier’s underwriting caution.

The TPA presence loop runs from deal flow to operational investment to service quality to retention. TPAs invest in market-specific capabilities, including network relationships, stop loss carrier partnerships, compliance infrastructure, and employer education, where the deal flow justifies the investment. In mature Texas markets, multiple competing TPAs have made those investments, producing a competitive environment that drives service quality and innovation. In markets with thin deal flow, the TPA serving those employers may be doing so as a secondary territory, without the local network relationships and carrier partnerships that produce competitive service. The employer in a thin market may be getting the same TPA name as an employer in Texas but a materially different level of operational support.

The Cold-Start Problem

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Markets without established broker expertise, stop loss carrier appetite, and TPA infrastructure face a chicken-and-egg problem that regulatory favorability alone cannot resolve. Without brokers who understand the product, employers do not encounter it. Without employer demand, stop loss carriers do not build appetite. Without carrier appetite, pricing is uncompetitive. Without competitive pricing, brokers cannot construct a compelling employer proposal. Without compelling proposals, the volume never builds to attract TPA investment.

The cold-start problem explains geographic gaps that pure regulatory analysis would not predict. Several states with favorable regulatory treatment of self-funded plans have lower level funded penetration than their regulatory environment would suggest, specifically because the infrastructure loop has not started. Montana, Wyoming, the Dakotas, and much of rural New England have regulatory environments that permit level funded. They do not have broker communities trained in the product, stop loss carrier appetite for the specific geographic risk, or TPA infrastructure capable of administering plans for employers in dispersed rural locations. The regulatory green light is present. The product is not.

Solving the cold-start problem in a new geography requires deliberate sequencing. A carrier entering a new state must first establish stop loss underwriting capability that produces competitive pricing, because without competitive pricing brokers cannot make the economic case to employers. A TPA entering a new geography must first invest in broker education and relationship building, because without brokers who understand and trust the product, employer referrals do not materialize. Neither entry strategy works without the other: competitive stop loss pricing with no broker education produces no volume, and broker education with uncompetitive stop loss pricing produces employer inquiries that convert at poor rates. The coordinated entry, requiring a TPA to simultaneously establish carrier partnerships and broker relationships before either pays off, is the reason new market development is slower and more expensive than continued penetration of existing markets.

What Geographic Expansion Requires

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The geographic concentration of level funded growth reflects a rational response by TPAs, carriers, and brokers to where the economics of market development work. Mature markets produce better unit economics on every dollar of market development investment. New markets require upfront investment that pays back slowly. Most participants concentrate in mature markets by default.

Three categories of investment can change that calculus. First, a TPA or carrier that creates educational infrastructure, including broker training programs, employer-facing materials calibrated to specific industry verticals, and compliance guidance that addresses new market regulatory requirements, reduces the cold-start barrier. The investment serves the infrastructure loop before it closes. Second, a stop loss carrier that is willing to write a new geography at competitive terms for an initial cohort of groups, accepting the underwriting uncertainty that thin claims data creates, establishes the pricing that makes broker recommendations economically viable. Third, a TPA with operational infrastructure that extends into thin markets, including verified county-level network adequacy, multi-state compliance capability, and employer service models adapted to smaller groups with less administrative sophistication, delivers the service quality that produces retention. Without retention, the cold-start investment pays back only partially.

For TPAs with national market development ambitions, the geographic analysis that series LFP-07 provides is not a retrospective description of where the market has been. It is the framework for identifying which markets have the regulatory, network, carrier, and broker conditions necessary to support market entry at viable unit economics, and which require the sequenced infrastructure investment that precedes viable unit economics. The two categories require different strategies and different timelines. Conflating them produces resource allocation that is mismatched to the actual conditions in each geography.

The geographic concentration of level funded growth is not a fixed feature of the market. It reflects where the infrastructure has been built, which reflects where participants chose to invest. Markets that are currently in the cold-start phase can be moved to the early adoption phase with the right sequencing of carrier, TPA, and broker investment. The KFF 2024 Employer Health Benefits Survey documented that level funded penetration in the 10-to-49 employee segment reached 44% of covered workers in 2025. That penetration is not uniform across states or metro areas. States where the feedback loops have run long enough to compound produce penetration well above that aggregate. States where the cold-start problem has not been solved produce penetration well below it. The gap between the two is not explained by employer demand or regulatory environment. It is explained by infrastructure investment decisions made years earlier by the carriers, TPAs, and brokers who chose to build or not build in each market.

The series that follows (LFP-14.01, LFP-14.03) examines the broker distribution mechanics in detail. The product architecture series (LFP-15.11) addresses go-to-market sequencing for TPAs building geographic expansion strategies.