Executive Summary: Why Geography Determines Whether Level Funded Works: The Variables That Matter
LFP-07.01 — The Geography of Level Funded#
A level funded plan that works in Dallas does not work in rural Montana. The plan document may be identical. The stop loss terms may be identical. The employer profile may be identical. The coverage outcome is not.
Five geographic variables interact to produce the conditions under which level funded works or fails for any given employer. State regulatory treatment is the threshold variable: where a state treats level funded as self-funded under ERISA preemption, the employer has full plan design flexibility, no premium tax on the claims fund, and no state-mandated benefit requirements beyond federal law. Where a state reclassifies the arrangement as fully insured or prohibits stop loss insurance for small groups — as New York Insurance Law Sections 3231 and 4317 do explicitly — the product cannot exist. The regulatory question must be resolved before any other variable is analyzed.
Network availability determines whether nominal coverage becomes actual access. Most level funded TPAs lease network access from national aggregators including MultiPlan, PHCS, and First Health, which built their provider relationships in high-volume metropolitan markets. In Dallas, they deliver dense specialist coverage across dozens of categories. In Cascade County, Montana, the same aggregator relationship delivers a directory with thin participation and specialists accessible only through long travel. Provider market concentration determines what the claims fund buys: a 2023 study using FAIR Health National Private Insurance Claims data found commercial in-network allowed amounts averaged 246% of Medicare rates nationally, with substantial variation tied to market structure. RAND research documented hospital prices ranging from 150% to 400% of Medicare depending on provider market concentration. The dollar difference per covered life can determine whether a plan year ends in surplus or deficit. ACA marketplace quality determines whether ICHRA is a genuine alternative: in markets with five or more competing carriers, ICHRA may provide comparable coverage; in markets with one or two, it buys materially less. Local infrastructure — broker expertise, stop loss carrier appetite, and TPA presence — determines whether the product can reach the employer at all.
The five variables interact rather than accumulate. Favorable regulation with thin networks produces a plan that is legal and inaccessible. Deep infrastructure with aggressive stop loss regulation produces a market where the product cannot exist despite adequate conditions elsewhere. Markets where all five align, Indiana, Ohio, and Tennessee being consistent examples, produce the strongest comparative case for level funded over both fully insured and ICHRA.
Geography must function as a primary input in TPA market development, broker recommendations, and employer decision-making — not as context appended after the product strategy is set. A broker who recommends level funded uniformly across geographies is substituting product loyalty for geographic analysis.