The plan type three federal agencies named in a proposed rule and then declined to define
Roughly four in ten small firms offering health benefits report having something called a level-funded plan. The phrase appears nowhere in federal statute or regulation. In 2023 three agencies put it in a proposed rule, asked the public to explain it, and dropped the subject from the final rule.
Published November 9, 2026
9 min read
Information provided is for general reference only and does not constitute medical advice. Consult a qualified healthcare professional before making medical decisions.
Level-funded plans were reported by 42 percent of small firms offering health benefits in 2021 and 38 percent in 2022, on survey figures the government quotes. The term appears nowhere in federal statute or regulation. Three agencies described the arrangement in a 2023 proposed rule, asked the public to explain it, and left it out of the 2024 final rule.
Sylk Health. Current as of October 2026.
A companion piece set out what governs a self-funded plan that wants to cover a hospital in another country, and found that the instruments are the ordinary ones. That reasoning has a boundary, and this piece is about where it sits. A great many employers are not running the kind of plan that piece described, and some of them do not know which kind they are running.
Who counts as a small employer?
An employer of 1 to 50 employees, in most states. The statutory definition (opens in new tab) "means, in connection with a group health plan with respect to a calendar year and a plan year, an employer who employed an average of at least 1 but not more than 50 employees on business days during the preceding calendar year and who employs at least 1 employees on the first day of the plan year." The grammatical slip in the last clause is in the statute, and we reproduce it as printed.
A large employer begins at 51. States may move the line, because nothing "shall prevent a State from applying this subsection by treating as a small employer" an employer of up to 100 employees. The threshold is therefore 50 in most places and 100 in some, and the answer depends on the state.
What actually attaches to the small group market?
Less than is commonly assumed, and one of the two things usually cited does not belong on the list. Two requirements genuinely distinguish small group coverage from large group coverage. The first is the premium rating rule (opens in new tab), which applies to coverage offered in the individual or small group market and permits variation only on stated factors. The second is the benefits floor (opens in new tab): an issuer "offering health insurance coverage in the individual or small group market must ensure that such coverage includes the essential health benefits package as defined in section 1302(a) of the Affordable Care Act".
Guaranteed issue and guaranteed renewal are the ones usually added to that list, and they do not divide small from large. The guaranteed availability rule (opens in new tab) requires an issuer "in the individual, small group, or large group market" to offer all approved products and accept any applicant, and a parallel provision requires renewal at the option of the plan sponsor across the same three markets.
The table below sets out where each requirement applies.
Requirement
Small group coverage
Large group coverage
A plan that buys no coverage from an issuer
Premium rating restriction, section 147.102
Applies
Does not apply
Outside it
Essential health benefits, section 147.150
Applies
Does not apply
Outside it
Guaranteed availability, section 147.104
Applies
Applies
Outside it
Guaranteed renewability, section 147.106
Applies
Applies
Outside it
The last column is the line that matters more than the headcount. All four rules bind a health insurance issuer selling coverage, so a plan that funds its own benefits sits outside them at any size, and that is what decides whether the companion piece's reasoning transfers.
Is level-funding defined anywhere in federal law?
No. We searched for the term and found nothing. Four spellings of it return zero results from the regulations' own full-text search, and a separate search of the United States Code returns nothing either. The general definitions section that defines group health plan, health insurance coverage, health insurance issuer and large employer does not carry it. Nor does the insurance commissioners' own published glossary (opens in new tab), which does carry entries for stop-loss cover.
The agencies are aware of it. A 2023 proposed rule (opens in new tab) from the Treasury, Labor and Health and Human Services departments records that "the Departments understand that an increasing number of group health plan sponsors, particularly small employers, are utilizing a funding mechanism or plan arrangement known as level-funding." The same preamble then sets out, among other concerns, three consequences. These are preamble commentary in a proposed rule rather than an adopted rule, which is how they should be read:
State regulation: "Because level-funded arrangements purport to be, and are often regulated as, self-funded plans, they are typically not regulated by States."
Benefits: "In the case of a level-funded plan, if the entire arrangement is treated as self-insured, the essential health benefit requirements would not apply."
Renewal and pooling: the arrangements "are not generally treated as being subject to the guaranteed renewability and single risk pool requirements that apply to fully-insured small group market coverage."
The proposed rule then asked the public to describe the arrangement, across two pages of questions, rather than proposing text defining it.
What did the final rule do?
It closed the subject without opening it. The final rule of April 2024 (opens in new tab) says that these arrangements "are not addressed in these final rules, the Departments appreciate the comments received on these topics and will take them into consideration as they determine whether additional guidance or rulemaking is warranted in the future."
The position today is that three agencies named the arrangement in a proposed rule, set out why it matters, collected comments on it, and left it undefined. Our finding is about federal statute and regulation, which is where we looked. We are not saying no state has addressed it, and we did not establish what the insurance commissioners have or have not decided to do.
How many employers does this reach?
A large share of small employers, on a wider definition of small. The agencies cite a research foundation's annual employer survey for the scale. The proposed rule records that "42 percent of small employers (defined as having 3-199 workers) reported offering a level-funded plan in 2021, compared to just 13 percent in 2020." It adds that "This figure remained at approximately the same level in 2022, with 38 percent of small employers reporting that they offered a level-funded plan." The foundation's own 2021 (opens in new tab) and 2022 (opens in new tab) survey sections are the underlying source.
Those are the foundation's numbers, quoted by the government, and the employer definition in them runs to 199 workers, much wider than the statutory one.
Frequently asked questions
Does a level-funded plan have to cover essential health benefits?
Federal law does not say, because it does not define the arrangement. The 2023 proposed rule's preamble states that "if the entire arrangement is treated as self-insured, the essential health benefit requirements would not apply." That is commentary in a proposed rule, and the 2024 final rule expressly left level-funded arrangements unaddressed. An employer's answer turns on how its own arrangement is treated, which is a question for counsel.
Is a level-funded plan the same as a minimum premium plan?
Not on any published authority we found. The insurance commissioners' glossary has an entry for a minimum premium plan, an older arrangement in which an insurer administers claims and insures large claims for a self-insured group. The glossary has no entry for level-funding, and neither it nor the 2023 preamble equates the two. The 2023 preamble uses only the terms "level-funding" and "level-funded".
How many small employers offer a level-funded plan?
On the survey the government quotes, 38 percent of small firms offering health benefits reported one in 2022, after 42 percent in 2021 and 13 percent in 2020. The survey defines a small employer as one with 3 to 199 workers, which is much wider than the federal definition of 1 to 50. The figures describe offering a plan, not how many employees enrolled.
Where level-funded plans leave the companion piece
This is the practical point about level-funded plans, and it is short. A self-funded plan can amend its own written instrument, because the instrument is its own. A fully insured small group plan cannot, because the coverage is a product an issuer sells and the small group rules attach to it. An employer in the middle category may be able to and may not, and the document that answers the question is a contract rather than a statute, which is the same conclusion our post on stop-loss reached from the other direction.
We supply a price from outside the United States, as our page for employers explains. Whether a given employer is in a position to do anything with one is a question about its own arrangement, and this piece describes what the rules say rather than advising anyone on which arrangement to hold.
This article is general information about federal statutes, regulations and rulemaking. It is not legal, tax, insurance or financial advice; an employer unsure which kind of plan it runs should establish that with counsel or its benefits adviser.
Disclosure: Sylk Health supplies procedure-price data and earns a commission from providers on bookings completed through its platform. It would benefit from broader use of externally benchmarked prices for medical procedures, and from any gap between those prices and prices in the United States.
42 U.S.C. 300gg-91 (opens in new tab), subsection (e): definitions of small employer, small group market and large employer, and the state option to treat employers of up to 100 as small.
Departments of the Treasury, Labor, and Health and Human Services, proposed rule, 88 FR 44596 (opens in new tab), at 44632 and 44633, published 12 July 2023. All level-funded material quoted here is preamble commentary in that proposed rule.
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